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report of the AUDITOR GENERAL for the year ended March 31st. 1980 British Columbia. Legislative Assembly [1983]

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 report of the
AUDITOR GENERAL
for the year ended March 31st. 1980
(Si
Province of British Columbia
Office of the Auditor General
 British Columbia Cataloguing in Publication Data
British Columbia.     Office of the Auditor General.
Report  of the Auditor General.   —   1980
Annual.
Report year ends Mar. 31.
ISSN 0708-5222 = Report of the Auditor General
(Victoria)
1. Finance, Public
Periodicals.
British Columbia —Accounting
HJ9921.Z9BT3
354'.711'007232
 Province of
British Columbia
Office of the
Auditor General
Province of British Columbia
8 Bastion Square
Victoria
British Columbia
V8V1X4
The Honourable Hugh A. Curtis
Minister of Finance
Province of British Columbia
I have the honour to transmit herewith my Report
to the Legislative Assembly for the fiscal year
ended 31 March 1980 for submission to the Assembly
in accordance with the provisions of Section 10(1)
of the Auditor General Act, R.S.B.C. 1979,
chapter 24.
'-^XS&r*7
-e 93?+**'S^
Erma Morrison, C.A.
Auditor General
Victoria, British Columbia
30 March 1981
  Table of Contents
Highlights    1
PART 1:
1. Legislation   7
2. Accounting Policies and Practices   9
3. Report and Comments on the Financial Statements    10
4. Comments on Internal Control  17
5. Public Bodies   22
6. General Matters    24
7. Status of Findings and Recommendations Contained in Previous
Reports of the Auditor General     28
PART 2:
8. Comprehensive Audit    39
PART 3:
t
I  9. Financial Management and Control Audits     99
Appendices  137
 1
 HIGHLIGHTS
Highlights
Those who have read my two previous Annual Reports to the Legislative Assembly
wil I recognize the change in focus in the one I now present for the 1980 fiscal year.
My first Report, for 1978, dealt mainly with the responsibilities of my Office and its
immediate statutory audit obligations. The main thrust in that year was to establish my
organization and to plan and conduct the first external audit of the Government's
accounts. In that Report I identified four major areas of concern. These were the urgent
needs for:
• replacement of obsolete financial legislation;
• establishment of appropriate and consistent accounting policies;
• improved disclosure of the obligations of the Government for guaranteed debt;
and
• improvement and strengthening of financial internal control systems throughout
Government.
In my second Report I continued to express my deep concerns in these four major
areas and to report on the results of the audit work of my staff. In addition that Report
provided background information on the concept of comprehensive auditing and the
direction I proposed to take in exploring its potential use and value in my work.
Following the course proposed last year, this 1980 Report presents the results of the
first comprehensive audit conducted by my Office. The Ministry of Human Resources
was selected for this initial project with one of its largest and most significant programs,
the Income Assistance Program, being chosen for concentrated attention. We received
the full cooperation of Ministry personnel. The reportand recommendations, together
with the comments of Ministry officials, are published as Part 2 of this Report. The
results of this project and the response it received from the Ministry reinforce my early
views of the potential value of this audit approach.
In 1980 my Office further extended its audit applications by conducting financial
management and control audits in four Ministries, one of which formed part of the
comprehensive audit project referred to in the previous paragraph. Summary reports,
togetherwith recommendations and comments from theMinistries concerned, form
Part 3 of this Report.
In Section 7, the status of comments and recommendations contained in my Reports
for 1978 and 1979 is tabulated and referenced for easy access by the reader. Comments
on progress in the major areas of concern are also dealt with in the main body of this
Report and are summarized hereunder:
• it is expected that a new Financial Administration Acfwill be introduced to the
Legislature in 1981;
• the Government has conducted a thorough review of its accounting pol icies and
 REPORT OF THE AUDITOR GENERAL
practices, and anticipates that changes arising from this review will be reflected in
the financial statements for the 1981 fiscal year;
• the Government has provided for its ongoing commitment to the interest costs and
retirement of the British Columbia Railway Company's debt by authorizing
funding in the 1981 fiscal year to be applied to the debt servicing charges of the
Company; and
• some progress has been made to improve major accounting systems and upgrade
internal controls, but further efforts in this regard are required.
While it is gratifying to note that positive initiatives have been undertaken in many
areas, I continue to urge that action be taken with the least possible delay. Where
corrective action has not yet been undertaken I repeat my observations of prior years.
The comments and recommendations contained in th is Report have been reviewed
and discussed with the various officials responsible. The cooperation of officials within
the Government and the various public bodies audited is recognized with appreciation,
as is the strong support, enthusiasm and hard work of the members of my staff.
ERMA MORRISON, C.A.
Auditor General
Victoria, British Columbia
28 February 1981
 PART1
  Table of Contents
PART 1:
1. Legislation      7
2. Accounting Policies and Practices     9
3. Report and Comments on the Financial Statements    10
Report on the Financial Statements     10
Comments on the Financial Statements   12
4. Comments on Internal Control   17
General Comments  17
Specific Control Deficiencies     18
5. Public Bodies    22
! 6. General Matters    24
Organization and Activities of the Audit Office   24
Public Accounts Committee     26
Canadian Conference of Legislative Auditors    26
Canadian Comprehensive Auditing Foundation   27
Advisory Council  27
|7. Status of Findings and Recommendations Contained in Previous
Reports of the Auditor General     28
  SECTION 1, LEGISLATION        7
Legislation
1.1 My comments in this Section are based on the prospect of action by the
Government to revise its financial legislation. The existing financial legislation in
British Columbia has been one of my most serious concerns since I became this
Province's Auditor General.
1.2 My Reports for the fiscal years 1978 and 1979 contained recommendations for
action to revise the greatly outdated financial legislation of this Province. I
recommended that legislative action be taken with the least possible delay to
recognize the present needs of the Government's financial administration, with
adequate provision for flexibility and change.
1.3 Early introduction of legislation appropriate to current and future needs in this
area of government administration would provide an authoritative foundation
for the requisite financial and control structures.
1.4 I commend the action initiated during the past year to meet these needs. In
August 1980, the Ministry of Finance released a Discussion Paper on a new
Financial Administration Act. A Task Force was established to receive and
consider public submissions and to recommend appropriate action.
1.5 The Discussion Paper and accompanying draft legislation dealt with two principal issues:
• the financial administration of the Government itself; and
• the financial control of broadly defined "public bodies".
Because of the urgency I attach to the revision of existingfinancial administration
legislation my comments are primarily directed towards the first principal issue.
This emphasis also is consistent with the discharge of my responsibilities under
the Auditor General Act and with the recommendations made in my previous
Reports.
1.6 As Auditor General I bel ieve that the publ ic is entitled to the fu 11 disclosure of the
financial position of its government, embracing both its directly controlled
operations and those delegated to Crown Corporations, agencies and other
public bodies. The mechanics of providing such disclosure, however, are far
from simple. Despite an increasing awareness of the need for public accountability in all senior political jurisdictions of our country and the attempts being
made to meet this need, much work remains to be done.
11.7
To facilitate early implementation of improved government administrative financial procedures, I suggest that priority be given to the first issue in the draft
legislation. Not only would this accelerate the development of an authoritative
 REPORT OF THE AUDITOR GENERAL
foundation for the Government's financial and control structures but also it
would provide time for further consideration of the issue of financial control of
public bodies.
 SECTION 2, ACCOUNTING POLICIES AND PRACTICES
Accounting Policies and Practices
2.1 In my 1978 and 1979 Reports I referred to deficiencies in the application of
stated accounting policies of the Government and suggested the need for an
extensive re-evaluation of financial statement presentation and the associated
accounting policies.
2.2 This should lead to the formulation of a full and clear body of stated accounting
policies, to be approved by the Treasury Board and applied consistently in the
Government's accounting process and methods of financial statement presentation. I continue to regard those steps as minimum requirements to bring the
financial accounts and statements of the Government to an appropriate level of
disclosure.
2.3 During the 1980 fiscal year the Ministry of Finance undertook a thorough
examination of the Government's financial reporting practices and made comprehensive recommendations which, if implemented, would result in improved
accounting practices and financial statement presentation.
2.4 The notes to the 1980 financial statements make reference to these recommended changes in reporting principles and practices and to their anticipated
application in the financial statements of the 1981 fiscal year.
2.5 In 1980 the Canadian Institute of Chartered Accountants published a research
study, "Financial Reporting by Governments" and, as recommended therein, is
now studying the establishment of a committee to provide guidance for accounting and auditing in the public sector.
2.6 I look forward to the development of this project to produce a consistent and
uniform method of financial reporting for adoption by all senior Canadian
governments.
 10        REPORT OF THE AUDITOR GENERAL
Report and Comments on the Financial
Statements
3.1 This Part of my 1980 Report is concerned with two aspects of the Auditor
General's responsibi I ities regarding the financial statements of the Government,
namely the Report on the Financial Statements and comments arising from my
examination of the financial statements.
Report on the Financial Statements
3.2 Section 7 of the Auditor General Act requires the Auditor General to express an
opinion as to whether the financial statements are presented fairly in accordance
with the stated accounting policies of the Government. The report of the Auditor
General on the financial statements required by that section of the Act is
included with and forms part of the Public Accounts, and is reproduced hereunder. This report is dated 28 November 1980, the day on which my Office
completed the field work on which I based my opinion.
Report of the Auditor General on the Financial Statements
Included in the Public Accounts of the Province of British
Columbia for the Year Ended 31 March 1980
To the Legislative Assembly of the Province of British Columbia
Parliament Buildings
Victoria, British Columbia
I have examined the financial statements of the Government of the Province of British
Columbia for the fiscal year ended March 31,1980 as presented in the Public Accounts,
and the related schedules contained in Sections B and C of the Public Accounts. These
statements are:
Statement of assets and liabilities.
Statement of revenues and expenditures.
Summary of General Fund revenues.
Summary of General Fund expenditures.
Statement of net receipts and payments (combined funds).
Notes to financial statements.
These statements and schedules in my opinion constitute the statements of financial
position, the results of operations and changes in financial position referred to in section
7 of the Auditor General Act, R.S.B.C. 1979, Chapter 24.
 I did not examine and do not express an opinion on the following statements
contained in Section A of the Public Accounts:
Statement of consolidated revenue by major sources for the fiscal years ended
March 31, 1975 through 1980.
Statement of consolidated expenditure by major functions for the fiscal years
ended March 31, 1975 through 1980.
Statement of consolidated expenditure by objects of expenditure classification
(grouped) for the fiscal year ended March 31, 1980.
These statements contain mainly supplementary information and do not constitute an
integral part of the financial statements on which I am required to report.
My examination was made in accordance with generally accepted auditing
standards, and accordingly included such tests and other procedures as I considered
necessary in the circumstances. I have received all the information and explanations I
have required for the purpose of my examination.
I have relied upon information furnished by the Consulting Actuary for the Public
Service Superannuation Plan and the Teachers' Pensions Plan as to the accuracy of Note
7 to the financial statements as presented in the Public Accounts.
I report in accordance with section 7 of the Auditor General Act. In my opinion, these
financial statements present fairly the financial position of the Government of the
Province of British Columbia as at March 31,1980 and the results of its operations and
changes in its financial position for the year then ended in accordance with the stated
accounting policies as setoutin Notes 1 and 2 to the financial statements applied on a
basis consistent with that of the preceding year.
I emphasize that this report is limited under section 7 of the Act to an opinion on
presentation of the financial statements in accordance with the stated accounting
policies of the Government. Under section 8 of the Act I report separately on other
matters resulting from my examination that I consider should be brought to the attention
i of the Legislative Assembly. That report will be presented at a future date.
ERMA MORRISON, C.A.
Auditor General
Victoria, British Columbia
28 November 7 980
 12        REPORT OF THE AUDITOR GENERAL
Comments on the Financial Statements
3.3 The second aspect of the Auditor General's responsibilities with respect to the
financial statements is included in section 8 of the Act. This section requires
reporting annually to the Legislative Assembly on the work of the Auditor
General's office and on matters arising therefrom which should be brought to the
Assembly's attention. These matters may include instances where the accounting for public funds has not been complete or accurate, internal control systems
have been insufficient, or public money has been expended for purposes other
than those intended by the Legislature. The report may also assess whether the
financial statements are prepared in accordance with the most appropriate basis
of accounting. Such matters which are relative to the financial statements are
commented on in this Section, while other matters arising from the work of my
Office are detailed in other Sections of this Report.
3.4 My staff have brought to my attention numerous individual items to be considered for inclusion in this Report. In reviewing these audit findings I determined
that many were of a nature and significance which could be best dealt with at an
operational level, and they have been referred to management for appropriate
action. Others were additional examples of matters commented on in my
previous Reports and did not warrant further individual comment at this time. Of
the remainder, some have been reported individually while others have been
grouped and reported under the most appropriate general heading in this Section.
MARKETABLE INVESTMENTS
3.5 Marketable securities are held as investments in the General Fund (PA B2 and
B5), Special Purpose Funds (PA B9), Superannuation Funds (PA B12/13), and
Trust Funds (PA B15). The carrying value of these investments in the financial
statements, as stated in note 2 in the Notes to Financial Statements, is the lower
of cost or par.
3.6 Good financial statement presentation requires that the quoted value of marketable investments be disclosed and I recommend that such disclosure be made in
the future whenever these values can be ascertained.
VERIFICATION OF ASSETS
3.7 During our audit of the financial statements of the Province we were unable to i
satisfy ourselves as to the accuracy of the following balances:
• General Fund: Taxes and Other Accounts Receivable- Land sales
(principal) $1,301,642.
• Special Purpose Funds: Other Assets - Crown Land Fund - Real Estate j
$3,996,796.
 3.8 With respect to the first balance, we examined the systems designed to account
for land sales and leases under the Land Act, and noted the following accounting
deficiencies and control weaknesses:
LAND LEASES
• inclusion of 1981 fiscal year billings in the account balances at 31 March
1980;
• improper cutoff of receipts at year end;
• netting of debit and credit balances;
• delays in processing increases in rental rates; and
• delays in billings, or no billings at all for a number of years.
LAND SALES
• no control accounts for land sales receivable; and
• incorrect calculations of interest revenue.
3.9 As a result of the foregoing and the lack of documented year-end procedures, my
audit staff were unable to verify the accuracy of the reported asset balance titled
"Land sales (principal)" in the amount of $ 1,301,642 at 31 March 1980 (PA B3).
3.10 With respect to the second account, my 1979 Report stated that the Crown Land
Fund's reported cost for Federal/Provincial projects did not agree with Canada
Mortgage and Housing Corporation's records. At 31 March 1980, $3,996,796
remained in Federal/Provincial project accounts. This amount is not supported
by adequate subsidiary records, and the asset value appears to be overstated, as
some costs of land sold in previous years had not been removed from the
records.
3.11 To ensure that these assets are correctly stated, the real estate records should be
reconciled and corrected as soon as possible.
3.12 The Ministry of Lands, Parks and Housing is aware of the problems identified and
is taking steps to improve its practices in these areas. Action should be taken as
soon as possible to correct these deficiencies and to ensure that these assets and
revenues are properly controlled and recorded in future.
INCOME TAX COLLECTION AGREEMENT
3.13 The Memorandum of Agreement between the Government of Canada and the
Province of British Columbia made under the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977 (Canada) provides that the
Government of Canada will collect provincial income taxes on behalf of the
Province.
 3.14 The Agreement also provides that the Auditor General of British Columbia may,
subject to certain limitations, examine such books and records as may be
relevant in order to permit her to report in respect of the payments made to the
Province under the Agreement. These limitations are such as to prevent the
Auditor General from examining the income tax data filed with the returns and,
therefore, from verifying the calculations of income taxes payable to the
Province.
3.15 The Legislative Auditors of Canada, at their annual meeting in September 1978,
discussed these limitations placed upon the scope of their audits and the function
of the Government of Canada in the collection of provincial income taxes.
3.16 A task force was formed by the Legislative Auditors in early 1979 consisting of
representatives from the offices of the Auditor General of Canada, the Provincial
Auditor of Ontario and the Auditor General of Alberta. The purpose of the task
force was to review the audit work of the Office of the Auditor General of Canada
on income taxation to ensure that it satisfies the audit requirements of the
provincial auditors.
3.17 Notwithstanding the limitations referred to above, and after discussions with
members of the task force and officials of the federal Office of the Auditor
General, I have no reason to believe that the relevant revenue from income taxes
was incorrectly determined or improperly allocated to the Province of British
Columbia.
UNEXPENDED BALANCES OF APPROPRIATIONS
3.18 The Legislative Assembly provides funds for government programs and operations under the Supply Act. Control of these public funds is exercised by the
Assembly by providing in the Supply Act that ". . . any part of the money
appropriated . . . that may be unexpended at the end of the fiscal year. . . shall
not be expended after that date." During our audit we noted two instances where
these provisions were not met.
3.19 The first instance concerned the Long Term Disability Plan which was established in 1979 under the Public Service Benefit Plan Act to provide long term ,
disability benefits for public service employees. The legislation does not provide
for a special purpose fund with respect to this plan.
3.20 In the fiscal years 1979 and 1980 transfers of $4,008,433 and $7,439,953
respectively were made from the Employee Benefits votes of the Ministry of the
Provincial Secretary into an account titled "Long term disability fund - Public
Service". Disability benefit payments of $1,113,164 were charged to this
account, leaving an unexpended balance of $10,335,222 at 31 March 1980
shown in Trust Funds-Balances (PA B15).
 3.21 In the absence of legislative authority to hold these funds for future use, it would
appear that the provisions of the Supply Act regarding unexpended balances of
these monies at each year-end were not followed and accordingly these funds
should not have been treated as part of the annual expenditures. The effect is an
overstatement of Trust Assets amounting to $10,335,222 and a corresponding
understatement of Revenue Surplus at 31 March 1980. In my view either the
accounts should be corrected to conform with the provisions of the Supply Act,
or alternative legislative authority should be provided to formally recognize the
existence of these unexpended fund balances.
3.22 The second instance is concerned with grants made under the Housing Construction (Elderly Citizens) Act which provides for grant aid to nonprofit groups to
assist in the construction of low rental housing units. During the 1980 fiscal year
Order in Council approval was obtained for grants to various societies.
3.23 On 24 March 1980, the Ministry of Lands, Parks and Housing requested transfer
of approximately $2.8 million (72% of the vote) to various lawyers to hold intrust
and at interest on behalf of the Province, pending authorization by Regional
Directors of the Ministry for release of the funds to the societies. These payments
were charged to expenditures in the 1980 fiscal year. The required authorizations had not been issued by the end of the 1980 fiscal year, as construction had
not commenced on any of the projects. At 1 December 1980 only $166,469 of
the $2.8 million had actually been disbursed to the societies.
3.24 In my opinion the payments in trust of $2.8 million, designated for subsequent
disbursement, did not constitute a valid expenditure of the 1980 fiscal year and
accordingly this portion of the vote should have lapsed. Furthermore, these
monies placed in trust on behalf of the Province should have been shown as
assets in its accounts at 31 March 1980 with a consequent decrease in General
Fund expenditure and increase in Revenue Surplus. / therefore recommend that
all monies remaining in these trust accounts be returned to the Consolidated
Revenue Fund and any expenditures already made from them charged to the
corresponding vote of the 1981 fiscal year. Any future claims in regard to such
projects should be paid and charged to the appropriate vote only when the
expenditures have actually been made and all prescribed procedures adhered
to.
WRITE-OFF OF NONRECOVERABLE EXPENDITURES
I 3.25 The Crown Land Fund was established in 1979 by the Ministry of Lands, Parks
and Housing Act. The unexpended balance of $229 million in the Housing Fund
established under the Ministry of Municipal Affairs and Housing Act was transferred to the Crown Land Fund at that time.
I 3.26 During the fiscal year ended 31 March 1980, $3.8 million, relating to the former
Housing Fund assets transferred to the Crown Land Fund, was written off against
 16        REPORT OF THE AUDITOR GENERAL
1
the surplus of the latter Fund. Although Order in Council approval was obtained
to write off a $1.5 million advance to a municipality, as recommended in
paragraph 7.54 of my 1979 Report, no such approval was obtained for the
remaining $2.3 million. This latter amount consists of development expenditures incurred on projects which were abandoned, feasibility study expenses,
and expenditures which subsequently proved to be only partially recoverable.
Such types of expenditures are frequently incurred in the normal course of events
by organizations engaged in land development activities.
3.27 While Order in Council approval is required under the Revenue Act to write-off
debts in excess of $200 due and payable to the Crown, this write-off of $2.3
million relating to expenditures subsequently found to be not recoverable does
not appear to be specifically encompassed by its provisions or those of the Lands,
Parks and Housing Act. In my opinion, however, it would be both prudent and
desirable in such circumstances to obtain Order in Council approval to write off
such amounts.
 SECTION 4, COMMENTS ON INTERNAL CONTROL        17
Comments on Internal Control
General Comments
INTRODUCTION
4.1 Internal control systems comprise all the methods and procedures used to
safeguard assets, control expenditures, ensure the efficient collection and control of revenue, and produce accurate and reliable accounting information.
4.2 The Government employs a centralized accounting system operated by the
Office of the Comptroller General. Expenditure and revenue transactions originating in the ministries are processed in this central system.
4.3 Although the main accounting processes of the Government are centralized, the
systems of internal control employed by the various ministries vary considerably
both as to the form of the methods and procedures used and the quality of their
application. These control systems do not meet the generally recognized standards that are required for good financial management.
4.4 In my 1979 Report I expressed my concern that basic expenditure controls had
not been universally adopted throughout the Government. I also recommended
that standards be set for an acceptable level of performance in the collection,
custody and recording of Provincial revenue.
CONTROLS OVER REVENUES AND EXPENDITURES
I   4.5  In my 1979 Report I referred to control deficiencies in the following revenue
activities:
• billing, collecting and recording revenue;
• adjusting revenue accounts;
• receiving and recording cash; and
• reporting the results of revenue activities for financial management and
control purposes.
4.6 In 1980 we again reviewed and evaluated controls and concluded that, with the
exception of adjusting revenue accounts, the previously noted deficiencies had
not been corrected to any appreciable extent.
4.7 As in 1978 and 1979 we reviewed and evaluated internal controls over general
disbursements and payrolls as part of our 1980 audit of the accounts of the
Province and found that expenditure controls had not improved significantly
since the previous audit.
 REPORT OF THE AUDITOR GENERAL
1
4.8 My concerns regarding expenditure controls, as indicated in my 1979 Report,
include:
• financial management and control policies, directives, guidelines and
procedures are not clearly defined nor effectively communicated;
• delegation of authority for disbursements is not clearly defined,
documented and controlled;
• duties of individuals are not always segregated adequately for control
purposes;
• batch processing and other key controls are seldom used; and
• financial reports from the central accounting system are not used as effectively as they might be for internal control purposes.
4.9 We are advised that the Office of the Comptroller General has undertaken steps
to:
• prepare a comprehensive Financial Administration Manual that will con-j
tain expenditure policies, directives, guidelines and procedures with re-j
spect to both revenues and expenditures;
• develop a policy and issue guidelines on financial signing authorities; and
• process vouchers in batches for control purposes.
We are also aware of the continuing expenditures system design project, and the ;
new payroll system which is expected to be implemented throughout the Gov- j
ernment in the 1982 fiscal year.
CONCLUSION
4.10 I am pleased to note that efforts continue to be made to bring revenue and]
expenditure controls to an acceptable level, and I strongly urge completion of
the current projects as soon as possible. The following examples of continuinjS
problems emphasize the urgency of completing this work.
Specific Control Deficiencies
UNRECORDED CASH AND BANK ACCOUNTS
4.11 The Revenue Act requires that all public money from whatever source be paid to J
the credit of the Minister of Finance through banks designated by the Minister. I
While reviewing the activities of various ministries we identified bank accounts, I
containing public monies, which had not been authorized by the Minister of j
Finance. In addition we found instances where cash receipts were retained in j
local offices rather than being deposited. Senior financial officers of the minis-J
tries were also unaware of the existence of these accounts and funds.
4.12 Monies held in these unauthorized bank accounts, as well.as revenues and!
expenditures processed through them, are not included in the financial state-1
ments of the Government. Similarly, unrecorded cash transactions result in
incomplete financial records.
 4.13 Inappropriate practices followed in the administration of these accounts and
funds include:
• deposit of receipts to the credit of an individual "in trust";
• deposit of monies to accounts for extended periods with no transfer to the
Minister of Finance;
• inadequate control of revenue collections;
• direct and unauthorized purchase of materials and supplies from monies
deposited; and
• use of cash receipts not deposited to make purchases.
4.14 / recommend that all ministries take steps to ensure that everyone receiving
monies on behalf of the Province is made aware of the requirements that all such
monies are to be deposited intact to the credit of the Minister of Finance in an
account authorized by the Minister of Finance as required by statute.
MINISTRY OF FINANCE - SECURITIES SECTION ACCOUNTING
4.15 The Securities Section of the Ministry of Finance is directly responsible for the
largest financial operation of the Government, involving $6 billion in assets
under its control and custody in 1980 and a volume of several times this amount
handled in the course of the year in the rollover of cash and investments. Its
activities as custodian of securities, investment manager, trustee and agent for
the Province and for various pension, trust and sinking funds require the highest
quality of accounting and reporting practices, both to protect such assets and to
properly record the transactions.
4.16 Despite improvements noted following the hiring of qualified accounting staff,
many systems deficiencies previously reported upon continued during the 1980
fiscal year. As in the two preceding years the extent of audit work required
exceeded that which would be considered normal and reasonable.
4.17 Although I am aware of the current systems development project to improve the
securities system and coordinate it with the central accounting system, further
systems improvements are required. The successful completion of this project is
most important, and I again recommend that it be completed as soon as possible
to achieve acceptable standards of accounting and reporting.
ministry of energy,mines and petroleum resources- revenue
[controls
4.18 The Petroleum Titles Division administers the disposition of petroleum rights
which are sold through a tendering process. Revenues from this source
amounted to approximately $206 million for the 1980 fiscal year.
4.19 At the time of our audit there were no formally documented and. approved
procedures for handling bids. The methods used did not, in our view, meet the
 20        REPORT OF THE AUDITOR GENERAL
standards of control we would normal ly expect. The process of deal ing with bids
was unsatisfactory, in that there was no record of the time of receipt of bids and
bids submitted were not numerically controlled. Further, the responsibility of
whether to accept or reject bids was placed on one individual who was called
upon to exercise considerable discretion in the decision process, particularly
where bids varied significantly from the value estimated by the Ministry.
4.20 Subsequent to our audit the Ministry improved its procedures by recording the
time of receipt and establishing numerical control over submitted bids. However, I am of the opinion that further improvements are necessary. The Ministry
should formalize and document procedures for receiving, reviewing and accepting bids. In particular these procedures should require that additional senior staff;
participate in the process and share responsibility for the acceptance or rejection
of bids and provide for documented evidence of this participation.
MINISTRY OF HEALTH - PATIENTS MAINTENANCE ACCOUNTS RECEIVABLE
4.21 Patients at Provincial government hospitals are billed a nominal per diem charge
for their care, treatment and maintenance. Rates are established by the Ministry
of Health, and are the same as those charged at general hospitals throughout the
province. In 1980 we audited the accounts of four Provincial government!
hospitals and are concerned with the status of patients' maintenance accounts j
receivable shown by the records at two of the hospitals.
4.22 The balance of maintenance accounts receivable at Riverview Hospital ex- j
ceeded $11 million at 31 March 1980, an increase of $1.5 million over that of
the preceding year. Only minimal efforts are made to collect these hospital
charges. After the original and two follow-up billings, hospital management
does not actively and regularly pursue collection of these accounts. Steps arej
seldom taken to gather satisfactory information to determine whether accounts j
are worthy of additional collection efforts or are considered to be bad debts.]
Ministry of Health officials have indicated that a large portion of the mainte-l
nance accounts receivable may be owed by indigent patients.
4.23 Assessment Committees are appointed at Provincial government hospitals byj
Order in Council, with authority to recommend adjustment of these mainte-1
nance charges where patients do not have the means to pay for their care. The]
Riverview Hospital Assessment Committee limits its review of applications fori
adjustment of maintenance charges to those which it receives within 30 days of a j
patient's discharge. This policy eliminates the majority of cases that wouldl
otherwise be reviewed. We feel that the rights of patients to seek special!
consideration when unable to pay the regular maintenance rate would be betterl
served were the Assessment Committee to review all applications for rate adjust-j
ment.
4.24 The Assessment Committee's decision to limit its review of applications and thel
II
 SECTION 4, COMMENTS ON INTERNAL CONTROL       21
failure to write off uncollectible accounts result in records which do not accurately reflect the amounts collectible. These weak collection practices lead to a
loss of government revenues.
4.25 Similar accounts receivable problems exist at Pearson Hospital, although the
total amount involved is much smaller.
4.26 Ideally such accounts receivable should be recorded in the financial statements
of the Province along with an appropriate allowance for loss. At the very least a
coordinated policy for the adjustment, collection and write-off of hospital
charges receivable is needed to ensure that hospitals' accounts receivable
records accurately reflect the amounts considered collectible and that all revenue due to the Crown is collected on a timely basis.
 22        REPORT OF THE AUDITOR GENERAL
Public Bodies
5.1 Although the audit of the accounts of the Province is my principal responsibility,
I am also eligible to be appointed the auditor of any Crown corporation, Crown
agency or other public body as defined in the Auditor General Act. At 31 March
1980, in my capacity as Auditor General, I was the appointed auditor of 27
public bodies which are listed in Appendix II to this Report. The financial
statements of 11 of these organizations appear in Section F of the Public
Accounts for the fiscal year ended 31 March 1980. Since that date 1 have also
been appointed auditor of British Columbia Place Ltd., Knowledge Network of i
the West Communications Authority, The Committee for Transpo 86, and
Transpo 86 Corporation.
5.2 Not all financial statements of public bodies audited by the Auditor General are
published in the Public Accounts. Because many of these bodies have significant
public impact or funding, all relevant financial information should be readily
available to the public. Accordingly, I recommend that henceforth all such!
financial statements be included in the Public Accounts together with my reports!
thereon.
5.3 My auditing of public bodies, as distinct from the accounts of the Province,!
constitutes a substantial undertaking. Approximately 40 per cent of the audit!
effort and cost of my Office is committed to this aspect of its work, whichl
involves organizations with total assets of $4.6 billion and annual expenditures!
of $1.6 billion.
5.4 Upon completion of each audit I issue a report which contains an expression of
my opinion on the financial statements. In most cases my opinion on these!
financial statements is issued without reservation. However, under certain cir-l
cumstances it may be necessary to issue a qualified opinion.
5.5 For the period covered by this Report, my audit opinions on the financial!
statements of two public bodies were qualified. My report on the financial!
statements of the Workers' Compensation Board of British Columbia, which is
included on page F-242 of the 1980 Public Accounts contained a qualification!
which is worded as follows:
"In my opinion, subject to recovery of the class balances of
$260,010,000, these financial statements present fairly the financial
position of the Board as at 31 December 1979 . . ."
My report on the financial statements of Pacific Vocational Institute for the yearl
ended 31 March 1980, which are not published in the Public Accounts, cotm
tained a qualification in respect of the collectibility of approximately $97,000j
recorded as due to the Institute.
 SECTION 5, PUBLIC BODIES        23
5.6 Although the principal objective of the audits of public bodies is the expression
of an opinion on the financial statements, we plan and conduct our work to
provide the management of each entity with comments we consider to be useful
and constructive regarding matters which come to our attention in the course of
the audit. We communicate these observations and our related recommendations directly to the organizations concerned in the form of management letters.
5.7 Only occasionally are these matters of sufficient concern to warrant inclusion in
this Report. However, one such item was identified during the period covered by
this Report, and I set out the salient points hereunder.
5.8 The Education Institution Capital Finance Act states that the purpose of the
British Columbia Educational Institutions Capital Financing Authority is to assist
educational institutions to finance capital expenditures by ". . . purchasing
debentures issued by them with money raised by the issue and sale of debentures
of the authority."
5.9 At 31 March 1980 loans dating from June 1978 and totalling $59,831,000 had
been made to eight educational institutions by the Authority. Debentures have
been received from educational institutions only to the extent of $3,000,000. To
date the Authority has not obtained debentures for the remaining $56,831,000.
It does, however, hold Letters of Undertaking from the borrowers to issue
debentures in the amounts, rates and maturities stipulated by the Authority.
5.10 I have brought this matter to the attention of the Authority on several occasions
and again strongly urge that the required debentures be obtained without further
delay in order to comply with the requirements of the Act.
5.11 The accounts of some public bodies are reported on by other auditors. Such
public bodies whose financial statements are included in the Public Accounts
are listed in Appendix III to this Report.
 T
24        REPORT OF THE AUDITOR GENERAL
General Matters
Organization and Activities of the Audit Office
INTRODUCTION
6.1 The responsibilities assigned to the Auditor General by the Legislative Assembly
in regard to the audit of the accounts of the Government are extensive. They :
require the examination and evaluation of accounting records and transactions,
control systems and procedures, legislative compliance, and other matters
throughout all ministries and central agencies of the Government. The Auditor
General has similar responsibilities with respect to the audits of 31 public
bodies.
STAFF RESOURCES AND DEVELOPMENT
6.2 In order to carry out these responsibilities, the Office of the Auditor General was
established in Victoria and has grown, over the period of Vh years, to a staff of
70 including 35 professionally qualified accountants and 28 employees who are i
enrolled in courses of study leading to recognized accounting designations.
The professional staff have brought to the Office a broad range of experience in
auditing, accounting and related disciplines. Through participation in conferences, training seminars, lectures and discussion periods they further develop
their skills to meet new challenges in the legislative auditing field.
ORGANIZATION
6.3 The first major realignment of responsibilities within the Office took place during j
the period covered by this Report. Since the inception of the Office in 1977, the j
audit of the Provincial accounts had been performed by staff organized into two
audit divisions. A third division was responsible for all public body audits j
assigned to the Office. This form of organization was especially appropriate
when the Office was in its formative stage, in order to best utilize the training and I
experience of the new staff.
6.4 By the fall of 1979 the staff resources of the Office had reached a strength and
capability which permitted a realignment of responsibilities to achieve a better I
correlation of the work of the audit staff, recognizing the interrelationships!
between public bodies and the ministries responsible for their activities. Accordingly, responsibility for the audit work in individual Ministries and the audits of J
the public bodies related to them was divided among each of three audit!
divisions. These divisions are under the direction of the following senior mem-1
bers of my staff: Frank Barr, C.A., Gordon W. Dawson, C.A., and Raymond L. I
 Hunter, C.A. Jean-Pierre Boisclair, C.A., C.M.C. also served as an audit director, responsible for the introduction of comprehensive auditing methodology to
the Office. These audit directors, together with the Deputy Auditor General,
Robert J. Hayward, C.A. and myself, constitute the Executive Committee of the
Office.
NEW DEVELOPMENTS
6.5 Significant changes are occurring, both in Canada and internationally, in the
role of the legislative auditor and in the means by which he carries out his
mandate. I am closely following these developments in my effort to ensure that
the activities of the Office are conducted in the manner which best serves the
Legislative Assembly and others who rely on our work.
6.6 We are continually reviewing our overall audit approach, and employing new
techniques and procedures where appropriate. Innovations are being implemented in such areas as statistical methods, internal control system studies
and evaluations, and computer data retrieval and analysis. Methods are also
being developed to broaden the scope of examinations of complex computer-
based systems. These improved, more efficient auditing procedures should
enable the Office to further emphasize the constructive aspects of modern
auditing.
6.7 Development efforts are continuing in the field of comprehensive auditing. My
1979 Report described the approach my Office had begun to take in conducting
audits which embody all key provisions of my mandate and indicated my
intention to undertake comprehensive audit pilot projects. The results of this
work are detailed in Part 2 of this Report. I consider the comprehensive auditing
approach to have considerable potential to help my Office achieve its objectives
and meet its responsibilities.
[OTHER ACTIVITIES
■: 6.8 Another responsibility of my Office, although not specifically spelled .wt in
legislation, is the involvement of my staff in many related activities within the
Government, the accounting profession, and the private sector in general. This
involvement is important in that it maintains an awareness of current issues and
concerns in these areas, enables the Office to tailor its role to more fully meet
changing needs, and contributes to the maintenance of professional standards.
Our participation takes many forms, including services as lecturers and panelists
in numerous professional, university and Government training programs, contributions to various technical research projects, and other activities relating to
professional bodies and similar organizations.
 Public Accounts Committee
6.9 The Public Accounts Committee of the Legislative Assembly can play an important role in the process of accountability for public funds by focussing attention
on areas of concern to the Legislative Assembly and to the public.
6.10 The annual report of the Auditor General is, by statute, referred to the Committee
for its consideration. I view this as a vital part of the audit process wherein
matters which are of particular importance can be discussed in an open forum.
6.11 My Annual Report for the fiscal year ended 31 March 1979 was tabled in the
Legislative Assembly on 18 March 1980. It was referred to the Public Accounts
Committee and formed the basis for a considerable portion of the Committee's
deliberations during the Legislative session. The Committee held 17 meetings, at
nine of which it dealt with matters contained in my Report. I attended 15
meetings including all those concerned with my Report.
6.12 A meeting of representatives of public accounts committees was held in Winnipeg in August, 1980. Delegates from all the provinces and the federal government attended, including two members of the British Columbia Committee.
During a joint meeting of these representatives and the members of the Canadian
Conference of Legislative Auditors there was a free exchange of views on the
roles and relationships of public accounts committees and legislative auditors. I
consider meetings such as this to be a valuable means of increasing the understanding of roles each has to play.
6.13 The Public Accounts Committee reports periodically to the Legislative Assembly
on the work of the Committee. One such report was issued during the 1980 \
session. While it referred to the Committee's study of the Auditor General's]
Report, it did not contain any detailed comments or recommendations with
respect to the Report.
Canadian Conference of Legislative Auditors
6.14 Representatives of all legislative audit offices, both provincial and federal,
attended the eighth annual meeting of the Canadian Conference of Legislative j
Auditors held in Winnipeg in August of 1980. The Conference comprises the j
legislative auditors of all the provinces and Canada and serves as a useful forum
for the sharing of ideas and information. I attended the meeting with two senior
members of my staff.
6.15 In recognition of the contribution he has made to the progress of legislative
auditing, the Conference unanimously conferred a life membership on James J. j
Macdonell, F.C.A., former Auditor General of Canada. I am pleased that Mr!
Macdonell will continue his interest and involvement in the challenges faced by!
J.
 the legislative auditing community by serving as the first Chairman of the Board
of Governors of the Canadian Comprehensive Auditing Foundation.
Canadian Comprehensive Auditing Foundation
6.16 A significant development affecting legislative auditing occurred in early 1980
with the founding of the Canadian Comprehensive Auditing Foundation. Much
of the initial impetus towards establishment of this organization came from
Canada's legislative auditors who saw it as a method of joining forces with other
interested parties to develop ways and means of sharing knowledge and experience in the new field of comprehensive auditing. As a nonprofit cooperative
research and training oriented organization, it has drawn its membership from a
broad cross-section of both the public and private sectors.
6.17 I have been closely associated with the Foundation since its inception, and
currently serve on the Board of Governors. Although the Foundation is still in its
formative period, my Office has already found its facilities and programs to be of
substantial benefit in the training of staff and the development of new auditing
techniques.
Advisory Council
6.18 In addressing the work of my Office, I am fortunate to have had the advice of the
following senior members of the accounting profession who have served on the
Auditor General's Advisory Council for the report years noted:
Ross M. Skinner, F.C.A. 1978
Michael J. Ashby, F.C.A. 1978, 1979, 1980
Arthur Beedle, F.C.A. 1978,1979, 1980
Harold G. Craven, F.C.A. 1978, 1979, 1980
Dennis F. Culver, F.C.A. 1978, 1979, 1980
Kenneth M. Dye, F.C.A. 1979
Ronald W. Park, F.C.A. 1980
I note with particular pleasure that Mr. Dye has been selected for appointment as
the Auditor General of Canada, and offer him my sincere congratulations and
good wishes.
 28
REPORT OF THE AUDITOR GENERAL
Status of Findings and Recommendations
Contained in Previous Annual Reports of the
Auditor General
Section,
Report   Paragraph
Subject
Status as at Date of
Preparation of the 1980
Annual Report
1979
1978
1979
1978
1979
2.3
5.2
3.3
6.14
5.6
1978     8B.9
GENERAL
Recommendation that the financial
statements be finalized by 30 September of each year and transmitted to the
Auditor General forthwith.
LEGISLATION
Recommendation that existing obsolete financial statutes be replaced by
improved legislation to meet current
and anticipated requirements.
Some improvement noted.
Financial statements for the]
1980 fiscal year received on
17 November 1980.
A proposed new Financial!
Administration Act was
drafted and circulated. A Task
Force was established to review submissions and make
recommendations with a
view to introducing legislation in 1981. (see also 1980
Report, Section 1)
COMMENTS ON THE FINANCIAL STATEMENTS
Deficiencies and ambiguities in content and application of stated policies
warrant a thorough study of the Government's accounting policies and
financial statement presentation. Afull
and clear body of stated accounting
policies should be formulated,
approved by Treasury Board, and applied consistently in the government
accounting process and in its financial
statement presentation.
NSF cheques included in accounts receivable and considered uncollectible
should be written off.
The 1980 Notes to Financial]
Statements refer to a compre-
hensive examination of]
accounting policies and prac- j
tices of the Government. The j
notes further state that it is ]
anticipated that the financial
statements for the 1981 fiscal
year will reflect the recommended changes in reporting |
principles and practices.
Satisfactorily resolved in]
1980.
1978     8B.17     Treatment of holdbacks is not consis-      No change.
J
 ■
SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS       29
Report
Section
Paragra
ph                    Subject
Status as at Date of
Preparation of the 1980
Annual Report
tent with stated policy on expenditures.
1978
8B.17
Deferral of revenue from sale or lease
of Crown lands not consistent with
stated policy on revenue.
No change.
1978
1979
8B.18
5.22
Suspense accounts not reconciled or
cleared.
Regular reconciliations and
clearings are now made for
those accounts for which the
Comptroller General has
direct responsibility. No significant improvement in those
accounts for which the ministries have primary responsibility for maintenance.
;   1978
8B.20
Securities held as guarantee and performance deposits should be under supervision and record keeping of Securities Section.
Generally being done for
negotiable securities. However, most ministries receiving
deposits still do not maintain
adequate control records.
1978
1979
1979
8C.9       Excessive delay in billing timber royal-
7.27     ties and stumpage fees.
Gross amounts of royalties and stumpage fees should be stated separately
from the offsetting credits for road-
building, reforestation, etc.
1978 8C.14 Steps should be taken to either enforce
the repayment terms of the loan agreement for the $2.5 million advance or
obtain authorization for deferral.
Considerable improvement
has been noted. Unbilled
royalties and fees had been reduced from $118 million at
31 March 1979 to $23 million
at 31 March 1980.
No change in accounting pre-
sentation. However, the
amount of allowances made
for roadbuilding, reforestation, etc. was disclosed in a
footnote to the schedule of
General Fund revenue (PA
C2).
No change.
 30        REPORT OF THE AUDITOR GENERAL
Section,
Report   Paragraph
I
Subject
Status as at Date of
Preparation of the 1980
Annual Report
1978     8C.1f
1978     8C.20
1978
8C.22
1979
5.18
1978
8C.25
1979
5.21
Recovery of $5.5 million loan is questionable and appropriate provision
should be made.
A review should be made of sundry
loans and advances for deletion from
the accounts or offset by allowance for
loss.
Recommendation that the investment
of $185,572,900 in the British
Columbia Railway Company be written down to $1.
Consideration should be given to recognizing potential losses arising from
investments in, advances to and loan
guarantees with respect to three companies included in "Investments,
Other."
1978 8C.29 Stated accounting policy regarding
fixed assets should be clarified.
1978 8D.18    Recommendation that a provision be
made for doubtful mortgages in the
accounts of the Provincial Home Acquisition Fund.
1979 5.11      Old accounts receivable totalling
$51,000 should be written off.
1979 5.14 Recommendation that the University
Endowment Lands balance in Special
Purpose Funds be used to repay advance account in the General Fund as
required by the Act.
1979 5.15 Recoverable advance of $50,000 not
recorded in the financial statements.
Provision made in 1980 for
full amount.
Appropriate writeroffs made.
Carrying value of the investment was reduced to $1 in the
accounts of the 1980 fiscal
year.
Provision was made in 1980
for the full amount of the investment in and advances to
two companies. Due to
changed conditions, no provision for potential loss on investment of $100,000 and
loan guarantees of $1.4 million in third company was
considered necessary at this
time.
No change.
$1.7 million written off as uncollectible loans in 1980.
Written off.
No change, accounting treat-*
ment is being reviewed by
ministry responsible.
Advance recorded in 1980.
 SECTION 7, STATUS OF FINDINGS ANC
RECOMMENDATIONS       31
Status as at Date of
Section
,
Preparation of the 1980
Report
Paragra
ph                   Subject
Annual Report
1979
5.19
Advance of $2,850,538 to T.S. Hold
Provision made for full
ings Ltd. should be written down to
amount in 1980.
reflect anticipated loss to the Province.
1979
5.20
Provision should be made for the
Provision made for full
potential loss of the investment in and
amount in 1980.
advances to Ocean Falls Corporation.
GUARANTEED DEBT
1978
9.6
Recommendation that the Province
Notes to the 1980 financial
1979
5.25
recognize the net debt of the British
statements refer to the stated
Columbia Railway Company as direct
intention of the Government
debt of the Province and record it as
to provide for the debt service
such unless other financial arrange
charges of the Railway on an
ments made to service this debt.
ongoing basis.
1978
9.8
Inconsistent treatment of accrued interest in calculating net guaranteed
debt.
No change.
1979
5.26
The early redemption feature of the
Disclosure made in the notes
guaranteed debt owing to the Canada
to the financial statements for
Pension Plan Investment Fund should
1980.
be disclosed in the financial state
ments.
1979
5.27
Comment that the Schedule of
Guaranteed Debt would provide better disclosure by showing:
•   comparative figures of the prior
Shown in 1980.
year;
•   maturity dates, interest rates and
A footnote to the Schedule
redemption features;
(PA B17) refers the reader to
the financial statements of the
Crown agencies in Section F
of the Public Accounts, but
this falls short of disclosure in
the accounts of the Province.
•   investments held as assets of the
Shown as deduction in 1980.
General and Special Purpose
Funds and guaranteed by the
Province as deduction from
 32
REPORT OF THE AUDITOR GENERAL
)
Status as at Date of
Section
Preparation of the 1980
Report
Paragra
Dh                   Subject
Annual Report
total outstanding guaranteed
debt; and
•   the fair market value of invest
No change.
ments held by the sinking funds.
INTERNAL CONTROL SYSTEMS
1978
7.4
System of internal control over the dis
No significant changes as yet.  1
1979
6.19
bursement of Provincial funds fails to
meet generally recognized standards.
Modifications to disburse- 1
ment system are planned, (see 1
also 1980 Report, Section 4)   I
1978
7.20
Deficiencies in payroll system.
Satisfactory procedures now 1
1979
6.19
followed in Central  Pay  1
Office. Little change to date in 1
ministries. A completely re- ■
vised payroll system has been
developed for implementa- 1
tion during the 1982 fiscal
year, (see also 1980 Report, 1
Section 4)
1979
6.6
Deficiencies in the collection and re
New revenue policies and 1
and
cording of revenue are serious enough
procedures have been drafted I
6.22
to warrant immediate study and corrective action.
by the Comptroller General to 1
form part of a comprehensive 1
Financial Administration
Manual, (see also 1980 Re- 1
port, Section 4)
Ministries
MINISTRYOF AGRICULTURE
1979
7.5
Field audit capacity should be established to continually monitor payments under the Agricultural Credit
and   Farm   Income  Assurance
Programs.
An initial step has been taken ■
with the hiring of an internal ■
auditor in September 1980.
MINISTRYOFTHE ATTORNEY GENERAL
1978
8F.4
Recommendation that steps be taken
Non-cash assets are now re-B
1979
7.13
to reconcile the accounts of the Public
Trustee and Comptroller General for
conciled monthly.
 SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS        33
Report
Section
Paragra
ph                   Subject
Status as at Date of
Preparation of the 1980
Annual Report
non-cash assets held in trust.
1978
1979
8F.5
7.14
Investigative teams, rather than individual investigators, should be used by
the Public Trustee to inventory and receipt trust assets.
No change.
1979
7.15
Procedures should be established to
ensure the accuracy of the Publ ic Trustee's records of securities included in
trust assets.
Procedures now established.
1979
7.16
Uniform guidelines and improved procedures for fee collection by the Public
Trustee should be developed.
No change. Revised procedures planned for implementation in 1982 upon completion of current project to improve accounting and management information systems.
1979
7.10
The Ministry should formally document and follow procedures for making purchase commitments, and
approving and checking payments.
No significant change, and
my concern still exists.
MINISTRY OF CONSUMER AND CORPORATE AFFAIRS
1979
7.19
Concern that the division of responsibilities for internal audit coverage of
the Liquor Distribution Branch between the Comptroller General's and
the Branch's internal audit groups,
may not be appropriate to meet the
needs of the Branch.
MINISTRY OF ENVIRONMENT
My concern continues. To 31
January 1981 there had been
no information provided to
management of the Liquor
Distribution Branch on the
work performed  by the
Comptroller General's internal audit staff.
1979
5.12
Accounts receivable for water licence
fees were not recorded in the financial
statements.
These accounts receivable are
recorded as assets at 31
March 1980.
1978
11.16
and
11.18     Section
MINISTRY OF FINANCE
Weaknesses in internal controls and
accounting records of the Securities
System changes are still being
implemented, (see also 1980
Report, Section 4)
 ^
34
REPORT OF THE AUDITOR GENERAL
Section,
Report  Paragraph
Subject
Status as at Date of
Preparation of the 1980
Annual Report
1979 7.24 Recommendation that major improvements in fund accounting and reporting practices of both the central
accounting and Securities Section systems be implemented without delay.
1979 7.22 Recommendations that guidelines and
procedures for all government banking
transactions be firmly established and
that controls be strengthened by Treasury Section in the exercise of its overal I
responsibility for Government bank
accounts.
MINISTRYOF HEALTH
1979       7.30    Expenditure control weaknesses noted
and      concerning inadequate segregation of
7.31     responsibilities, delegations of authority, control over documents in process, and verification of expenditures
charged to the Ministry.
1979       7.34    Revenue controls generally were into        adequate to ensure that all revenues
7.37    due were collected and properly recorded.
1979 7.38 The system for administering and controlling patients' trust accounts should
be upgraded, with particular attention
being given to adequate segregation of
responsibilities.
1979 7.39 Need for regular reconcilation of subsidiary records to the central control
accounts, and analysis and review for
correctness. Examples:
• employee advances
• hospital construction funds
Major systems changes in
progress.
Recommendations have been
followed. Procedures now
improved.
Improvements were noted in
purchasing and receiving procedures and in document
approvals. Some improvement was noted in the expenditure verification process. Payroll weaknesses still
exist.
No significant improvements
were noted.
Segregation of responsibilities
is less of a problem now, but
reconciliation of patients'
trust accounts remains below
acceptable standards.
Significant improvements
were noted.
Federal funding of $142,000
received in 1971 is still not
II
 SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS        35
Status as at Date of
Section
Preparation of the 1980
Report
Paragraph                   Subject
Annual Report
transferred to revenue.
1979
7.40
Recommendation with respect to the
No change.
and
conflict between legislation and
7.41
accounting practices concerning the
Hospital Insurance Fund.
1979
7.42
Recommendation with respect to the
No change.
to
financial reporting requirements of the
7.44
Emergency Health Services Commission.
1979
7.45
Actions to overcome shortcomings in
financial controls within the Emergency Health Services Commission:
•   more effort in the collection of
Some improvement noted in
accounts receivable should be
1980.
pursued.
•   internal controls over payroll
Controls have been improved
should be brought to an accept
and now meet acceptable
able level.
standards.
•   controls should be strengthened
Controls have improved,
over both advances and reim
although reconciliation pro
bursements to the operating
cedures are still not adequate.
units of the Commission.
MINISTRY OF HUMAN RESOURCES
1979
7.52
Guidelines and procedures should be
No change, (see also 1980
established to ensure that all ministries
making expenditures shareable under
the Canada Assistance Plan provide
the Ministry of Human Resources with
information necessary to make claims.
Report, Section 8)
MINISTRY OF LANDS, PARKS AND HOUSING
1978
8D.5
Deficiencies in accounting records of
Ministry continues to place
and
the Housing Fund (now Crown Land
emphasis in this area. Im
1979
8D.6
Fund), such as:
provements noted but some
7.54
weaknesses still exist.
and
•   Collectibility of advance of $1.5
Written off in the 1980 fiscal
7.55
million
year.
•   No subsidiary records main-
Subsidiary records on these
 36
REPORT OF THE AUDITOR GENERAL
Section,
Report   Paragraph
Subject
Status as at Date of
Preparation of the 1980
Annual Report
1979
7.57
1979
7.63
tained for Rural and Remote
Housing Program mortgages
totalling $1.7 million.
• No provision for loss on a $2.7
million mortgage to a corporation in receivership.
• Property with a book value of
$1.9 million was sold but still
recorded in the Real Estate
account.
• The Fund's recorded cost of
$15.4 million for federal/provincial partnership projects does
not agree with the Canada Mortgage and Housing Corporation
cost records.
The reporting requirements for housing cooperatives and nonprofit
societies should be enforced to
achieve efficient financial management of the housing grants program.
MINISTRY OF THE PROVINCIAL SECRETARY
projects are now maintained
by British Columbia Housing
Management Commission.
Situation changed.
No allowance required.
Corrected in the 1980 fiscal
year.
Residual $4.0 million cost not
supported by adequate subsidiary records, (see also 1980
Report, Section 3)
Reporting requirements still
not met. My concern continues.
1978     8B.12
and
8B.13
1978     8B.14
and
8B.15
1978 8D.13
1979 7.60
A statement of accounts of the Queen's
Printer has not been certified by the
Comptroller General as required by
the Public Printing Act.
Need for improvements in inventory
accounting systems of the Queen's
Printer.
Revenue from the Lotteries Branch
Licensing Section taken into revenue
of the General Fund, while its costs
were charged to the Lottery Fund. Related revenues and expenditures
should be reported through the same
fund.
Accounting records and procedures of
the Lotteries Branch considered to be
No change.
Status to be determined at the
time of our next audit.
Appropriate action taken.
New distribution procedures
have eliminated many of the
J
 SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS       37
Status as at Date of
Section, Preparation of the 1980
Report   Paragraph Subject Annual Report
inadequate for control purposes. problems noted. Improve
ments in the accounting records are still in progress.
1979 7.25 Investment of $350,000 in 1975 from This investment is now re-
First Citizens Fund shown as an ex- corded in the General Fund
penditure rather than as an asset. under Loans and Other Ad
vances, but it should have
been set up as an asset of the
Special Purpose Fund.
 }
 PART 2
COMPREHENSIVE AUDIT
  Table of Contents
PART 2:
8. Comprehensive Audit
Introduction    43
Comprehensive Audit Project    43
Comprehensive Audit Report: Ministry of Human Resources -
Income Assistance Program   44
Introduction    44
Overview of the Ministry   45
Scope and Extent of Audit   47
The Income Assistance Environment    50
Summary of Audit Observations   54
Reporting Performance and Accountability Information    60
Financial Management and Control   65
Controls in the Income Assistance System  69
Identified Overpayments and Errors - Control and Collection  77
Cost-sharing  79
Electronic Data Processing  82
Internal Audit  86
Observations Arising from Audit of the Public Accounts     89
Summary of Recommendations and Ministry's Comments   91
  SECTION 8, COMPREHENSIVE AUDIT       43
Comprehensive Audit
Introduction
8.1 Part 2 of the 1979 Report of the Auditor General to the Legislative Assembly
described in detail the approach that this Office had begun to adopt in conducting audits under sections 7 and 8 of the Auditor General Act.
8.2 The approach known as "Comprehensive Auditing" allows us to fulfill responsibilities related to several different areas by carrying out a single, integrated audit.
These areas of responsibility pertain to financial and accounting controls, economy and efficiency (and related management control systems), and the basis
that the Government uses to account for and disclose the results of its activities to
the Legislative Assembly. The comprehensive audit process also requires us to
carry out the more traditional work of the legislative auditor, and places special
emphasis on the audit of computer-based systems. Finally, comprehensive
audits examine financial, management and information systems with a view
toward providing assurance that no significant deficiencies exist in these systems
that could lead to uneconomical, inefficient or ineffective management of
financial, human or physical resources.
8.3 Comprehensive auditing embodies three important concepts as described below. First, it is a constructive process. Second, the audit is coordinated with
other audit work, and third, audits are carried out on a cyclical basis.
Constructive: In order that we may be constructive as well as informative,
we provide recommendations to help overcome observed deficiencies.
These recommendations are phrased in such a way as to allow management
to exercise discretion in deciding how best to remedy observed deficiencies.
Coordinated: To avoid unnecessary duplication of audit work and ensure
that our audit will be efficient, we evaluate the work done by internal
auditors and others to determine how their work might affect the nature and
extent of our audit.
Cyclical: One of the fundamental principles of comprehensive auditing is
that audits should be conducted over a period of time and reports issued at
intervals which suit particular programs and ministries. Thus it may be
appropriate to report periodically or cyclically on major elements of completed audit work within a particular Ministry or program. In other circumstances it may be more appropriate to report all findings under our comprehensive audit mandate at one time.
COMPREHENSIVE AUDIT PROJECT
8.4 In our 1979 Report, we indicated that we had begun a comprehensive audit
 project with the full cooperation and support of the Deputy Minister and Executive of the Ministry involved. The purpose of that project was to introduce the
comprehensive audit process to this Office and to help form the basis for further
comprehensive audit work. This year we completed an audit in the Ministry of
Human Resources. Our audit results are summarized, together with our recommendations and the Ministry's comments, in this Part of our Report. This project
used the cyclical approach to comprehensive auditing and focussed mainly on
the Ministry's Income Assistance Program.
8.5 We believe that this project has resulted in significant findings and recommendations for improvement within the Ministry. We also believe the project has!
demonstrated that comprehensive auditing can significantly enhance the work
of the Office of the Auditor General.
8.6 The cooperation, participation and interest of the Deputy Minister of Human
Resources and his Executive and staff at all levels in the Ministry have contri-1
buted greatly to our conducting and completing this audit.
8.7 In carrying out this audit, our Office supplemented its own resources by engaging the services of Jean-Pierre Boisclair, C.A., C.M.C. who has worked for a
number of years on executive interchange with the Office of the Auditor General
of Canada conducting studies of financial management and carrying out comprehensive audits. Since his secondment to our Office, he has been appointed
Executive Director of the Canadian Comprehensive Auditing Foundation. In
addition, the Office benefited from the support of a small advisory team com- j
posed of senior personnel associated with the Office of the Auditor General of
Canada who have been i n vol ved in the development of the comprehensive audit j
process.
Comprehensive Audit Report
Ministry of Human Resources - Income Assistance Program
INTRODUCTION
8.8 The audit of the Ministry of Human Resources represents this Office's first]
development project aimed at implementing comprehensive auditing in the]
Province of British Columbia.
8.9 Although portions of this comprehensive audit relate to the Ministry of Human ]
Resources in its entirety, our audit has focused primarily on the activities, ]
systems and procedures within the "Basic GAIN" Income Assistance Program. ]
This program provides Income Assistance to British Columbia residents between |
19 and 64 years of age who are in need and who are unable to provide for ]
themselves through employment or other resources.
 SECTION 8, COMPREHENSIVE AUDIT       45
8.10 The single comprehensive audit of the Ministry's Basic GAIN Income Assistance
Program included coverage under all the provisions of the Auditor General Act,
including those relating to economy and efficiency. Our audit work was coordinated with that of Internal Audit and with other audit work done in the
Ministry. This Section includes our recommendations for improving control
systems where significant deficiencies were apparent.
8.11 We described the comprehensive audit process more fully in Part 2 of the 1979
Report of the Auditor General to the Legislative Assembly. Paragraphs 8.1 to 8.7
above offer further comment on this type of audit.
8.12 This Section of our Annual Report summarizes and reports the results of our
comprehensive audit. We have also provided the Ministry with detailed, supporting documentation that will help management both to review and respond to
ourfindings, observations and recommendations, and to initiate remedial action
where appropriate.
8.13 From the audit's early planning stages through to its completion, we have had the
full interest and cooperation of the Deputy Minister, his executive group and
personnel at all levels in the Ministry. Our work was greatly enhanced at all
stages because these groups viewed the audit as a cooperative effort, both in
developing the comprehensive audit process and in sharing in its attendant
benefits.
8.14 The Ministry has also contributed to our audit by working closely with us to
launch a pilot study. This study, which is currently underway, will allow the
Ministry to measure the reliability of control systems now used in providing
Income Assistance.
8.15 Before we began our audit, the Executive and staff of the Ministry had already
identified many areas needing improvement. They also perceived that the audit
could be helpful in two ways. First, they saw the audit as an opportunity to
identify systematically, opportunities for improving the Income Assistance Program. Second, they viewed the audit as a positive exercise that would stimulate
and help focus management's thinking when planning for change within the
Ministry, especially in areas which it had previously identified as needing
improvement.
OVERVIEW OF THE MINISTRY
SIZE OF THE MINISTRY
8.16 The Ministry of Human Resources is one of the largest ministries in the Government of the Province of British Columbia.
•   It employs approximately 5500 people. Of these, 60 percent are located in
147 District and 20 Regional Offices; one-third are employed in institu-
 71
46        REPORT OF THE AUDITOR GENERAL
tions for the mentally retarded and the remaining staff are located at
Headquarters.
• It administers an annual budget of approximately $750 million (according
to the 1981 Estimates). Of this, one-half consists of "Income Assistance"
payments to individuals; one-quarter is disbursed as "grants" to non-profit
and other organizations that provide income or social assistance to residents of British Columbia; the remaining quarter is used to cover salaries,
professional services, administrative costs and in the operation of foster
and group homes.
• The Ministry also collects approximately $230 - $250 million annually
from the Government of Canada under terms of the Canada Assistance
Plan.
RECENT CHANGES
8.17 Although it has existed for many years, significant changes have recently occurred within the Ministry. These relate to its size, organization, range of programs
and the ways in which it administers its programs. As part of the integration and
consolidation of social services within the Province, the Vancouver Resources
Board was amalgamated with the Ministry of Human Resources in 1977. This
amalgamation resulted in a near doubling of the Ministry's staff. During the mid
1970's the Ministry also substantially changed the way in which the program and
administrative responsibilities were assigned to its senior executives.
LEGISLATION
8.18 Under the Ministry of Human Resources Act, the Ministry has jurisdiction over
". . . all matters relating to social and public welfare and social assistance." The
Guaranteed Available Income For Need Act (GAIN Act) and its regulations,
allow the Ministry to ". . . pay . . . money necessary for the administration of
income assistance and social services. . .". Benefits provided under this Act are
". . . necessary for the purposes of relieving poverty, neglect or suffering . . ."
and can be paid in cash or". . .in kind. . .".The Ministry also administers eight
other Acts, largely pertaining to family and children support services.
8.19 To enable it to administer these Acts, the Ministry has organized its operations
into six broad program groupings. These are: Income Assistance, Family and
Children's Services, Community Projects, Health Care Services, Pharmacare
and Residential Care for the Handicapped.
THE DECENTRALIZED DELIVERY SYSTEM
8.20 Because of the size and the nature of its programs and activities, the Ministry has
decided to operate a decentralized delivery system. The full range of income and
social assistance programs or activities is carried out through 147 District Offices
located throughout the Province. These offices are under the direction of District
 SECTION 8, COMPREHENSIVE AUDIT       47
Exhibit 1: Partial Organization Chart as at December 31, 1980
|    EXECUTIVE   I
I    DIRECTOR   J
~>   r~
~\   r
\      \
m
f        ^    /—
\ s
^
DIRECTOR
DIRECT
3R
'Health Care
'Lower Mainland
Support Services
Management
Information
Federal/
Provincial
Agreements
'Pharmacare
Children's
Services
Tranquille
Region 3, 4,
9
Evaluation
Unit
^ r N
Assistance
Financial and
Accounting
Audit Team
Research
Office Supply
and Services
- programs, or partial pro.
Supervisors, who report to 20 Regional Managers.
8.21 Each Regional Manager is accountable to an Executive Director for the delivery
of social and Income Assistance services within his or her region. Executive
Directors have responsibilities both for specific program management (e.g.,
Income Assistance, Family and Children's Services) and for Regional Operations
which either delivers or administer all or most programs at the local level. The
Executive Directors' program responsibilities are rotated every two years and
regional responsibilities in alternate years. A summary chart (Exhibit 1) depicts
the Ministry's organization.
8.22 General administrative and support services and guidance are provided to
Program Managers and Regional and District Offices by groups located at the
Ministry's Headquarters. These include Finance, Administration, Personnel,
Internal Audit and Computer Services.
SCOPE AND EXTENT OF AUDIT
^COPE
8.23 Control Systems. Our audit focused on the Income Assistance Program. We
examined the financial, management and operational controls that the Ministry
used to ensure the reliable and efficient delivery of Income Assistance. Our
review covered the major elements of the Income Assistance delivery system.
 48        REPORT OF THE AUDITOR GENERAL
These included:
• determining claimant eligibility;
• processing benefit claims;
• identifying and handling errors; and
• accounting and reporting.
8.24 For each element, the audit team considered the operating environment in
which it is carried out. We also took into account any other circumstances which j
would affect the degree of exposure to error, abuse or fraud inherent in the]
activity. In doing so, we stressed in our examination the extent to which certain
types of controls had been established within the Income Assistance Program. ]
These included:
• supervision;
• written guidance provided to staff at all levels;
• staff training;
• performance measurement;
• systems design;
• internal audit; and
• accounting and other internal controls.
8.25 Efficiency. Section 8 (2) of the Auditor General Act provides for the Auditor!
General to assess ". . . whether any program being administered by a ministry isj
being administered economically and efficiently . . .". Under this part of ourl
mandate we considered the potential in the Ministry for establishing perform-l
ance measurement systems. We also assessed the extent to which the Ministry!
had put such systems in place where it appeared reasonable to have done so, and J
the manner in which these systems were being operated and used.
8.26 Reporting. Our audit also examined the extent to which the Ministry has,!
through the Estimates, Annual Reports and Public Accounts, reported informa-l
tion which would indicate how the Income Assistance Program is being man-l
aged.
8.27 An important indicator of the general adequacy of the Ministry's control systems!
would be a reliable estimate of the difference between the amount of IncomS
Assistance actually paid out above or below the amount which under existing!
legislation and regulations should have been paid out. It is necessary to have!
enough information that can be used to measure this difference. Only witinRM
data can the Ministry gauge the extent to which it would be cost-effective to
design new controls and/or redesign existing ones to reduce any discrepance
Such information is also useful for helping management to allocate its stafH
resources more effectively. Accordingly, as part of our audit we examined the
amount of information available to the Ministry that would allow it to determine!
the difference between what it actually paid out in Income Assistance, and whaM
it should have paid out, according to the legislation and regulations. The audH
II
 SECTION 8, COMPREHENSIVE AUDIT       49
also extended to jointly launching a pilot project with the Ministry aimed at
providing a basis for carrying out such measurement in the future.
I 8.28 Electronic Data Processing. Over the last several years, the Ministry has been
designing sophisticated computer-based systems. It is now starting to implement
these systems as important tools for managing its day-to-day activities. The
growing use of complex electronic data processing systems has important control and cost implications for the Ministry. Accordingly, under the provisions of
the Auditor General Act dealing with economy, we examined a major,
computerized "on-line" Income Assistance system, from its early planning and
development phases through to its current status.
8.29 We noted that two recent audits of the controls in the Ministry's existing electronic data processing systems had been carried out by other government central
agencies. Accordingly, we considered the findings of those audits when determining the nature and extent of our own review of controls within current
computer-based systems.
I 8.30 Internal Audit. Our review of the Internal Audit Group was carried out first, to
determine the extent to which its work might affect the scope and timing of our
own audit work, and second, to assess the extent to which the work of Internal
Audit, as it is currently organized and carried out, is an effective part of the
managerial control system.
8.31 Financial Management and Control. In the financial management and control
portion of the audit, we reviewed the strengths and weaknesses of the Ministry's
key financial management and control functions. These play a critical role in
ensuring appropriate and reasonable control both over non-statutory and program support expenditures and over assets and liabilities. In this part of the audit
we also examined the financial management and control function, as established by management and executed by the Ministry's Comptroller. We wanted
to determine the extent to which this function-was providing proper support to
Income Assistance program managers and operating personnel at all levels.
[AUDIT APPROACH
8.32 Our audit identified areas with high inherent risk of error, abuse or fraud. In
carrying out our audit, we examined the financial management and operational
controls within the Income Assistance system and assessed whether they
appeared to be complete and appropriate for coping with the nature and degree
of risk in the Program. We conducted interviews with ministry staff at all levels
and reviewed documentation available in the Mini.stry, both to determine what
types of controls had been implemented and to assess the extent to which they
were operating consistently and reliably. We did not, however, conduct tests
designed to uncover specific instances in which error, abuse or fraud may have
occurred.
 T
50        REPORT OF THE AUDITOR GENERAL
8.33 We documented and analyzed the Ministry's control systems and procedures.!
Then we compared them with criteria or control standards that we felt were '
appropriate, given the nature of the Income Assistance Program. The compar'B
son allowed us to reach conclusions that would enable us to express an opinion
as to whether the Ministry's control systems were providing the necessary levels
and types of control.
8.34 Our field work included over 230 interviews with personnel from Headquarters!
and from 3 Regional and 10 District Offices. The Regional and District Offices!
that we visited were chosen to provide a sample of operating locations which ourl
Office and the Ministry considered to be generally representative of its opera-l
tions.
8.35 Our audit and the conclusions arising from it were limited to those areas which!
lie for the most part within the authority and responsibility of the Ministry. In this
Section, therefore, we have not dealt with deficiencies which may be linked to!
government-wide personnel, budgeting, financial and reporting systems and!
administration. Where we have identified such matters, we have documented
them in our files for possible further study and analysis on a government-wide!
basis.
THE INCOME ASSISTANCE ENVIRONMENT
INTRODUCTION
8.36 To place our findings and conclusions in their proper perspective and to help!
gauge their significance, it is important for the reader to consider the environ!
ment in which the Ministry operates. Having a knowledge of the environment is!
helpful both in understanding what types of controls may be needed to ensure
efficient and effective program delivery, and in assessing the risk of exposure ta
error, abuse and/or internal and external fraud that may be present in a givenl
operation. The importance of deficiencies in certain types of controls must alsol
be examined in the light of the inherent risk associated with the nature of the!
Income Assistance Program.
8.37 We recognize that management, while designing and implementing controB
systems, must balance the effectiveness of certain types of controls and the™
costs against their impact on operational objectives, such as prompt delivery of
services and other matters which management considers to be important,   i
Accordingly, this Section does not attempt to analyze the cost-effectiveness of
the Ministry's existing control systems but it does reflect on mechanisms used by
the Ministry to make this determination itself.
 SECTION 8, COMPREHENSIVE AUDIT
51
EVIDENCE OF ELIGIBILITY
8.38 As is the case for other welfare assistance programs in Canada and elsewhere,
the Ministry's program places the onus upon claimants to comply with applicable laws, regulations and procedures. The system requires that claimants prove
their identity to the Ministry, provide proof of eligibility, and declare in writing
that the information which they have given is complete and accurate. Claimants
are also required to update information monthly in order that they may continue
to receive benefits. They must also respond truthfully to any relevant questions
that Ministry personnel may ask them.
8.39 Even though the burden of proof of eligibility is placed on the claimant, it is the
duty of the Ministry to take reasonable steps to ensure that the representations
and any documentation that he or she may provide constitute acceptable and
reliable evidence of eligibility. The Ministry needs this evidence in order to
determine with reasonable accuracy the level of benefits to be paid to the
claimant.
8.40 To assess a claimant's basic eligibility and the amount of benefit to be paid, the
Ministry uses three major types of criteria (pursuant to the GAIN Act regulations):
• level of income;
• assets; and
• certain factors regarding the claimant's personal circumstances.
I 8.41 The criteria noted above are basic to any income assistance program. However,
these criteria, although unavoidable, do pose serious difficulties in administering the Income Assistance Program. Difficulties arise in ensuring, in a cost-
effective manner that only those who are el igible for Income Assistance receive it
and that they receive it in the right amount. In some areas, it is difficult (if not
impossible) to reliably show that the criteria have been met, even though the
onus is on claimants to "prove" that their representations are accurate and
complete.
8.42 A claimant's representations regarding income level provide a good example. It
may be possible to verify that the income declared is in fact accurate, either by
askingfor independent evidence of the amount of salary received, or by verifying
with employers all the amounts paid to a claimant. Nevertheless, it is still
possible that the claimant has not declared all sources of income. To obtain
evidence or assurance that this is not the case would require the Ministry to adopt
procedures that would not only be costly but which in some instances might be
impossible to apply. Obtaining adequate, reliable evidence with which to verify
all of the statements made in an application would require exhaustive investigation on almost every new or renewed claim. It might also create both an
enforcement-cost problem, client antagonism and continual questioning of
uninvolved third parties, such as employers. It could also lead to unreasonably
long delays in providng funds to claimants.
 8.43 Because of these factors, the Program involves a significant possibility that the]
Ministry could pay certain claims in error, or that it could authorize claims which
are not adequately supported. Avoiding paying such claims presents the Ministry!
with two major challenges: first, to design practical controls that operate before a]
claim is paid, and second, to design post-payment controls which may be]
selectively applied.
HIGH JUDGEMENT LEVELS
8.44 The provision of Income Assistance is governed by a complex set of policies,
procedures and practices. These have been developed in order to try to ensura
that Ministry personnel consistently fulfill the intent of Income Assistance legisla-]
tion and regulations. To do this, employees must not only have a thorough!
knowledge of rules, procedures and acceptable practices, but they must also be]
able to apply a high level of judgement in the field. They are often required to]
consider the particular circumstances of a claimant and accurately, consistently
and quickly interpret and apply the appropriate regulations and ministry policy]
to that case.
8.45 Judgment is crucial because of the variables present in each case, and because!
assessing the eligibility "proofs" submitted by claimants involves certain intangi-I
ble considerations. For example, Financial Assistance Workers must attempt to!
determine the accuracy of oral representations, an especially difficult task when!
the claimant cannot provide adequate supporting documentation. Financial!
Assistance Workers must also be alert to potential fraud or abuse. They must!
decide whether and when to use further investigative procedures. Again, logic!
and intuitive processes are key elements in making these decisions.
8.46 Often, judgement must be exercised in circumstances where the claimant's!
emotional status or ability to understand and cope with rules and procedures!
places significant pressure on the Ministry's staff. In these circumstances it is not!
possible to set down a full range of rules which ministry personnel can always!
mechanically adhere to in arriving at "correct" eligibility and benefit level!
decisions. Given the nature of Income Assistance, each claim must be!
approached and handled according to its special circumstances. At the samel
time this provision for flexibility must be balanced by reasonable control proces-1
ses over the judgement exercised.
8.47 Because the Income Assistance environment requires a high level of judgement!
control systems must permit flexibility and discretion. However, these systems!
must also ensure that judgements are well founded - that is, that they have
considered all key factors and that they remain consistent both from location to
location and from case to case.
8.48 Accordingly, the Ministry should provide sufficient guidance to staff to ensL^B
that their judgements are well founded. This can be achieved through stronw
il
 SECTION 8, COMPREHENSIVE AUDIT       53
supervision, extensive training and appropriate written instructions and guidelines. The Ministry should also be able to assess the extent to which the discretion left to personnel is properly exercised using post-processing quality control
systems.
SELECTIVITY OF THE CONTROL PROCESS
8.49 The Income Assistance Program is obviously attractive to individuals or organized groups who would attempt to defraud the Province. Accordingly, the need
for procedures or systems for detecting error and abuse is clear.
8.50 The Ministry, however, must pursue any enforcement activity selectively. Because it must provide Income Assistance promptly to a large number of
claimants, it appears unreasonable to expect that the Ministry would continuously and exhaustively review all claims before paying them.
8.51 The challenge is a dual one. First, the Ministry must devise effective enforcement
practices. Then, it must decide at what level of application enforcement activities are no longer cost-effective in detecting and deterring non-compliance with
the law. In other words, wherever it is practical to do so, the Ministry should
assess procedures first, probable success in detecting and deterring noncompliance, and the effect which these procedures will have on the level of
service. Well-designed and operationally effective control systems for detecting
non-compliance are vital to a program such as Income Assistance. The lack of
such controls could not only fail to detect non-compliance, but could actually
encourage it.
8.52 In summary, each of these factors adds a dimension of complexity and risk to the
Income Assistance delivery system. The Ministry must establish a control system
which cost-effectively keeps the risk of error, fraud and abuse to a minimum.
Designing and maintaining such control systems, however, is made more difficult by the need both to provide prompt service and to gather an appropriate
amount of eligibility evidence within a short period of time. The high level of
judgement which field and supervisory personnel must exercise and limitations
on the Ministry's ability to prove a claimant's eligibility when a claim is made,
pose technical and administrative challenges in designing and operating cost-
effective control systems. Such systems must exist and operate reliably if they are
to cope with the high risk inherent in the Ministry's operating environment.
Decentralization, scarce resources and the attractiveness of Income Assistance
to abuse also necessitate management systems which can ensure both accountability and that operating controls are working effectively.
 54        REPORT OF THE AUDITOR GENERAL
1
SUMMARY OF AUDIT OBSERVATIONS
INTRODUCTION
8.53 Our audit showed that the Income Assistance operating environment poses a]
major challenge for the Ministry's executive and personnel in designing and
maintaining strong and cost-effective management and financial control sys-J
terns.
8.54 The audit focused on the Income Assistance activities and certain ministry-wide]
control functions. It showed that the Ministry has recognized the need for]
improvement in many areas and that it has begun working toward strengthening
its control systems. Over the last several years, managers at Headquarters and in |
operating locations have taken major steps to administer their programs more]
efficiently by introducing computer-based systems, adopting a more formal]
approach to allocating resources among Regional and District Offices and
implementing certain organizational changes.
8.55 Since 1978, the management challenge has become even greater because of an]
amalgamation with municipal social and welfare agencies, which effective™
doubled the number of operating staff within the Ministry. It also required the!
consolidation of a variety of operating and administrative systems and proce-J
dures.
8.56 Briefly, we have concluded that while the Ministry does have certain basic!
information to base its resource allocation process on that until such time as a!
number of key areas are substantially strengthened, the Ministry's procedures for!
measuring efficiency will not provide management and the Legislative Assembly!
with reliable and complete information about either the efficiency of the admin-l
istration of the Income Assistance Programs or the effectiveness of its control!
systems. At the time of our audit, the Ministry had already begun work to remedy!
weaknesses in a number of those key areas.
8.57 In addition, we concluded that the Ministry would have to devote furthe!
substantial effort to ensuring the effectiveness of certain operating control!
mechanisms such as supervision, written guidance to personnel, training, InteaJ
nal Audit and quality control. In addition there is a need to implement an!
accounting and control system for payments which are identified by the Minisfm
as being in error. All are especially critical when we consider the risk inherent™
Income Assistance activities.
8.58 Of particular significance is the observation that management was aware of
almost all major areas which required improvement.
 SECTION 8, COMPREHENSIVE AUDIT
REPORTING OF PERFORMANCE AND ACCOUNTABILITY INFORMATION
8.59 The Ministry has available a number of indicators or sources of information that
management currently uses to assess how economically and efficiently it is
managing the Income Assistance Program. For example, management monitors
caseload activity as an indicator of performance. Managers also use internal
audit reports, special studies, inspection reports and complaints and comments
from the public to assess the quality of the service provided.
8.60 However, none of these indicators attempts to determine systematically the
amount of Income Assistance which is paid in error because of mistakes on the
part of the employees and/or claimants. This error rate would serve as a key
indicator of performance. Another ministry performance indicator (the number
of cases handled by staff) is too general to be useful in analyzing the overall
efficiency of the Program. We did note, however, that certain regions had begun
working to define indicators and measurement systems that would more clearly
show the relationship between outputs or services delivered and the resources
used to produce them. However these efforts have been fragmented.
8.61 Without such performance information, which provides a detailed enough
picture of the composition of caseloads and Financial Assistance Worker activity
and quality control, management lacks a firm basis for its decisions on control
systems and on how it can allocate its resources most efficiently.
8.62 The Ministry should gather this type of information and include it in its Annual
Report, the Estimates and the Public Accounts. These documents should present
this information clearly and concisely so that readers can easily understand it.
Such information should also clearly demonstrate how well the Ministry has
managed the funds entrusted to it.
8.63 We recognize that designing and implementing the necessary performance
measurement and reporting systems will be difficult in the complex and highly
judgemental Income Assistance operating environment, and that these systems
will likely require some time to implement fully. While the state of the art in
developing these types of measurement systems is evolving, we feel that systems
which measure and report on both the levels of inputs and physical outputs (such
as caseload) and the quality of the work performed (for example, the difference
between the amount actually paid out in Income Assistance benefits and that
which should have been paid) are feasible and quite likely would be cost-
justified to implement. Other jurisdictions have developed and are using such
measurements systems.
8.64 The Ministry has recognized this, and it is working closely with our Office to
carry out a pilot project aimed at measuring the efficiency of its operations and to
subsequently analyze the cost-effectiveness of its existing control systems.
 56        REPORT OF THE AUDITOR GENERAL
II
FINANCIAL MANAGEMENT
8.65 Our audit examined the financial management function as it is organized and
carried out throughout the Ministry. We have concluded that the Ministry has ]
recognized the need for an effective financial management function. Since 1975
the Ministry has been giving increasing emphasis to this area, at which time it
appointed a full-time Ministry Comptroller.
8.66 While action has been taken to provide for a stronger comptrollership function j
and additional staff have been authorized, opportunities exist for enabling ittpj
contribute further toward helping the Ministry to operate its programs more
efficiently. This contribution is particularly important in terms of the role which j
financial management could play in ensuring first, that operating managers
receive reliable and timely information, and second, that program managers]
have access to enough competent guidance in the areas of controls and systems j
design. Such guidance should not be prescriptive. Instead, it should allow
managers flexibility in the methods they use to achieve the appropriate degree of,
control.
INCOME ASSISTANCE CONTROL SYSTEMS
8.67 Our audit examined both the kinds of controls used by the Ministry in its Income
Assistance activities and the manner in which these controls were being applied. 1
8.68 Our audit revealed that the Ministry had recognized the need for and had
emphasized a number of control mechanisms at various levels. We believe these
to be essential to achieving a level of control commensurate with the environ-]
ment and control needs of the Income Assistance Program. For example, the j
Ministry has provided for supervision and staff training as crucial elements in I
achieving control.
8.69 Nevertheless, we observed that the Ministry had not provided for certain other]
types of controls. In particular, no formal quality control system was in place that]
would provide assurance that the necessary levels of accuracy and service were!
being achieved in providing Income Assistance to claimants.
8.70 We also noted that the Ministry has not established an information system to
account for errors and overpayments of Income Assistance. The Ministry knows J
that these overpayments occur regularly (as they do in any complex system).!
However, the Ministry does not have the information it needs to determine the!
amount of these overpayments. Second, it lacks information both on the!
methods staff use to handle known cases of overpayment and on the success rate!
in recovering overpayments when the Ministry decides to do so.
8.71 Our audit of other key control elements, such as supervision of and written!
guidance for personnel, indicated that improvement would be necessary to!
U
 SECTION 8, COMPREHENSIVE AUDIT       57
ensure that these controls would be consistently and reliably applied, both
within and amongst individual operating locations.
8.72 Staff must also have adequate training if they are to be expected to administer the
high volume of cases reliably and consistently in an environment where there are
many employees operating in a highly decentralized way. Accordingly, staff
training should be considered as an essential control element. We observed that
there was a need to coordinate these programs and enhance the planning,
monitoring and evaluation of the effectiveness of the Ministry's formal training
and on-the-job efforts.
8.73 We also observed that day-to-day internal controls in the Income Assistance
system were not being applied consistently in various locations. This inconsistency may be due in part to the limited guidance provided to field personnel who
are responsible for ensuring that controls such as cross checks, segregation of
duties and approvals are used properly.
8.74 At other levels in the existing control system, we observed that performance
measurement techniques had not yet been sufficiently refined to enable them to
provide reliable information about the adequacy of day-to-day operations as a
whole.
[ 8.75 The Ministry has developed an Internal Audit Group, which is primarily dedicated to reviewing Income Assistance case files in District Offices. These reviews
focus on the extent to which Ministry personnel comply with established procedures and policy. This task, although important, does not extend to reviewing
control systems, including those components of the Income Assistance systems
which are computer-based.
| 8.76 Ensuring that control systems and procedures can meet the needs of the Ministry
requires that they be applied in a coordinated manner, as part of an integrated,
carefully considered, larger control plan. We observed that the Ministry did not
review all elements of control to ensure that they in fact did operate as part of a
closely-knit control framework.
: MANAGEMENTOF ELECTRONIC DATA PROCESSING SYSTEMS
I 8.77 Our audit of the Ministry's electronic data processing systems focused on the
extent to which due regard had been given to economy and control in the design,
planning and development of a major new on-line computer system used in the
Income Assistance Program. This system is the first one in the Ministry to
incorporate advanced computer technology. It will significantly affect the controls and the efficiency of Income Assistance activities for the next several years.
I 8.78 Our audit was not designed to question either the need for this system or
management's decision to proceed with it; however, our audit showed that there
 58        REPORT OF THE AUDITOR GENERAL
7
have been significant procedural deficiencies both in the initial decision-making i
process and in the controls used to manage the project.
8.79 We recognize that the development of complex computer systems is a difficult
process. This is especially true for organizations that are trying to adopt an
unfamiliar technology. We also realize that management must make difficult
decisions, balancing the risk of adopting this technology with the risk of not
moving forward in this area. Under these conditions it is extremely important'
that senior management have available complete, reliable, and accurate information at all stages of planning, design and implementation. This information
should be presented in an understandable format to help guide the decisionmaking and project-monitoring processes.
8.80 Recently, the Ministry recognized that it needed more reliable information
before proceeding beyond the pilot stage toward full implementation of the new
computer system. Accordingly, it decided to examine the cost and control
implications of this system more closely before implementing it fully. Our audit j
recommendations support this course of action and are designed to help the
Ministry reassess and design new control mechanisms relating to the develop-]
ment of the computer-based system. Such controls would include evaluating tha
system after it has been implemented. We understand that the Ministry has also
recently taken action to strengthen the organization of, and standards for, any
future development of this and other computer-based systems.
INTERNAL AUDIT
8.81 The Ministry has established an Internal Audit Group, which as we previously I
noted, carries out audits of Income Assistance case files. These audits are]
primarily concerned with assessing the extent to which Ministry personnel have ]
complied with established policy and procedure in processing Income Assist-1
ance claims.
8.82 Our audit examined the scope of responsibilities given to the Internal Audit]
Group, its organization, staffing and its reporting relationships. As well, we]
examined both the audit techniques that it uses and the reports which the Group ]
issues. The purpose of our review was to assess the extent to which we could rely J
on internal audit work and alter the extent and scope of our own audit work. We]
also wanted to determine whether the Internal Audit function was providing the |
type of strong support to management that we believe is necessary.
8.83 We concluded that although the Internal Audit Group was carrying out the task!
ostensibly assigned to it, considerable scope exists for expanding its role.I
Moreover, it will be necessary to establish procedures and techniques which are!
appropriate to fulfilling such an expanded role. Until these have been de-|
veloped, we will be able to place only limited reliance on the work of Internall
Audit, particularly in evaluating control systems and in examining the issues of!
economy and efficiency.
J
 SECTION 8, COMPREHENSIVE AUDIT
59
5.84 In our opinion, until the role of Internal Audit has been further developed,
management will not be in a position to realize the full benefits that a strong
Internal Audit function could provide.
5.85 An important observation arising from the audit, as previously stated, was that
management was aware of almost all of the areas requiring improvement.
Managers were looking for solutions to problems in many areas and certain
corrective action was underway. Our Office is aware that many improvements
have already been made and that making the changes recommended in this
Section will pose a significant challenge for the Ministry, possibly over a considerable period of time. Such improvements cannot be effected easily for two
reasons: First, only limited resources of the appropriate quality are available in
the Ministry. We therefore cannot expect that all of the required tasks can be
accomplished within a short time. Second, the Ministry will have to use considerable caution in charting a course of corrective action. It will also have to
carefully choose among alternative solutions to its problems.
'.86 Some improvements suggested in this Section may require that the Ministry carry
out enough preparatory work to ensure that an environment exists which will
enable it to realize the intended benefits of new or altered control mechanisms.
For example, we noted that the Deputy Minister and his Executive have strongly
emphasized the need for accountability within the Ministry. However, in our
opinion, successful implementation of systems for measuring performance will
require that managers and staff at all levels be first, convinced of the need for
such systems and second, trained in their effective use.
.87 Accordingly, our observations and recommendations are aimed at improving
management and control systems, especially by encouraging the Ministry to
work toward:
• developing and implementing performance measurement systems to indicate the efficiency of the Ministry in administering its programs, and
reporting this information to the Legislative Assembly;
• assessing the cost-effectiveness of existing control systems and providing
for an appropriate quality control system;
• ensuring that errors and overpayments, once detected, are properly controlled and accounted for;
• ensuring both that key controls (particularly the supervisory process) are
thoroughly evaluated and that they are operating consistently and reliably
in all locations;
• continuing to place strong emphasis on training;
• stressing coordination, cost control, identifying training needs, course
delivery and subsequent evaluation of training programs;
• establishing a strong project management process and an organization to
ensure that electronic data processing systems are developed economically;
• obtaining the maximum benefits from the financial management function;
 ^
60        REPORT OF THE AUDITOR GENERAL
• upgrading the role of Internal Audit to provide needed support to management.
8.88 The following segments of this Section present the major observations and
recommendations resulting from our audit.
REPORTING PERFORMANCE AND ACCOUNTABILITY INFORMATION
INTRODUCTION
8.89 This Section of our Report deals with the extent to which the Ministry has
established satisfactory procedures for:
• measuring the reliability and efficiency of its Income Assistance operations; and
• reporting performance information, both to management and to the Legislative Assembly.
This segment of our audit was conducted under section 8 (2) (a) of the Auditor]
General Act, and attempts to assess the extent to which management knows (and
reports) how well it is managing its operations.
EXTENT OF EXAMINATION
8.90 Our examination of the efficiency issue required us to assess first, whether the
Ministry had defined its operational objectives in measurable terms; second, ]
whether the link between its activities and the results which the Ministry hoped!
to achieve were logical and reasonable; and third, whether the Ministry was in J
fact measuring the efficiency of its programs against its operational objectives ]
where feasible to do so. In accordance with the provisions of the Auditor General ]
Act, our audit did not conduct a program evaluation of the Income Assistance ]
Programs. Program evaluation would have required us to ask whether or not the
Ministry had met its more broadly defined or ultimate objectives, such as
distributing wealth more equitably, or ensuring a minimum standard of living for I
all residents of British Columbia. In the Government of the Province of BritisM
Columbia, program evaluation is a responsibility of Deputy Ministers in cooper-J
ation with the Treasury Board and its staff.
DEFINING THE OPERATIONAL OBJECTIVES OF THE INCOME ASSISTANCE!
PROGRAM.
8.91 In order to examine the potential for measuring and reporting efficiency, onel
must first clearly understand the Ministry's operation and its operational objecJ
tives. Exhibit 2 displays an operational model of the Income Assistance Program. I
The model identifies program activities and their operational objectives. WS
used this model to determine first, the extent to which activities related directly!
to their respective objectives and second, whether the Ministry could measure at
reasonable cost the extent to which it was achieving these objectives.
 SECTION 8, COMPREHENSIVE AUDIT       61
Exhibit 2, Ministry of Human Resources
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.92 Our analysis of the Income Assistance activities and their effects or results has led
us to conclude that the key operational objective of the Ministry's activities was
to "provide financial assistance to applicants in accordance with the law and
regulations". All activities, as shown on the chart, and their products and effects
contribute to this objective. However, it should be noted that there exist other,
higher level objectives which underlie the Income Assistance Program. We did
not examine these as part of our audit.
8.93 Instead, our audit concerned itself with the potential for first measuring and then
reporting on the extent to which the Ministry achieves its main operational
objective. This would serve as a key indicator of how well the Ministry managed
the funds entrusted to it. The goal of this form of measurement is to estimate for
cases processed by the Ministry, the extent to which Income Assistance paid out
differs from the amount justified by the law and regulations.
8.94 Once the Ministry has a reliable estimate of the amount of such differences, it
can then assess the cost-effectiveness of installing controls which might reduce
this amount.
GATHERING INCOME ASSISTANCE PERFORMANCE INFORMATION
8.95 The feasibility of measuring the degree to which Income Assistance payments
are being made to the right people in the right amounts has been demonstrated
both within the Ministry and in other jurisdictions. In 1978, the Ministry carried
 62        REPORT OF THE AUDITOR GENERAL
out a "verification" study of the *GAIN - OAS/G1S supplement program. This
study recommended that measurement be a continuous activity, and that it
should be capable of detecting changes in the error pattern within the Program.
8.96 The Alberta Department of Social Services and Community Health conducted a I
study in 1978, the purpose of which was to provide an accurate and comprehen-1
sive picture of welfare abuse within that Province. The report determined the
approximate percentage of public assistance cases involving fraud or error, and ]
identified high-risk client categories. Finally, it recommended preventative steps j
to reduce the incidence of abuse in the future.
8.97 In the United States, the Department of Health and Welfare requires that indi-1
vidual states operate a quality control system for their welfare programs before j
they can qualify for federal cost-sharing.
8.98 These studies, without exception, found that a significant proportion of the j
income assistance cases sampled contained errors resulting in overpayments. I
These results point clearly to the need for the Ministry to include this type of
measurement in its Income Assistance system. Such a step would enable it to ]
identify high-risk client categories and subsequently to adjust payment control ]
systems to reduce the incidence of under and overpayments.
8.99 At the present time, the only information that the Ministry collects on the |
performance of its Income Assistance Programs is produced as secondary output |
from the computerized pay-out system. In its most accessible form, this informa- ]
tion is printed in the monthly "Fact Books", which are provided to senior ]
management. These Fact Books provide information on the amounts of money ]
paid out, but do not indicate the frequency of under and overpayments.
8.100 The computer-generated information related to the Ministry's pay-out system I
provides most of the data on the Ministry's activities and clients. However, other I
sources of useful information exist. For example, field staff refer cases of sus- I
pected misrepresentation to Inspectors. Records are kept of both the number and I
outcome of cases that these Inspectors review. Another possible source of I
supplementary information on the level of abuse in the Income Assistance!
system could be the public at large.
8.101 We noted earlier that other jurisdictions have been able to gather empirical data I
on the efficiency of their Income Assistance programs. If the Ministry were to!
collect data measuring the incidence and dollar value of over and underpay-8
ments in the GAIN program, it could detect and remedy weaknesses in its I
eligibility determination and payment activities. Such information would also I
help to reduce speculation over the extent of welfare abuse in the Province. A I
*GAIN - OAS/GIS - Guaranteed Available Income for Need - Old Age Security/Guaran!
teed Income Supplement.
4
 SECTION 8, COMPREHENSIVE AUDIT       63
cost-benefit analysis of alternative solutions for remedying weaknesses would
enable the Ministry to choose the most cost effective option.
INFORMATION CURRENTLY REPORTED TO THE LEGISLATIVE ASSEMBLY
8.102 The current sources of information on Ministry activities and performance that
the Legislative Assembly and the public must rely on are the Ministry's Annual
Report, the Estimates, and the Public Accounts. The Annual Report's main
purpose is to describe the nature and intent of ministry programs. It also contains
statistical information, but only at a summary level. The information provided in
the Estimates and the Public Accounts consists primarily of historical and highly
summarized data on actual and estimated expenditures.
8.103 These three sources of information, in our opinion, provide little indication of
the general efficiency of Income Assistance Programs. Usually this performance
information has not been accumulated for and linked to each program objective.
It is also difficult to compare among geographical locations and for different
periods of time and does not report on the outputs or benefits of the programs.
For these reasons, little insight has been provided into the central operational
issue in the Income Assistance Program - that is, how much money the Ministry
has actually paid to individuals compared with what theoretically it should have
paid according to the regulations.
8.104 The level of under or overpayments is central to measuring the Ministry's Income
Assistance activities. If it were available, this information would be of equal
importance to both management and the Legislative Assembly. It would indicate
to the Legislative Assembly the extent to which its GAIN legislation has been
efficiently administered. By including this information in the Annual Report, the
Estimates and the Public Accounts, the Ministry would be taking a major step
toward improving accountability within the organization. Although no information relating to the efficiency of the Income Assistance Programs has thus far
been provided to the Legislative Assembly, the Ministry has taken certain initiatives in this direction:
• It has, through a Resource Allocation Committee, taken preliminary steps
to determine what indicators could be used to measure staff efficiency and
productivity.
• It has worked closely with our Office in planning for a pilot test, to be
conducted shortly, to determine the potential for cost-effectively measuring overpayments in the Basic GAIN Income Assistance Program. We
consider this pilot to be important in providing a foundation for a full-scale
deviation test.
8.105 We noted that the Ministry could also provide other information in its Annual
Report which would assist the Legislative Assembly in gaining insight into the
Ministry's performance. For example, historical information covering several
years, comparing and analysing resource utilization and outputs, would be
 64        REPORT OF THE AUDITOR GENERAL
1
particularly useful in providing a general picture of significant performance
trends. In particular, it would be valuable to present trends over several years for
a number of key indicators of program activity and performance. Examples of
such indicators are average caseloads carried by Income Assistance staff, ratios
of supervisory to line staff, proportion of cases involving under and overpay- :
ments, and the proportion of total caseload referred to the Inspectors. Such trend
data would not only indicate whether the efficiency of specific activities is
improving or deteriorating, but would also provide baselines against which to
assess the effect of changes in ministry procedures. It would also provide an early
warning system to alert managers to areas in which further analysis or investigation should be done.
8.106 As well, inconsistencies in the treatment accorded to certain items from year to!
year in the Annual Report should be eliminated.
DAY-TO-DAY EFFICIENCY INFORMATION
8.107 Sufficient reliable information about how efficiently the Ministry is delivering theB
Income Assistance Program on a day-to-day basis is currently not available I
because:
• Indicators concerning productivity of staff have not been established.
• Standards or expectations of output and operational definition (in terms of I
both quality and quantity) have not been established.
• The Ministry has done little to date either in identifying sources of this 1
information or in developing methods for accumulating it.
8.108 One of the major underlying causes of the Ministry's current inability to reliably I
measure day-to-day performance is the lack of clearly articulated, consistently I
used operational definitions for certain activities. We noted, for example, thatH
from office to office, and sometimes within offices, various personnel under- I
stood the meaning of certain key output indicators (such as "caseload")H
differently.
8.109 The Ministry has defined qualitative and quantitative standards or expectations I
for some work activities. However, these standards have been expressed only in I
very general terms. As a result, they do not provide useful "yardsticks" againsM
which to measure performance. Accordingly, it is difficult for the Ministry to I
hold managers and staff accountable for either meeting or failing to meetB
"acceptable" performance levels. We noted that in certain areas significant™
effort had been devoted to defining outputs and devising measurement proces- 1
ses. However, this work had not been communicated to other personnel with 1
similar concerns. Nor was it part of a coordinated effort to establish a compre- I
hensive performance measurement system.
8.110 We also observed that, in one important area, the Ministry had not gatheredB
certain financial information relating to the amount of identified overpayment^H
 SECTION 8, COMPREHENSIVE AUDIT
65
Moreover, management had not set the parameters for dealing with these
overpayments. As a result, it was not possible to determine the day-to-day
efficiency in managing identified overpayments.
8.111 We recognize that the Income Assistance Program operates in an environment in
which a high level of judgement must be exercised in individual cases. Cases do
not always follow standard patterns. Each of these tends to have unique features
and, accordingly, it would be difficult to set engineered standards. However,
past experience, combined with selective testing and setting standards for the
quality of work to be done, would suggest that reasonable criteria could be
established for measuring performance based on time and groups of cases.
8.112 By establishing these standards, the Ministry, over time, could improve control
over the Income Assistance Program. It could use these standards as benchmarks
against which to compare performance as workloads fluctuate. For example,
supervisors would be able to monitor how the quality of work varies as the
workload changes.
8.113 As part of its efforts to improve management control, the Ministry should develop
clearly defined performance indicators and work expectations, in terms of both
quality and quantity. These should then be used as the basis for accumulating
and reporting performance information at all levels in the Ministry in order to
allow management to act promptly when warranted and to improve the allocation of resources.
8.114 The Ministry should ensure that it reports performance information to the Legislative Assembly which indicates the extent to which it has been successful in
delivering an efficient program. The information should include data on the
cost-effectiveness of various alternative methods of delivering the program.
FINANCIAL MANAGEMENT AN D CONTROL
INTRODUCTION
8.115 The Ministry's Executive has recognized that the organization, environment and
activities of the Ministry indicate the need for a broad-based financial function.
We found that the Comptroller's mandate is comprehensive and that the organization of the financial function allows him to provide direction and support in all
key areas of financial management and control. We found that during recent
years the Ministry has been strengthening and giving more emphasis to the
financial function, particularly by appointing a full-time Comptroller in 1975
and, more recently, by increasing staff in the Comptroller's Office.
8.116 The purpose of our audit was to assess how the financial function was operating
in practice. We particularly looked at the manner in which it was providing
direct and functional guidance to operating managers and the extent to which it
 66        REPORT OF THE AUDITOR GENERAL
was doing so. We also wanted to find out whether the Ministry's financial
management and control practices were likely to meet the objectives implicit in
the Comptroller's mandate and in our audit criteria.
8.117 The results of this segment of our audit indicate that while much has been done to
achieve better control, considerable scope remains for improving the contribution that financial management and control can make and should make in
helping the Ministry to operate its programs both efficiently and with proper
controls. The Comptroller and his staff were aware of several areas needing
improvement. Many of the weaknesses that they have identified generally
parallel those outlined in this segment.
8.118 Our audit findings relate mainly to six general areas, as summarized below.
MANDATE OF THE FINANCIAL FUNCTION
8.119 Neither the mandate nor the organization of the financial function has been
documented in manuals for distribution throughout the Ministry. We found that
the responsibilities of the financial function and its relationship to other organizations within the Ministry were unclear to field personnel and to headquarters
staff having electronic data processing and line operating responsibilities.
STAFFING OF THE FINANCIAL FUNCTION
8.120 The Ministry assisted us during our audit by completing profiles of personnel
whom the Comptroller had identified as having significant direct or indirect
financial responsibilities.
8.121 The profiles indicated that there are five members of the Comptroller's Office
and one other in the Management Services Division who had formal accounting!
qual ifications. Three other members of the Comptrol ler's Office were enrolled in
degree-granting accounting courses. Many others have been employed at least
ten years in the public sector. Turn-over had been low, and most had had long
service in their present positions. Generally their qualifications and experience
in electronic data processing were very limited.
8.122 Personnel having financial qualifications were concentrated at Head Office, and
were mainly involved in day-to-day transaction processing activities and in the
budgeting process.
8.123 We noted that control weaknesses have frequently been identified by the Comptroller's Office, but there has been little progress in resolving them. When staff
from the Comptroller's Office are assigned to work on projects to strengthen
financial management and control, day-to-day operating priorities frequently
arise. Because they take precedence over new projects to improve or review
controls, the success rate for such projects has been low. In addition, as discus-
J
 sed below, the Comptroller's Office has not provided sufficient functional
direction to line managers and others having financial responsibilities.
STAFF TRAINING
8.124 We examined the type and frequency of training provided to members of the
Comptroller's Office and other staff having significant financial responsibilities,
and noted that training efforts have been limited. Most training sponsored by the
Ministry has been connected with general acounting and financial courses that
staff have needed to obtain professional qualifications. Training has tended to
avoid the more specific training needed to cope with the Ministry's particular
operating needs.
8.125 The need for financial training of operating personnel who have significant
financial responsibilities has taken on added importance because many of the
employees have had little previous exposure to matters relating to financial
control. Many transaction processing errors have occurred. Such errors, in part,
may be attributable to the lack of financial training and experience of staff.
Moreover, instructions which would help staff reduce these errors, are generally
lacking. If operating personnel having financial responsibilities are to work
effectively, they will need to be trained in how to meet appropriate accounting
and control standards.
8.126 Successfully coping with the financial control elements in more complex systems requires staff who have appropriate formal qualifications combined with
related practical experience. To be effective, such personnel must not only
thoroughly learn the systems they must deal with, they must also understand the
general operating environment and the needs of the people who are using these
systems. Financial personnel should have a knowledge of systems documentation and cost benefit analysis techniques to properly analyze systems and
recommend appropriate ways to improve them. They must also have a thorough
knowledge of concepts which underlie the effective design of controls for both
manual and computer systems. If controls are to be effective, staff must also be
able to identify and assess compensating controls so that an acceptable balance
between the desired level of service and the necessary level of control can be
achieved.
FUNCTIONAL DIRECTION
8.127 The role of the financial function is fulfilled in two ways. First, members of the
Comptroller's Office carry out accounting tasks, such as processing payments,
reconciling accounts and preparing financial statements. These activities represent the direct responsibilities of the Comptroller. Second, the Comptroller is
responsible for ensuring that appropriate financial control exist in all operating
systems and procedures throughout the Ministry. These activities represent his
indirect or "functional" responsibilities.
 68        REPORT OF THE AUDITOR GENERAL
1
8.128 We observed that the Comptroller's Office had only limited involvement in
carrying out certain important functional responsibilities. These included reviewing financial and operating procedures and establishing sound financial
controls for both manual and computer systems. Although organizational links
do exist between the Comptroller's Office and Regional and District Offices,
they need to be further developed. We also found that more written guidance
and training should be provided to personnel at all levels concerning financial
management and control matters.
WRITTEN GUIDANCE
8.129 We observed that the Comptroller's Office has not yet completed a Headquarters accounting manual to guide its own staff. Similarly, written payroll procedures for both Head Office and the field have not been provided. The Ministry is
planning to extensively revise the accounting manual and the clerical procedures manual that Regional and District Offices are now using. The Comptroller
acknowledges that his department should participate to a greater extent in
establishing accounting and control criteria, standards and procedures for all
operating systems with financial implications. Such procedures would be contained in manuals and distributed within the Ministry as appropriate.
8.130 There is also a need to further develop and document budgeting procedures.
Such procedures should promote the use of short-term operational work plans
that are coordinated within a longer-term strategic planning process. Budgeting
procedures should require a review of program objectives, priorities and alternatives for existing programs as well as for new programs being proposed. Written :
guidance should also be provided for analysis of variances and for taking ,
corrective action when activities deviate from plan.
MANAGEMENT OF THE FINANCIAL FUNCTION
8.131 The financial function lacks a comprehensive plan for ensuring that efforts to
strengthen financial management and control are coordinated, and that they are
given the appropriate priority. We have observed that new tasks frequently take
precedence over those already underway. We recognize that the Ministry's size
and complexity make change inevitable. However, the nature of the Ministry, ;
combined with its program to increase the use of compter-based systems and to
increasingly decentralize, makes a comprehensive plan critical to strengthening
the financial function.
8.132 In order to ensure that it realizes the full benefits of a strong financial management and control function, the Ministry should:
• rew'ew the number and level of personnel in the financial function to
ensure that it is strong enough to effectively carry out its responsibilities;
and
• ensure that it prepares a comprehensive operational plan detailing the I
 goals and objectives, activities, timing, performance criteria and priorities
for the Comptroller's Office.
8.133 The Comptroller's Office should:
• develop its lines of functional responsibility and provide more guidance
and advice to line managers in order to help them achieve the necessary
levels of control over program expenditures in a flexible, efficient manner;
• ensure that it further develops planning, budgeting and reporting systems
to make them more useful in measuring performance and in allocating
resources;
• improve systems and procedures designed to ensure that revenues and
expenditures and assets in the Ministry's care are being adequately safeguarded; and
• ensure that all financial and control implications of new systems, such as
computer-based systems, have been taken into account and that all key
systems and procedures are adequately documented.
CONTROLS IN THE INCOME ASSISTANCE SYSTEM
INTRODUCTION
8.134 This segment examined the operational and management controls in the Income
Assistance Program's delivery system.
.135 Our audit examined the principal tasks associated with providing Income
Assistance. These included:
determining eligibility;
processing benefit payments;
distributing payments to claimants;
controlling identified errors and overpayments;
monitoring performance; and
administering federal cost-sharing systems.
.136 Certain control elements associated with each of these tasks appeared to be
particularly important in helping to ensure a level of effective control. These
elements were especially important considering the Ministry's Income
Assistance operating environment, and included the following;
written guidance;
supervision;
training;
internal and accounting controls;
quality control;
internal audit;
inspection; and
performance measurement and reporting.
 h
70        REPORT OF THE AUDITOR GENERAL
8.137 We discuss each of the above in the sections which follow. Because of their  I
importance, overpayment control and administration and cost-sharing are 1
discussed separately in paragraphs 8.187 to 8.197 and 8.198 to 8.210
respectively.
WRITTEN GUIDANCE AND SUPERVISION
8.138 The Ministry has made some effort to provide its field personnel with written 1
procedural guidelines. Such guidelines are intended to encourage consistent*
handling of Income Assistance claims. Much of the existing written guidance 1
covers the routine clerical tasks, such as filling in forms correctly so that claims 1
can be processed by the computer. However, guidance is often lacking or
inadequate for many non-routine tasks that require District Office staff to I
exercise their judgement and discretion. For example, written guidelines for I
carrying out such tasks generally indicated only what staff should do when a I
"particular condition" exists. They did not suggest how staff should decide I
whether or not such a condition does, in fact, exist.
8.139 We observed that in the absence of written guidance, management must rely to a J
great extent on the knowledge and discretion which field staff are able to bring to
bear in interpreting and applying ministry policy from case to case. As a result, !
policy application has been inconsistent among the District Offices.
8.140 We realize that field staff need to be able to operate flexibly in responding to the I
varying, often unique circumstances associated with different cases.
Accordingly, strict guidelines would not be appropriate for many tasks.
Nevertheless, it is necessary for the Ministry to balance the need for flexibility I
against the risk of inconsistency in delivering its programs.
8.141 The Ministry has already developed some useful material to guide field staff in fl
handling certain cases that require them to use high levels of judgement. For I
example, the "Child Abuse Manual" permits staff to take a flexible approach I
when dealing with individual cases of child abuse. At the same time, itexplicity I
requires staff to fully consider a number of factors when they are deciding how to I
handle such cases. In our opinion, the Manual could serve as a model for the I
Ministry to follow in developing written guidelines to assist staff in delivering the I
Income Assistance Program.
8.142 Supervision at the District Office level is one of the most important controls for I
helping to ensure a reliable and efficient delivery system. Accordingly, weH
reviewed the supervisory process, particularly to find out how the Ministry had I
defined the role and responsibility of supervisors and to determine the nature of
the day-to-day activities carried out by supervisors, and the indicators used to
measure a supervisor's performance.
8.143 The Ministry has recognized the importance of the District Supervisor's role and ■
 SECTION 8, COMPREHENSIVE AUDIT        71
has documented supervisory responsibilities in job descriptions. These responsibilities include the supervision of professional staff on a regular basis, staff
training and orientation (including performance evaluation) and guidance in
interpreting ministry policy. The job descriptions also note that District Supervisors must have skills in public relations, administration, and management.
.144 We noted during our interviews that the concept of the District Supervisor's role
varies widely among field offices. In some instances, our audit revealed that
Supervisors were not familiar with the official (operational) supervisory job
description.
. 145 We found that the extent of day-to-day supervision of certain types of activities is
not consistent from one district to another. For example, we found instances in
which Supervisors had relatively little direct involvement in monitoring and
guiding the work of Financial Assistance Workers and administrative personnel;
in others, Supervisors worked more closely with their staff. We also observed
instances in which line personnel were making important decisions on their
own; in our view, Supervisors should have been consulted first.
.146 The mix of work in each District Office consists of delivering both Income
Assistance Program and almost all of the other programs that the Ministry offers
in Family and Children's Services. Activities include counselling and other tasks
not necessarily related to providing financial assistance to claimants.
.147 Because of the many types and "mix" of ski lis required of District Office staff, the
District Supervisor has a particularly challenging job. In addition to having the
administrative or management skills needed to run an office, the District Supervisor must be able to exercise strong "interpersonal" skills when called upon to
guide and monitor staff. The District Supervisor must also be technically knowledgeable about all programs delivered through his or her office.
. 148 Accordingly, District Office Supervisors may be hard pressed to cope with all of
the District Office's operations in a consistent and reliable manner. For example,
we noted that while some Supervisors indicated that they regularly reviewed up
to 100% of Income Assistance case files, others either reviewed very few, or
reviewed them only infrequently. Given the level of judgement required to
manage Income Assistance claimant files and the often large dollar amounts
associated with each claim, we believe first, that supervisory review of these files
should be consistent, and second, that the Ministry should determine the level of
review appropriate to this task.
. 149 In add ition to being responsible for managing their staffs effectively and efficiently, District Supervisors should be held fully accountable for the manner in which
they discharge these responsibilities. Clear, detailed criteria against which to
measure the qualitative and quantitative performance of Supervisors are therefore essential.
 72        REPORT OF THE AUDITOR GENERAL
1
8.150 We observed that although the District Supervisors reported to Regional Mana- '
gers, the bases used to evaluate supervisory performance were not clear. Our '
interviews indicated that performance evaluations of Supervisors were frequently highly subjective assessments, and that the criteria used varied from region to ;
region. In some instances, the criteria used to measure performance had not
been explained to the Supervisors. These situations were further aggravated by a J
lack of performance expectations, operational definitions and reliable and com- .
plete historical data for measuring performance. As a result, Supervisors were I
not being held accountable to the extent that would seem appropriate.
8.151 In summary, the Ministry has recognized the importance of the Supervisor.
However, the present job description and the system used to measure a Supervisor's performance and accountability need significant improvement. Unless
the Ministry does improve them, Supervisors will not be able to play as strong a
role as they should. Nor will they have adequate guidance and feedback to help
them to improve their contribution.
8.152 We recognize that the Ministry is taking steps to improve training for Supervisors. !
Over the last several years it has moved to put certain accountability processes in
place. It has also reduced the number of programs which are dealt with at the :
District Office level and it has improved the communication channels between >
Supervisors and their peers and superiors. Continued emphasis in these areas j
should help to strengthen the supervisory process.
8.153 In order to improve the supervisory function, the Ministry should:
• clarify the role and authority of District;
• establish standards for expected performance;
• monitor performance against the indicators established to improve
accountability and to ensure that these are considered when Supervisors j
are being appraised; and
• continue to provide more and better training at the supervisory level.
TRAINING
8.154 We examined the following major kinds of staff training activities within the j
Ministry:
• identification of individual and group training needs;
• development and delivery of courses to meet these needs including costing
of training; and
• evaluation and reporting on the effectiveness of existing training programs.
8.155 Needs Identification. We observed two conditions which we believe were]
significantly detracting from the Ministry's ability to identify its staff's training j
needs. First, detailed performance criteria had not yet been clearly articulated ]
for all key operating positions. Second, there was little reliable performance j
information available which could be used to determine whether staff members]
 SECTION 8, COMPREHENSIVE AUDIT        73
might need certain training in order to better perform their duties. As a result, it
was difficult for staff and their supervisors to identify areas where on-the-job or
formal training programs might be needed.
8.156 Our interviews with district and regional staff indicated that the process of
identifying training needs was generally subjective and that it was carried out in a
fragmented manner. For example, while some offices had linked training needs
identification directly to employee performance evaluations, in others, staff
members were left to identify their own knowledge and skill deficiencies.
8.157 We observed that the Ministry was taking steps to improve the needs identification process. Recently, for example, it prepared a preliminary list of knowledge,
skills and aptitude requirements considered necessary for Financial Assistance
Workers to correctly complete the new application forms and reliably assess the
eligibility of claimants. In October 1980, a similar list was drafted for District
Supervisors. Both of these initiatives should help district staff to identify individual skill gaps which should be eliminated through either on-the-job or formal
training.
8.158 Course Development and Delivery. Under the current system, responsibility for
staff training has been assigned to each region. Regional Managers, in consultation with their Regional Training Co-ordinators, are responsible both for identifying individual and group training needs and for providing and acquiring cost-
effective programs that will meet those training needs. A central Staff Training
Division provides support, where needed, to the region and may either develop
or acquire courses to fill any gaps in employee knowledge or skills within the
various regions.
8.159 On-the-job training also plays an important role in augmenting the skills of
individual personnel. Inexperienced Financial Assistance Workers are often
expected to become fully operational with little supervision or monitoring by
District Supervisors because of time and other constraints. Accordingly, the
on-the-job training that the Ministry offers is critical in developing the skills of
new financial assistance staff.
8.160 We noted that a comprehensive list of all Income Assistance-related courses
offered by the Ministry, either centrally or through its various regions, was not
available. Partial lists that did exist were generally not available to regional
personnel. As a result, any decisions to develop new courses were not based on a
knowledge of what was already available within the Ministry. Accordingly, the
possibility of duplicated and fragmented training effort exists.
8.161 In general, the few centrally developed courses covered only the more routine,
mechanical tasks and often did not encompass more judgemental, discretionary
tasks. Although several regions were trying to provide the kind of training that in
their view was needed, we nevertheless noted that these efforts were carried out
 74        REPORT OF THE AUDITOR GENERAL
apart from any comprehensive ministry training plan.
8.162 The Ministry was aware of these problems and was taking steps to remedy them.
For example, it was developing a course for new Supervisors. To help regions
meet their own training needs, the Ministry has also drafted and distributed a list
of resources available for training Financial Assistance Workers.
8.163 We noted that the cost of training as reported in the accounts includes only
out-of-pocket costs, such as those for materials and outside lecturers. The cost to
the Ministry associated with the time the employees spend on courses is not
included as part of the total training costs. Accordingly, the cost of training is
significantly understated.
8.164 Evaluation and Reporting. The information accumulated in training reports from
the regions and Headquarters was not sufficient for management to assess either
the effectiveness or the cost of its training programs. Although staff who take
courses are usually asked to fill out course evaluation forms, the Ministry does
little to evaluate how the training affects the work of those who receive it.
8.165 At the time of our audit, the Staff Training Division had recently drafted a new
reporting format which was being used on a trial basis to accumulate statistics on
the effectiveness of its training. Although the new format still did not provide for
reporting training costs, we understand the Ministry is considering incorporating
cost information in the report in future.
8.166 The Ministry should continue its efforts to augment its training program. Particular emphasis should be given to:
• improving the process for identifying training needs;
• ensuring effective coordination of training efforts;
• evaluating and reporting the results of training; and
• accumulating and reporting information showing all training costs.
INTERNAL AND ACCOUNTING CONTROLS
8.167 Our audit examined controls such as segregation of duties and cross-checks,
authorization and approval levels, physical security of forms and cheques.
These controls come into play largely after Financial Assistance Workers have
decided on an applicant's eligibility for Income Assistance.
8.168 The effectiveness of the above types of controls depends largely upon the]
guidance and support provided to staff through written instructions, traiiiffla
programs, and supervision.
8.169 Because of the small size of District Offices and the need for prompt service, it is
difficult for the Ministry to establish strict segregation of duties and rigorous]
cross-checks. Nevertheless, we observed certain areas in which the Ministry
 SECTION 8, COMPREHENSIVE AUDIT       75
could have used these control techniques. For example, the Ministry could
require that senior personnel authorize and review various types of transactions
or certain groups within the transaction population.
8.170 We noted that the Ministry had tried to document the approval level for its
administrative activities. However, the Ministry had not produced any formal,
comprehensive listing of staff showing the authority delegated to them. Such
documentation would reflect more clearly the areas of responsibilities and
would make staff more clearly accountable for their actions.
8.171 The Ministry provides little guidance on maintaining the physical security of
documents which are used in the Income Assistance payments system. We
found that physical security over documents, particularly over prepared cheques, varied from office to office. We observed some instances in which there is
virtually no system to ensure that all cheques received by District Offices are
distributed to the correct claimants.
8.172 The Ministry should re-examine the extent to which it has made use of accounting and internal controls at the District Office level and should ensure that those
types of controls are consistently used whenever possible.
8.173 The Ministry should review its procedures for maintaining physical security over
documents to ensure that only authorized persons have access to them.
[QUALITY CONTROL
B5.174 In monitoring the efficiency of Income Assistance operations, it is important for
the Ministry to have reliable measures of the time and cost required to process
claimants' applications for benefits under the Program. The Ministry should also
be able to know how well operating personnel at all levels process these
applications and carry out their other activities. Systematically applied quality
control reviews are commonly used in many organizations as control and
measurement techniques to evaluate how well staff perform. We noted, however, that quality control as a distinct function has not been provided for in the
Income Assistance Program. We believe that this represents a major control
deficiency particularly in light of both the high risk of error and level of judgement which staff must exercise daily.
.175 The Ministry does have certain indicators of the quality of its claim processing.
These include Internal Audit, the Inspection Group and public response to the
Program. However, since Internal Audit carries out its reviews long after payments are made, and because it is not in a position to assess the impact of errors,
such reviews are only limited substitutes for quality control.
Similarly, Inspection does not compensate for the lack of quality control. Inspections are carried out only in response to claims already identified by employees
as either having possibly been paid in error, or involving fraud or abuse.
 T
76       REPORT OF THE AUDITOR GENERAL
8.176 In conjunction with developing performance measurement indicators and criteria, the Ministry should consider implementing a quality control function to]
provide managers with reliable, current information about how efficiently and\
accurately claimant files are processed.
INTERNAL AUDIT
8.177 Our comments on Internal Audit are discussed in detail in paragraphs 8.234 to
8.252.
8.178 Here we note only our observations about the work of the Internal Audit Group |
in relation to the Income Assistance Program. We found that the scope of
Internal Audit was limited to carrying out tests to verify that staff had followed
procedures in processing applications from claimants. There was little or no ]
evaluation of the propriety of systems being used either at Headquarters, in j
regions or District Offices. In addition, the Internal Audit Group has not at- ]
tempted to quantify or otherwise assign an order of magnitude to its findings. As ]
a result, its work provides, in our opinion, little assurance to management about ]
eitherthe extent to which key controls are operating reliably and consistently, or ]
the potential impact of procedural non-compliance.
INSPECTION
8.179 The Ministry has instituted, as a key detective and deterrent mechanism, an
Inspection Group to investigate possible cases of fraud or abuse and to enforce!
the penalties provided under the GAIN Act, and in some cases, under tna
Criminal Code. Operating personnel are required to refer to the Inspection!
Group all cases in which they suspect or have evidence that client-initiated!
overpayments have occured. However, the Ministry has not provided guidance!
to staff to help ensure that all such cases are in fact referred to the Inspection
Group. In addition, we noted that the Ministry had not furnished detailed criteria
to Regional Managers and Inspectors for applying various types of recovery!
procedures and penalties which are provided for in law and under ministry!
policy.
8.180 Our interviews with field staff showed that there are inconsistencies in referring!
cases to the Inspection Group. For example, ministry policy states that client-
initated overpayments must always be referred to the Inspection Group. Howev-I
er, in actual practice, staff sometimes interpret this requirement in various ways™
Some interpret it as meaning "referrals in all cases", and others as "referrals!
involving flagrant fraud". This type of inconsistency could lead to dissimilM
treatment of similar cases in various locations throughout the Province. Moreov-1
er, it could weaken the effect of Inspection in deterring fraud and abuse.
8.181 In order to realize the potential benefits of the inspection function, the Ministim
should give guidance to staff in identifying cases which they should refer to f/je|
Inspection Group.
il
 SECTION 8, COMPREHENSIVE AUDIT       77
PERFORMANCE REPORTS
8.182 Performance information provided to senior management is an important tool in
ensuring a reliable and efficient Income Assistance delivery system. Having such
information is particularly important in a decentralized, labour intensive organization such as the Ministry of Human Resources.
8.183 During our review, we noted that performance information has generally neither
been developed nor used to assist in controlling operations. This deficiency was
discussed in greater detail in paragraphs 8.89 to 8.114 above.
8.184 We also observed that the Ministry had not clearly defined the performance
standards or expectations, both qualitative and quantitative, for activities common to all District Offices. As a result, field staff were attempting to provide
"appropriate service" to clients with little, if any, clear idea of what the Ministry
meant by "appropriate" and "service". Such ambiguity could introduce inconsistencies and inefficiencies into the delivery system.
8.185 In recent years, the Ministry has established a Resource Allocation Committee,
which has begun to identify broad indicators of staff performance.
8.186 Our recommendations on reporting performance and accountability information is covered by paragraph 8.113 above.
IDENTIFIEDOVERPAYMENTSANDERRORS-CONTROLANDCOLLECTION
INTRODUCTION
8.187 As may reasonably be expected, occasions will arise in the Income Assistance
system when funds are paid to persons who are ineligible for all or part of these
funds. This section of our Report focuses on how the Ministry deals with these
overpayments once they have been identified.
p.188 Our audit covered the following activities related to overpayment, control and
collection:
• making collection and write-off decisions;
• collection action and procedures; and
• accounting and reporting.
(THE NEED FOR FORMAL GUIDANCE IN CASES OF OVERPAYMENT
p. 189 We recognize that deciding what action to pursue in each case of overpayment
requires considerable judgement and that it would be impractical, if not undesirable, to develop a procedures manual that attempts to cover all possible circumstances relating to such overpayments. However, it is important to document certain circumstances that staff commonly encounter in handling many
overpayment cases.
 78       REPORT OF THE AUDITOR GENERAL
. 190 Legislation and certain manuals within the Ministry provide some formal, writ-!
ten guidance. The GAIN Act places the onus on the claimant to notify the!
Ministry of any change in circumstance, and provides penalties where". . . duel
to . . . any . . . cause, an individual has received income assistance . . . to!
which (he or she). . . is not entitled . . .". The Ministry has also provided its staff!
with general guidelines that help staff in deciding how to handle overpayment
situations. These guidelines emphasize attempts to recover overpayments, but
recognize that sometimes recovery will not be possible.
.191 We have concluded that the Ministry does not provide enough guidance and!
instructions to its staff to ensure that they deal consistently and efficiently with |
cases of overpayment. Most of the direction in dealing with overpayments is]
contained within one manual. However, staff must refer not only to several!
sections within this document, but to other manuals as well, in order to be J
certain of having covered and understood Ministry policy.
.192 Manuals and directives have not clearly defined which individual or groups arel
responsible for such activities as overpayment identification, disposition deci-J
sionsand action, and reporting and monitoring. Consequently, staff do not know!
where responsibility lies for these areas. In addition, the manual provides only!
general guidance and instruction as to when, how, and what circumstances!
should be considered in individual cases. We also noted that Supervisors often J
neither provided guidance to staff dealing with overpayments, nor approve.™
collection action. Thus, Financial Assistance Workers often had complete con-j
trol of the decision-making process; Supervisors did not usually review a staff]
member's work unless he or she requested such a review.
.193 The Ministry has relied entirely on its District Office personnel to identify!
overpayments that have occured. From our interviews in the field, we observed a]
good deal of confusion, and in some instances disagreement, over who is 1
responsible for identifying and reporting these overpayments. Confusion also!
exists over the nature and extent of the procedures that should be used to identify J
cases of overpayment.
1.194 Generally speaking, it is the Financial Assistance Workers who decide how!
overpayments are to be handled once they have been identified. These workers!
receive little or no advice on this subject from other Ministry personnel.
Accordingly, the reliability and the consistency of these decisions depend!
largely upon the skill and training of personnel. As a result, many of these!
decisions relating to overpayments could be inconsistent. We observed instan-l
ces in which the disposition decision reflected a lack of understanding of!
ministry policies on the part of district staff. For example, some of the field staff!
interviewed indicated that they might consider such factors as office error!
amount of overpayment, and client ignorance of requirements when they arel
deciding whether or not to recover the overpayment.
 if
SECTION 8, COMPREHENSIVE AUDIT        79
8.195 The Ministry has not provided for a system to accumulate and report on identified overpayments and to account for their subsequent treatment and disposition. Because there is no system to record identified overpayments, there is no
assurance that all overpayments are controlled through to their ultimate disposition. Because there is no system for reporting the identification and disposition of
overpayments, management does not know how serious the problem is, what is
causing the problem, or whether the overpayment recovery decisions and
procedures are being applied consistently across the Province. As a result, the
system does not meet standards for reliable accounting and control.
^196 Responsibility for dealing with cases of overpayment should be clearly established for individuals and groups within the Ministry. The Ministry must also
provide sufficient instruction to staff to ensure that overpayments are identified
and are disposed of appropriately and consistently from district to district.
ACCOUNTING AND REPORTING
Mp97 In order to ensure that the Ministry meets adequate standards of accounting and
control for identified overpayments, it should establish an overpayment and
collection system to ensure that identified overpayments are recorded, properly
controlled and accounted for, and that write-offs are properly authorized. This
system should be incorporated into the overall performance information system
and the information produced should be reported promptly to appropriate levels
of management.
COST-SHARING
INTRODUCTION
8.198 Sources of funds. The Ministry has various sources of funds in fiscal 1980,
including reimbursements of $26 million from municipalities and $10 million
from the Department of Indian Affairs. However, the Federal Government
provided the largest amount of money in the form of cost-sharing under the 1967
Canada Assistance Plan Act (CAP). The Ministry may recover 50 percent of
certain expenditures as defined by this Act. Such cost-sharing amounted to $234
million, or 36 percent of total Ministry expenditures of $649 million for the 1980
fiscal year. Claims relating to prior years have resulted in additional receipts of
almost $15 million during the year. The Ministry received another $7.4 million
from the Federal Government on behalf of the Ministries of Health and Attorney
General. In view of the importance to the Ministry of the funds received through
cost-sharing under the CAP Act, our audit has emphasized this area.
13*1 99 Responsibility areas for cost-sharing. Three responsibility areas for cost-sharing
exist within the Ministry. The first is the Federal/Provincial Agreements Section,
which provides the Ministry's primary operational liaison with federal departments and other provinces concerning social services. One of the activities of the
 80        REPORT OF THE AUDITOR GENERAL
Section is ensuring that it negotiates the maximum revenues available under the!
Canada Assistance Plan. In carrying out this activity, the Section identifies!
opportunities within the Ministry for cost-sharing, and provides guidance con-l
cerning the effect that federal cost-sharing will have on ministry program policM
The two other responsibility areas involved in cost-sharing are Program Manage!
ment and the Comptroller's Office. Program Management is responsible for
establishing policies and operating procedures that satisfy cost-sharing require!
ments. The Comptroller's Office is responsible both for establishing the adminis!
trative procedures for submitting proper claims, and for ensuring that cosjM
sharing funds are received.
8.200 The Report of the Auditor General for the year ended March 31, 1979 com!
mented on the need to allocate enough staff to enable the Ministry to claim!
cost-sharing funds relating to expenditures made in prior years. The Report alstj
called for the Ministry of Human Resources to clarify the roles of various othe!
Ministries in claiming these funds. These needs still exist. Last year's Report also!
referred to the British Columbia Lottery Fund and the possibility that certain!
grants made by the Fund may be cost shareable. This matter has also not beem
resolved.
AUDIT FINDINGS
8.201 Prior years' expenditures not yet claimed. The Comptroller's Office has iden™
fied certain expenditures made in prior years to which cost-sharing agreements!
may apply. As yet, the Ministry has not claimed these expenditures, which are
estimated to total at least $30 million. A significant part of this sum may be
shareable.
8.202 Certain older capital projects representing approximately 80 percent of the
outstanding $30 million were originally administered by the Ministry of LandsB
Parks and Housing.
Approximately four years ago, staff from the Ministry of Human Resource*
surveyed the files on these capital projects in order to support claims for cosH
sharing funds. Almost three years ago the responsibility for administering thesa
projects and the related files were transferred to the Ministry of Health. HowevJ
er, because of manpower shortages within Human Resources, no work has beem
done other than to periodically enquire about the location and condition ofth«
files. In December 1980 the Ministry of Health found the files, and we undeM
stand that staff in the Ministry of of Human Resources are actively pursuing cosB
sharing.
8.203 Assessing the cost-sharing activity for current year's expenditures. The ComH
trailer's Office has prepared reports showing that funds from cost-sharinM
agreements now amount to almost 37 percent of total expenditures. AlthouOT
this percentage has increased during recent years, uncertainty exists over wh»
.
II
 w
SECTION 8, COMPREHENSIVE AUDIT       81
the optimum level of cost-sharing should be, both for individual programs and
for the Ministry as a whole. Until the Ministry determines the optimum ratios,
management will have difficulty in objectively assessing cost-sharing under the
Plan.
.204 Determining priorities for additional cost-sharing. Senior staff judge that most
opportunities for cost-sharing have been identified and that the Ministry should
give priority to claiming and collecting these funds. However, before the Ministry can formally establish these priorities, it must list all cost-sharing opportunities. For each one it must then estimate the amount of funds it might receive
under a cost-sharing agreement, and the amount of work required to substantiate
a claim for those funds.
8.205 Cost-sharing considerations in computer-based systems. On July 1, 1980 the
Ministry transferred the GAIN for Seniors Income Assistance Program from one
computer system to the main "Version II" Income Assistance computer system.
This transfer has caused several problems. For example, information is not
currently available from the Version II system concerning payments made to
certain groups. Until the Ministry has this information, it will have to wait for
reimbursement of approximately $600,000.
.206 A question has been raised about the cost-sharing implications of having to
cancel and redeposit certain cheques produced by the Version II computer
system. It is estimated that cheques totalling $12 million are redeposited each
year. There is uncertainty whether the reversing entry properly reflects the
shareable and nonshareable portions of these Income Assistance payments.
Income Assistance personnel are discussing this with the computer department
and with the Comptroller's Office.
3.207 Income Assistance overpayments and Accounts Receivable considerations. The
cost of financial assistance payments may be shared only if payments are made
in accordance with provincial legislation, that is, within the limits prescribed
under the Canada Assistance Plan Act. In Paragraphs 8.187 to 8.197, we
observed that although overpayments can occur in any disbursement system, the
nature of the Income Assistance delivery system increases the risk that such
overpayments will occur. An earlier segment (paragraphs 8.89 to 8.114) deals
with performance measurement and discusses the pilot study launched to measure the difference between what the Ministry should have paid in Income
Assistance and the amount that it actually did pay. It is important to note that
overpayments have implications for cost-sharing. For example, the Ministry
forfeits cost-sharing for Income Assistance payments designated as recoverable,
or for those not followed up for collection in accordance with the Act.
i.208 Improvements made and plans for continuing progress. While much remains to
be done, the CAP Section within the Comptroller's Office has identified and
mon itored a number of cost-sharing projects even though it has been chronical ly
 82        REPORT OF THE AUDITOR GENERAL
short-staffed. In addition, the CAP Section has begun to report on the status oil
projects and has prepared several chapters of an operating manual to guide stafB
working on cost-sharing activities. Cost-sharing has also been established on ani
"advance sharing" basis in several instances. Under this arrangement, cosH
sharing funds are now received on a monthly basis, with subsequent adjustment
when final figures become available.
8.209 The CAP Section feels that its efforts to explain the importance of cost-sharing.H
field personnel have been worthwhile. Continuing education would be benefS
cial and we support related plans to provide seminars for internal audit personn™
to make them more aware of the significance of cost-sharing arrangements. Wm
also believe that the Comptroller's Office should review systems and procedures
throughout the Ministry to ensure that information on which cost-sharing clairjS
are based is accurate and complete. The need for this capability would bel
separate from any cost-sharing work that the Internal Audit Group might carrj
out.
8.210 To ensure that the Ministry realizes as much as it can from cost-sharing agreem
ments, it should direct its attention toward:
• ensuring that cost-sharing responsibilities are documented and understood
within the Ministry, and that other ministries also understand their cosm
sharing responsibilities;
• refining assessment criteria and reporting procedures used to monitcm
performance;
• allocating enough staff to ensure that claims for cost-sharing are complete
and up to date; and
• ensuring that all operating systems work toward supporting optimuim
cost-sharing.
ELECTRONIC DATA PROCESSING
INTRODUCTION
8.211 The Ministry uses a computer system to produce monthly Income Assistai^B
cheques for claimants. This system plays an important role in the IncorM
Assistance control structure.
8.212 Since early 1979, two other government agencies have audited various facets^]
controls in this system. Those audits revealed various control weaknesses, whi<«
were reported to management. The Ministry has since acted on the majM
recommendations arising from these two audits.
8.213 Although we examined controls in this system to some extent as part of our
comprehensive audit, we felt that a third audit of the system within two yeaH
would be uneconomical both for our Office and for the Ministry. Instead, our
audit concentrated on the development of a major enhancement of this systerw
 i^r
SECTION 8, COMPREHENSIVE AUDIT       83
8.214 The enhanced system, called "On-line Version II", will allow the Ministry's
District and Regional Offices throughout the Province to obtain and update
information about claimants almost instantly, through the use of computer
terminals. Accordingly, On-line Version II has the potential to strengthen the
Ministry's control of its Income Assistance delivery.
3.215 At the time of our audit, On-line Version II was not yet in operation. Therefore,
we could not examine the controls in the system itself. Instead, we concentrated
upon the methods used by the Ministry in developing the enhanced system. First
we wanted to see if adequate attention had been paid to identifying the necessary
controls, and subsequently to designing and incorporating them into the system.
Second, we wanted to assess the extent to which the systems development had
been managed with due regard for economy.
3.216 Controls. In examining this area, the audit team found that:
• The internal control needs of On-line Version II had not been systematically taken into account in the early stages of its development.
• Controls had not been evaluated for cost-effectiveness.
• The system had been pilot tested in two operating locations, but the
Ministry had not yet taken action to ensure that the controls in the system
would be fully analyzed prior to further implementation.
• The responsibilities of all parties who were to have contributed to the
specification, design and testing of system controls had not been clearly
defined. As a result, the controls ultimately incorporated within the system
were essentially those which the development group had selected, with
only minimal input from users and the financial group.
; .217 The need for well-designed and effective controls in this system is critical,
particularly in the light of the advanced nature of the technology involved and
the impact of introducing this technology into an environment where operating
personnel have had little exposure to this type of computer system.
.218 While we were not in a position to evaluate the potential effectiveness of the
controls which have thus far been incorporated into the pilot system, we are
|   nevertheless concerned that both the lack of user and financial group involve-
■   ment and the lack of preparatory training for line personnel may weaken the
effectiveness of controls.
' ZONOMY
.219 We examined the extent to which due regard to economy had been demonstrated in developing the Version II computer system under the following head-
■ ings:
• planning;
• cost benefit analyses;
• project management; and
 84        REPORT OF THE AUDITOR GENERAL
•   system development methodology.
8.220 Planning. We observed that planning had not been based on either a formal!
Ministry business plan or an electronic data processing development plan. The]
submissions made to the Treasury Board to obtain project funding, however, did]
identify certain objectives which the Ministry believed could be attained by j
implementing the proposed system (e.g., improved fraud control, better servj®8
to clients by combining data from various programs within the Ministry).
8.221 The project plans that we examined underestimated the degree of expertise*™
computer technology necessary to successfully implement the on-line system!
The plan also failed to consider how the system, when implemented, could
affect both controls in other parts of the organization and the Ministry's operating]
environment.
8.222 The executive group did not have enough reliable information provided in an!
understandable format to ensure that its decision making process was based onj
complete and accurate information.
8.223 We also noted that at the time the project was conceived, few individuals in the
Ministry had the qualifications and experience necessary to design and imple!
ment this type of advanced computer system. Moreover, a system for ensuring ]
that proper management and project controls would be established and reliably!
maintained did not exist, for the most part, for the duration of the project.   i
8.224 Cost benefit analysis. In part because the planning process and the information!
derived from it were incomplete, the Ministry underestimated the size of thel
project. Moreover, the costs of the project were more than had been estimated!
and it has taken significantly longer to complete than had been expected.
8.225 The cost benefit analysis accompanying the Treasury Board submission com
tained certain deficiencies. For example, it either omitted or underestimated the
cost of several items. A significant portion of the estimated dollar benefits wefS
intangible. For example, the Treasury Board submission stated that staff time!
would be saved in the District Offices as a result of eliminating manual procei
dures. However, savings in staff time were not computed in such a way as to!
provide a true indication of the probable cost savings. This submission also
contained no provision for the range of possible uncertainty associated with the
cost estimate.
8.226 Accountability for costs relating to developing the project was unclear, particu-a
larly when the British Columbia Systems Corporation became involved with|M
We also noted that despite the large cost escalations in the project, until recentH
no special review process for re-examining this system had been installed.^
8.227 Project management. A preferred practice in systems project management isthjijB
project managers should be drawn from that part of the organization which will
.
 —
SECTION 8, COMPREHENSIVE AUDIT       85
ultimately use the system under development. However, the manager of the
On-line Version II project was not a member of the main group that would be
using the system. He, along with the Ministry Systems Committee, the British
Columbia Systems Corporation and different user committees, had various
responsibilities for the project. However, these responsibilities had not been
clearly defined at any stage of the project, although it appeared that the project
manager had, in fact, borne the major responsibility, and hence should have
been accountable for the entire project.
8.228 We recognize that much of the uncertainty surrounding responsibility for parts of
the project resulted from the organizational changes that occurred when the
Vancouver Resources Board and the Ministry were amalgamated. In 1980, the
Ministry carried out a study to determine the best way to organize the electronic
data processing function, and is currently acting on the recommendations.
8.229 Our audit concluded that the project management techniques used in the project
were inadequate for:
• predicting and controlling the project duration and its cost;
• controlling changes in specifications; and
• coordinating the activities of the ministry staff and outside agencies who
became involved in this project at various stages in its development.
8.230 System development methodology. Our audit indicated two major flaws in the
methodology used to develop the system: First, what the system was expected to
do (what users needed) had not been specified in enough detail to guide the
design and construction phases of the system's development. Second, the manual procedures required to use the system in the District Offices were not substantially addressed soon enough. As a result, when testing of the "completed"
system was begun in mid 1979, it was found that the system did not perform
according to the Ministry's expectations and needs. Accordingly, implementation has been delayed.
8.231 To ensure that controls have been adequately provided for in the Ministry's new
On-line Version II system, the Ministry should:
• review the system to ensure that all necessary control criteria have been
met before fully implementing it; and
• adopt clear control standards to be adhered to in any future computer
system developments.
8.232 To ensure that due regard to economy is achieved in future development
projects, the Ministry should ensure that it has sufficient qualified personnel
before undertaking such projects, that a suitable organization structure is established (including provision for user and functional direction), and that responsibilities of all key project participants are clearly articulated and understood.
data
1.233
The Ministry should adopt a clear set of generally acceptable electronic
 86        REPORT OF THE AUDITOR GENERAL
processing system development standards including provisions for:
• preparing complete cost benefit analyses during the planning stage;
• properly monitoring costs and technical specifications;
• reporting in a complete and useful format information to senior manageW
ment;
• establishing user-acceptance criteria;
• evaluating the system before and after implementation; and
• ensuring that controls provided for in and over the operating systems are
adequate.
INTERNAL AUDIT
SCOPE OF OUR AUDIT REVIEW
8.234 We reviewed the Ministry's Internal Audit function to determine the extent tS
which this function, as it is currently organized and carried out, forms an
effective part of the Ministry's financial management and control system. TheJ
review also assessed the extent to which the Internal Audit Group might affeM
the scope and planning of our own regular attest audit work. Our revie^B
included all major facets of Internal Audit as follows:
mandate;
reporting relationships;
planning;
staffing;
techniques; and
reporting.
AUDIT FINDINGS
8.235 Mandate. The current job description for the Supervisor of Internal Audit states
that he is "responsible for developing and implementing an independent proga
ram for appraising the operation and administration of the Ministry as a service^BJ
management and executive and to make appropriate recommendations for
improving programs, policies, systems and procedures." However, the 197a
Annual Report limits the objective of the Ministry's Internal Audit team to
evaluating the standards and administration of the Ministry's programs. Th^B
restriction reflects the objectives for Internal Audit as contained in a letter dated
August 9,1976 which introduced the Internal Audit Group to its new responsibM
lities.
8.236 Reporting relationships. The Internal Audit Group reports to the Comptroll^B
However, the Deputy Minister has advised the head of Internal Audit that he
should feel free to approach him directly concerning significant audit observS
tions. We were told, however, that this informal reporting channel has not been
used during the past year.
 SECTION 8, COMPREHENSIVE AUDIT       87
8.237 During our review of the organization of Internal Audit and its reporting arrangements, it became clear that the Group was not being kept adequately informed of
developments within the Ministry. For example, Internal Audit was not aware of
computer developments nor was it aware of certain consultants' reviews, internal reports and studies monitoring the processing of accounting entries. The
January and June 1980 audit reports of the Comptroller General on Income
Assistance were received late and the Group audited a District Office without
knowing that it was about to be split into two offices. The head of Internal Audit is
not a member of any committee nor does he attend management or systems
meetings.
8.238 Although increased involvement and improved communication is possible
under existing organizational arrangements, the Ministry is considering the
formation of an Audit Committee. We support its formation. Although the audit
function would be guided by this Committee, the head of Internal Audit should
nevertheless report directly to the Deputy Minister.
8.239 Audit planning. A major task facing the head of Internal Audit is that of planning
adequate audit coverage. Audit planning should ensure that all activities of the
Ministry are identified, potential audit areas are ranked in order of priority, and
I that appropriate audit objectives are determined for each area chosen for audit.
In a large, complex organization such as the Ministry, it will be necessary to
subdivide the audit responsibility into manageable "audit units". An audit unit is
an assignment of manageable size, but of such scope, that if audited with due
care, will produce meaningful information for management. The ranking of
potential audit units should be based on materiality, importance to effective
management, the degree of risk associated with different areas and opportunities
for improvement. Other criteria to consider include reorganization and major
changes in systems and key personnel.
8.240 It is important to look at the entire audit unit from a functional, organizational
and program viewpoint.
8.241 Staffing. A profile of the Internal Audit Group shows that its staff have had some
formal accounting training and auditing experience and that their knowledge of
the Ministry's operations has been gained mainly through working in the Internal
Audit Group. Such personnel usually need about one year to gain enough
experience to carry out the existing audit program in District Offices. It will be
necessary over time to supplement current manpower resources and to provide
guidance and direction in order for the Group to assume increased responsibility. Once the Group has determined and confirmed its audit objectives, and
established audit scope and techniques, it will be able to determine what
manpower resources are appropriate to carrying out these tasks.
• 3.242 Systems-based auditing. The Internal Audit Group has not as yet used a valuable
I audit technique known as "systems-based auditing". This technique can help to
 88        REPORT OF THE AUDITOR GENERAL
T
increase the effectiveness of Internal Audit as a key component of the Ministry's
general system of financial management and control. This type of auditing is
designed to evaluate how accounting controls ensure that transactions are beinjB
properly accounted for.
8.243 Other audit techniques evaluate only the accounting results. However, properly
applied systems-based audit techniques allow the auditor to make recommend]H
tions designed to avoid errors before they occur. Therefore, this technique is a
more effective approach than an after-the-fact audit of individual transactional
8.244 Other audit techniques. The Internal Audit Group has thus far not used certain
other specialized audit techniques that complement the systems-based audw
approach. They enable the auditor to carry out certain tests to determine thw
extent and impact of apparent systems' weaknesses. These techniques, such as
statistical sampling and internal control questionnaires, provide an objective
basis for carrying out the audit work and forming a general audit assessment. Nor
has the Group done work in the field of electronic data processing, either
through auditing computer systems and data processing facilities, or by using
computer-assisted auditing techniques.
8.245 Reporting. Audit reports can take as long as two to four months to release and a
further two to three months to clear. Follow-up procedures are in force and
reminder notices are frequently required to elicit replies on reported audit
observations. Audit reports deal with departures from procedures as set out in
manuals. Frequently such departures are ultimately sanctioned under the discretionary authority of the Regional Manager. Audits result in similar observation
for each District Office and reports do not attempt to identify causal factor^B
SUMMARY
8.246 Internal Audit is meeting management's original expectations and the consensus
within the Ministry is that the Internal Audit Group has been performing adequately. However, management acknowledges the need for Internal Audit to
play a more effective part in the managerial control system. Our audit confirms
the need to expand the scope of Internal Audit's activities and to establish
procedures and techniques that are appropriate to such an expanded role.
Until this is accomplished, our Office will be able to place only limited reliance
on the work of Internal Audit when we define the scope of our own audit work.
8.247 To ensure that Internal Audit plays an effective part in the managerial control
systems, its role should be expanded to enable it to independently appraise the
financial function as well as management and operating control systems in th§
Ministry.
8.248 The Internal Audit Group should report directly to the Deputy Minister to ensure
 SECTION 8, COMPREHENSIVE AUDIT
89
independence and adequate, direct communication.
8.249 The Audit Committee now under consideration should be established and
should be given sufficient scope and authority to establish appropriate manpower resources, to provide operational direction and to endorse the independent
status of internal audit.
8.250 To ensure that appropriate audit coverage is provided for, an audit plan should
be developed and documented for approval by the Audit Committee. The plan
would include:
• a long-term plan that divides the Ministry into manageable audit units to
ensure audit coverage of all important areas;
• an assessment of potential audits according to criteria based on materiality,
importance, degree of risk and opportunity for improvement;
• the audit objectives and scope for each audit unit;
• staff training and recruiting objectives; and
• an annual schedule and related work plan.
8.251 The level, quantity and mix of staff resources in the Internal Audit Group, should
be reviewed in light of the Ministry's audit needs and efforts should be made to
augment staff resources where appropriate.
8.252 In order to ensure that Internal Audit can provide effective audit coverage,
systems-based audit techniques and supporting procedures should be progressively introduced.
OBSERVATIONS ARISING FROM AUDIT OF THE PUBLIC ACCOUNTS
INTRODUCTION
8.253 As part of the Comprehensive Audit of the Ministry, our Office tested enough
| transactions for us to be able to express an opinion on the fairness of the financial
statements of the Province for the year ended March 31, 1980. We refer to this
portion of our audit as "attest work". The attest audit was done in two sta'^s. In
the first stage, we studied and evaluated the controls within the Mir,;,try's
accounting system for administrative expenditures to determine its reliability. In
stage two, we carried out tests and other procedures considered necessary to
confirm our evaluation and opinion.
SYSTEM OF CONTROLS
8.254 The first stage was carried out in conjunction with other elements of our Comprehensive Audit. It enabled us to thoroughly understand the controls within the
Ministry that ensure both that funds are reliably accounted for, and that the
collection and expenditure of funds are properly controlled. We have incorporated our comments on the system of internal control in the segment on Financial
 90        REPORT OF THE AUDITOR GENERAL
71
Management and Control (paragraphs 8.115 to 8.133).
.255 In the second stage, our Office carried out tests and other substantive work on M
range of transactions including payroll. We selected these transactions as part ol
the government-wide sample. As noted, the results of these tests support 6m
observations made in paragraphs 8.115 to 8.133. Although the audit team founil
that the Ministry did have many basic financial and accounting controls in place!
our tests indicated that controls could and should be improved. For example!
• Time sheets supporting payments made to hourly wage staff at WoodlandBJ
a government-operated institution for retarded children and adults, are n<S
authorized by the appropriate supervisors. As a result, employees could be
paid for hours not worked or for unnecessary overtime.
• An invoice from the Medical Services Plan of British Columbia foa
$94,277.68 for March 1980 was not paid until six months later, indicating
that the accounts payable filing system should be strenghtened.
• The Ministry does not retain supporting records for automatic journaj
entries which transfer substantial amounts of payroll expenditures from the
Ministry's Vote to the Ministry of Finance's "contingency" Vote. Because!
this information is not retained by the Ministry of Human Resources it is
possible that the initial journal entries have not been reviewed to ensiffl
the accuracy of the amount transferred.
• Our audit revealed an instance in which the Ministry had been billed and
had paid for rented space that it had not leased. The Ministry staff are tryifS
to improve controls in this area. While the amount involved in the abova
payment was not material, this observation does indicate some deficienaB
in the review and control of rental billings.
• Management at appropriate senior levels has little involvement with the
GAIN Supplementary Benefits to OAS/GIS/SPA recipients. Although the;
Ministry does use the federal agency's computer system extensively]™
should still ensure that those responsible for administering the provincim
program become involved in it to some extent.
 SECTION 8, COMPREHENSIVE AUDIT       91
Summary of Recommendations and Ministry's Comments
Recommendations
8.113 As part of its efforts to improve management control, the Ministry should develop
clearly defined performance indicators
and work expectations, in terms of both
quality and quantity. These should then be
used as the basis for accumulating and reporting performance information at all
levels in the Ministry in order to allow management to act promptly when warranted
and to improve the allocation of resources.
8.114 The Ministry should ensure that it reports
performance information to the Legislative
Assembly which indicates the extent to
which it has been successful in delivering
an efficient program. The information
should include data on the cost-
effectiveness of various alternative
methods of delivering the program.
FINANCIAL MANAGEMENT AND CONTROL
3.132 In order to ensure that it realizes the full
benefits of a strong financial management
and control function the Ministry should:
• review the number and level of personnel in the financial function to ensure that it is strong enough to effectively carry out its responsibilities;
and
• ensure that it prepares a comprehensive operational plan detailing the
goals and objectives, activities, timing, performance criteria and priorities for the Comptroller's Office.
Ministry's Comments
REPORTING OF PERFORMANCE AND
ACCOUNTABILITY INFORMATION
Agreed. The Ministry is reorganizing headquarters staff to establish a Strategic Planning branch.
One of the core functions of this
branch will be to assist management of the Ministry by providing
the necessary leadership and technical support to develop key indicators of the efficiency, effectiveness and economy of Ministry
programs and operations.
Agreed. The Ministry will revise
the format and content of the 1981
Annual Report to permit this.
Agreed. Work is underway to develop a comprehensive operational plan for the Comptroller's
Office. The Ministry also recognizes the need to upgrade the
quality and quantity of financial
personnel. A review of the organization and staffing of the Comptroller's Office is underway; however, it should be noted that the
Ministry has experienced some
considerable difficulty in securing
qualified accounting staff given
the current Government-wide
classification plan.
 92        REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
8.133    The Comptroller's Office should:
• develop its I ines of functional respon-
sibility and provide more guidance
and advice to line managers in order
to help them achieve the necessary
levels of control over program expenditures in a flexible, efficient
manner;
• ensure that it further develops planning, budgeting and reporting systems to make them more useful in
measuring performance and in allocating resources;
• improve systems and procedures designed to ensure that revenues and
expenditures and assets in the Ministry's care are being adequately safeguarded; and
• ensure that all financial and control
implications of new systems such as
computer-based systems, have been
taken into account and that all key
systems and procedures are adequately documented.
CONTROLS IN THE INCOME ASSISTANCE SYSTEM
8.153    In order to improve the supervisory function, the Ministry should:
• clarify the role and authority of District Supervisors;
• establish standards for expected performance;
• monitor performance against the indicators established to improve
accountability and to ensure that
these are considered when Supervisors are being appraised; and
• continue to provide more and better
training at the supervisory level.
8.166    The Ministry should continue its efforts to
augment its training program. Particular
Agreed. These are ongoing actij
ities within the Comptroller^
Office.
Agreed. A job content and traB
ing profile review for supervise
is underway. As part of this process ail District Supervisors have
received an updated statement of
their role and authority. Also, a
three-year plan to address supervisory training needs has been developed.
Agreed. Management reports relating to staff training activities are
 SECTION c
, COMPREHENSIVE AUDIT       93
Recom
mendations
Ministry's Comments
emphasis should be given to:
being revised.
•   improving the process for identifying
training needs;
•   ensuring effective coordination of
training efforts;
•   evaluating and reporting the results
of training; and
•   accumulating and reporting informa
tion showing all training costs.
8.172
The Ministry should re-examine the extent
to which it has made use of accounting and
internal controls at the District Office level
and should ensure that those types of controls are consistently used whenever possible.
Agreed.
8.173
The Ministry should review its procedures
Agreed. The matter of confiden
for maintaining physical security over
tiality and security of files is seen
documents to ensure that only authorized
as a high priority within the
persons have access to them.
Ministry.
8.176
In conjunction with developing perform
Agreed. Technical assistance to
ance measurement indicators and criteria,
develop quality control plans will
the Ministry should consider implementing
be provided by the new Strategic
a quality control function to provide mana
Planning branch noted above in
gers with reliable, current information
the Ministry's response to recom
about how efficiently and accurately
mendation 8.113.
claimant files are processed.
8.181
In order to realize the potential benefits of
the inspection function, the Ministry
should give guidance to staff in identifying
cases which they should refer to the Inspection Group.
Agreed.
IDENTIFIED OVERPAYMENT AND ERRORS -
CONTROL AND COLLECTION
8.196
Responsibility for dealing with cases of
overpayment should be clearly established
for individuals and groups within the
Ministry. The Ministry must also provide
sufficient instruction to staff to ensure that
overpayments   are   identified    and   are
Agreed.
\	
 94        REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
disposed of appropriately and consistently
from district to district.
.197 In order to ensure that the Ministry meets
adequate standards of accounting and control for identified overpayments, it should
establish an overpayment and collection
system to ensure that identified overpayments are recorded, properly controlled
and accounted for, and that write-offs are
properly authorized. This system should be
incorporated into the overall performance
information system and the information
produced should be reported promptly to
appropriate levels of management.
Agreed.
COST-SHARING
8.210 To ensure that the Ministry realizes as
much as it can from cost-sharing agreements, it should direct its attention toward:
• ensuring that cost-sharing responsibilities are documented and understood within the Ministry, and that
other ministries also understand their
cost-sharing responsibifities;
• refining assessment criteria and reporting procedures used to monitor
performance;
• allocating enough staff to ensure that
claims for cost-sharing are complete
and up to date; and
• ensuring that all operating systems
work toward supporting optimum
cost-sharing.
ELECTRONIC DATA PROCESSING
8.231 To ensure that controls have been
adequately provided for in the Ministry's
new On-line Version II system, the Ministry
should:
• review the system to ensure that all
necessary control criteria have been
Agreed. The Ministry has allocated three permanent staff posl
tions and another four temporary
staff to cost-sharing activitiesBB
Agreed. The Ministry has
recognized this deficiency and
plans to conduct a formal review
as recommended. The Minffl
will also develop a project
administration manual to provide
u
 SECTION 8, COMPREHENSIVE AUDIT       95
Recommendations
Ministry's Comments
met before fully implementing it; and
• adopt clear control standards to be
adhered to in any future computer
system developments.
1.232 To ensure that due regard to economy is
achieved in future development projects,
the Ministry should ensure that it has
sufficient qualified personnel before
undertaking such projects, that a suitable
organization structure is established
(including provision for user and
functional direction), and that
responsibilities of all key project
participants are clearly articulated and
understood.
|233 The Ministry should adopt a clear set of
generally acceptable electronic data
processing system development standards
including provisions for:
• preparing complete cost benefit
analyses during the planning stage;
• properly monitoring costs and
technical specifications;
• reporting in a complete and useful
format information to senior
management;
• establishing user-acceptance
criteria;
• evaluating the system before and
after implementation; and
• ensuring that controls provided for in
and over the operating systems are
adequate.
control standards and guidance
for Ministry staff involved in
computer systems development.
Agreed. The organization and
staffing levels relating to Ministry
computer systems development
and operations have been revised
to better ensure appropriate
staffing and controls (including
provision for independent quality
assurance reviews and for user
and functional direction) for all
such projects.
Agreed. Such standards will be
set out in the project
administration manual noted
above.
INTERNAL AUDIT
8.247
To ensure that Internal Audit plays an
effective part in the managerial control
systems, its role should be expanded to
enable it to independently appraise the
financial function as well as management
and operating control systems in the
Ministry.
Agreed. The mandate,
organization and staffing levels of
the Internal Audit Group have
been revised to enable the Group
to effectively perform this
expanded role.
 96
REPORT OF THE AUDITOR GENERAL
7!
Recommendations
Ministry's Comments
8.248 The Internal Audit Group should report
directly to the Deputy Minister to ensure
independence and adequate, direct
communication.
8.249 The Audit Committee now under
consideration should be established and
should be given sufficient scope and
authority to establish appropriate
manpower resources, to provide
operational direction and to endorse the
independent status of Internal Audit.
8.250 To ensure that appropriate audit coverage
is provided for, an audit plan should be
developed and documented for approval
by the Audit Committee. The plan would
include:
• a long-term plan that divides the
Ministry into manageable audit units
to ensure audit coverage of all
important areas;
• an assessment of potential audits
according to criteria based on materiality, importance, degree of risk and
opportunity for improvement;
improvement;
• the audit objectives and scope for
each audit unit;
• staff training and recruiting
objectives; and
• an annual schedule and related work
plan.
8.251 The level, quantity and mix of staff
resources in the Internal Audit Group,
should be reviewed in light of the
Ministry's audit needs and efforts should be
made to augment staff resources where
appropriate.
Agreed.  The Internal AudiS
Group now reports to the Office of
the Deputy Minister.
Agreed. The Audit Committed
has been established.
Agreed. A long-range audit pla™
will  be developed.  When
completed this plan will be
presented for approval by tha
Audit Committee.
Agreed. The Ministry has
recently completed a review of the
organization and staffing of the
Internal Audit Group.
Recruitment efforts are now
underway to augment existiM
staff resources, with particular
attention being given to the
selection of qualified staff with
extensive    experience   in
 SECTION 8, COMPREHENSIVE AUDIT       97
Recommendations
Ministry's Comments
8.252 In order to ensure that Internal Audit can
provide effective audit coverage,
systems-based audit techniques and
supporting procedures should be
progressively introduced.
systems-based and related audit
techniques.
Agreed. As appropriately
qualified staff are recruited more
advanced audit techniques will be
progressively introduced.
  PART 3
FINANCIAL MANAGEMENT
AND CONTROL AUDITS
  PART 3,        101
Table of Contents
PART 3:
9. Financial Management and Control Audits
Introduction   103
Ministry of Education   105
Report Precis   105
Recommendations and Ministry's Comments   106
Ministry of Finance  115
Report Precis   115
Recommendations and Ministry's Comments   116
Ministry of Human Resources  122
Report Precis   122
Recommendations and Ministry's Comments   123
Ministry of Lands, Parks and Housing   128
Report Precis   128
Recommendations and Ministry's Comments   129
  If	
SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        103
Financial Management and Control Audits
Introduction
9.1 This year my Office carried out a limited number of reviews of financial management and control in several ministries. This work was launched to lay the
foundation for conducting similar audits in other ministries at a future date. In
addition, we wanted to further develop the systems-based audit approach which
this Office is already using. Finally, we wished to help prepare key members of
my senior staff to become involved in the comprehensive audit process previously described.
9.2 The audits reported on here were conducted under section 8, of the Auditor
General Act. In essence, they represent only one aspect of comprehensive
auditing: that which examines financial management and control. In Part 2,
paragraphs 12.26 and 12.27 of my 1979 Report to the Legislative Assembly, I
commented on this form of audit as follows:
"The provisions in section 8(1) of the Auditor General Act require that I call
attention to anything arising from my examination which in my opinion
should be brought to the attention of the Legislative Assembly. These provisions include instances in which systems of internal control and accounting
have been insufficient and they constitute the core area of the "F" in FRAME-
that is, financial controls.
My Reports this year and last contain examples of certain types of observations
and recommendations arising under section 8(1) of the Auditor General Act.
The comments and recommendations thus far reported in this area arose from
observations made by my staff while examining the Government's financial
statements. These evaluations focused, for the most part, on certain types of
processing and accounting controls that we would normally expect to find in
each system examined; for example, segregation of duties and batch processing methods. However, if these types of controls are provided for (and
reliably adhered to in systems) they do not necessarily result in satisfactory
financial control. This is because contemporary accepted definitions of internal control point to the important role that planning, budgeting and reporting
systems have to play in achieving an adequate level of control. Accordingly,
examinations of control systems in comprehensive audits will continue the
pattern established thus far by my Office for basic internal controls and will
extend to include such control features as the organization of the financial
function, financial reporting and budgetary control systems and internal
audit."
9.3 We carried out financial management and control audits in the Ministries of
Education, Finance, and Lands, Parks and Housing. We also conducted similar
work in the Ministry of Human Resources, as part of our comprehensive audit
 104        REPORT OF THE AUDITOR GENERAL
work there. We chose these Ministries because of their size and the broad rang J
of government activities which they collectively carry out.
9.4 Each of the financial management and control audits carried out in the fotil
Ministries addressed the following areas:
role, organization and staffing of the financial function;
planning, budgeting and budgetary controls;
financial accounting and reporting systems;
controls over assets, liabilities, revenues and expenditures; and
internal audit.
1
9.5 Part of our work entailed providing detailed material to management that supported the audit team's observations, along with our recommendations for
corrective action. Most of our observations and recommendations have focused
on weaknesses or deficiencies that lie within the authority and responsibility of
individual ministries to remedy. In certain cases, however, our observations^
ministries are linked to areas for which central agencies of the Government haval
responsibility, exercise guidance, direction, or perform certain control func!
tions.
9.6 Accordingly, we have not dealt extensively with these latter areas, since we:
recognize that in some instances, the ministries and central agencies will have^
consult and work together to make the improvements that we have reco^B
mended and which we feel are essential to achieving an adequate level off
financial management and control.
9.7 Our audit work has revealed certain recurring deficiencies in financial management and control. These have appeared in a number of ministries and in thdS
areas in which the central agencies play either a functional or a direct role. As my
Office carries out more financial control audits in individual ministries, we wffl
continue to assess the potential for conducting government-wide examinations
in these areas. This approach was described in paragraph 12.54 of my 19^
Report to the Legislative Assembly.
9.8 As we stated earlier, our Report contains recommendations for corrective actitffl
where we observed deficiencies. These recommendations are, for the most pan
broad in nature. They recognize that it is management's prerogative to chooS
the most appropriate means of carrying out the intent of our recommendation™
9.9 In each of the four Ministries where we conducted a financial management and
control audit, we had the full cooperation of its executive and staff. Th^BJ
cooperation greatly facilitated our work and added to its potential for improviBM
financial management and control.
9.10 The remainder of this Section of my Report briefly summarizes our majaB
observations and presents all of our recommendations for improving financ^
ii
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        105
management and control in each Ministry. To the right of each recommendation, we have included the Ministry's response or comments.
Ministry of Education
REPORT PRECIS
9.11 The Ministry of Education is established and administered in accordance with
the provisions of the School Act. At the time of our audit there were three
principal departments within the Ministry: Schools, Post-Secondary, and Ministry Services. The Ministry's budget of approximately $1 billion is used to provide
funding for public schools education, post-secondary education at colleges and
^* institutes, the Teachers' Pensions Fund, independent schools, post-secondary
students' aid and other related programs.
9.12 Our audit of financial management and control in the Ministry of Education led
us to the conclusion that financial management has, in the past, generally not
played an important enough role in the management of the Ministry. This is
because it has aimed more at the mechanics of administering budgets, arranging
capital financing, accounting and other financial matters. It has not emphasized
its role in ensuring that management has the type of financial information it
needs and that the financial function can provide guidance and direction to
operating personnel who have significant financial responsibilities.
9.13 This situation may in part have been due to the fact that the Superintendent,
Financial Services, who was the Ministry's Senior Financial Officer (as designated by the Deputy Minister) did not report to the Deputy Minister. He was not a
member of the Executive Committee, and certain Ministry officials who were
performing financial functions did not report to him.
9.14 Under this form of organization the financial management and control function
was not fulfilling its proper role. For example, staff were developing and operating budgeting and financial reporting systems with little or no consultation with
the Senior Financial Officer.
9.15 The audit team concluded that the mandate of the Ministry's designated Senior
Financial Officer has not been strong enough to lend sufficient authority to his
position. Accordingly, this mandate has not allowed him to provide the scope of
financial management which the Ministry should have in place.
9.16 Our audit of financial management and control also concluded that there was
considerable scope for improving the Ministry's systems of control, including
planning and budgeting, controls over assets and liabilities and reporting of
financial information in order to achieve the level of financial control that we
believe is needed in the Ministry.
 106
REPORT OF THE AUDITOR GENERAL
9.17 Of particular importance was our observation that the Ministry should devoti
considerable attention to ensuring that internal audit of the appropriate type and
amount is carried out. We believe that the Ministry could derive much bene™
from internal audit. In particular, a strong internal audit function could provjcfl
management with the assurance it needs as to the adequacy of its programs and
management and control systems throughout the Ministry.
9.18 During our audit and before we had completed our field work, we noted that8
management had begun to reorganize the financial function and to improve a
number of areas of financial management and control. For example, the MinisgH
has recently made considerable progress in improving its budgetary and finaS
cial management reporting systems. We also noted that increasing attention was
being paid to adopting control mechanisms, such as audits, over certain of iS
major program expenditures. As such, our recommendations are aimed at
assisting management in its efforts to improve both its financial management and!
control function and its systems, so that these can achieve their intended purposaj
- to provide management with the support it needs.
Recommendations and Ministry's Comments
Recommendations
Ministry's Comments
ROLE, FUNCTION AND REPORTING
RELATIONSHIPS OF THE SENIOR FINANCIAL
OFFICER
9.19 In order to ensure that financial
management and control can provide the
necessary support to management, the
Ministry should ensure that its role is
clearly defined and communicated to
personnel at all levels. The role should
provide for the involvement of the Senior
Financial Officer in all decisions which
have significant financial impact or involve
financial systems or procedures.
9.20    The Ministry's designated Senior Financial
Officer should report directly to the Deputy
The Ministry will ensure that all
personnel are reminded of the role
of financial management and control. This will occur through explanation of the new organizational structure of the Ministry cuS
rently being implemented,
through further training in the new
financial reporting system developed by the Ministry, and
through the introduction of zero-
based budgeting for the next
budgetary cycle. The Senior
Financial Officer will be involved
in all decisions having significant
financial impact or involving
financial systems and procedures.
The Assistant Deputy Minister -
Educational Finance is now the
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        107
Recorr
mendations
Ministry's Comments
Minister.
designated Senior Financial Officer, reports directly to the Deputy
Minister and is a member of the
Policy and Resource Allocation
Committee of the Ministry (the
"Executive" Committee).
9.21
The Senior Financial Officer should be a
See Ministry's Comments on Re
member of the Ministry's Executive
commendation 9.20.
Committee.
FUNCTIONALAND DIRECT RELATIONSHIPS
9.22
The responsibilities and reporting relation
Responsibilities and reporting re
ships of financial officers who report
lationships have been examined
directly to the Senior Financial Officer
and re-developed as part of the
should be re-examined. Processes should
new organization.
be developed to ensure that these reporting
relationships are appropriately established
and operate effectively.
9.23
In order to ensure that the Senior Financial
All financial and other officers
Officer can perform his function effective
performing financial functions
ly, the Ministry should establish and com
will now report regularly to the
municate a policy providing for functional
Assistant Deputy Minister - Edu
direction and guidance from the Senior
cational Finance, whose staff will
Financial Officer. This would require all
also monitor monthly financial re
financial and other officers performing
ports from each responsibility
financial functions to report regularly to the
centre. Quarterly variance reports
Senior Financial Officer and to periodical
will be filed by each responsibility
ly meet with him on financial management
centre manager with his Assistant
and control matters.
Deputy Minister and the Senior
Financial Officer. A major meeting to review financial operation
of each area of the Ministry will be
held on an annual basis, in addition to meetings to develop
budgets or review proposed policies.
STAFFING AND TRAINING
:    9.24
The Ministry should assess the training
The Ministry intends to complete
needs of its financial staff to ensure that all
its reorganization by ensuring that
have been accurately identified. As part of
appropriate assignments of per
this process the Ministry should compare
sonnel are made, competitions
 108
REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
its job needs in the financial area with its
available manpower both in terms of numbers of staff and their qualifications.
9.25 The Ministry should implement a policy of
training and career development for its
financial personnel to ensure that identified training and career development
needs are met.
9.26 The duties of the Ministry's financial officers should be rotated periodically as a
means of ensuring appropriate skills development.
COMMUNICATIONS
9.27 The Ministry should place further emphasis
on completing a comprehensive financial
and accounting manual to ensure that
financial policies and procedures are available in a useful format to all financial officers and responsibility centre managers.
The manual should be updated whenever
policies or procedures change and be reviewed annually by the Senior Financial
Officer.
MINISTRY BUDGETARY PROCEDURES
9.28 In order to strengthen the budgetary control process, the Ministry should define the
specific responsibilities of the responsibility centre managers for preparing budgets.
Guidelines should state the extent to which
Financial Services is expected to participate in strategic planning, and should define the kinds of procedures and financial
completed where appropriate
and training of personnel completed. Further, as new accouM
ing and auditing systems are developed and implemented, iw
staff will be involved in training
See Ministry's Comments on Recommendation 9.24.
Rotation of the Ministry's financial
officers will be considered and,
where possible, undertaken,
although such flexibility is notirrs
mediately obvious because of
general government policies and
agreements surrounding the reaS
signment and deployment of personnel.
Such a manual is currently under
development and release of theS
itial portions will be completed by
March 31 with ongoing work to be
done throughout the year.
Implementation of zero-based
budgeting will establish
documented procedures of this
kind.
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        109
| Recorr
mendations
Ministry's Comments
guidance that it should provide. The Ministry should indicate to what degree Financial Services should participate in the review functions.
.  9.29
Financial Services should have both re
See Ministry's Comments on Re
sponsibility for evaluating budgets and the
commendation 9.28.
authority to require responsibility centre
managers to provide back-up information
for items included in their budgets.
9.30
Provision should be made for formal
A formal re-allocation procedure
approval of all major budget changes or
is almost completed which will
reallocations and adjustments during the
provide clear documentation of
year and these in turn should be reviewed
all re-allocations, with advisory
and approved by the Financial Services
information to all senior manage
Group.
ment and the Department of Educational Finance.
9.31
The Ministry should establish a
A procedure has been completed
documented policy for dealing with
and is being implemented.
variances. Such a policy should include
consideration of:
•   the limits above which variances
have to be explained;
•   who these explanations should be
directed to;
•   the requirements for documenting
any remedial action;
•   the extent of review required by
Financial Services; and
•   the correlation of financial variances
with operating information and sta
tistics.
9.32
Guidelines for the new commitment sys
Guidelines for use of commit
tem should be documented and all indi
ments in the financial reporting
viduals who are involved in recording
system have been completed and
commitments should be provided with an
training is under way.
appropriate amount of training in this area.
': 9.33
To ensure that the impact of new programs
New processes for ensuring the in
is fully assessed, program managers and
volvement of officials of the De
planning officers should coordinate their
partment of Educational Finance
activities with Financial Services. The
are built into the policy develop-
 110
REPORT OF THE AUDITOR GENERAL
1
Recommendations
Ministry's Comments
Senior Financial Officer should review and
challenge programs being developed as to
their financial impact on the Ministry.
BUDGETS SUBMITTED BY SCHOOL DISTRICTS
9.34 To allow the Ministry to determine the cost
of each program and how efficiently it is
run, School District budgets should be prepared on a program basis.
9.35 Control over special program funds should
be improved. The Ministry should review
use of these funds at the School District
level to ensure that funds are used only for
intended purposes.
9.36 The Senior Financial Officer should be actively involved in the current review of the
School Districts' budgeting system to ensure that all matters of financial significance are considered.
9.37 The Senior Financial Officer should be involved in the Ministry's challenge process
of the budgets submitted by the School
Districts.
BUDGETSSUBMITTED BY POST-SECONDARY
INSTITUTIONS
9.38    Post-Secondary Finance should have responsibility for budgets for Post-Secondary
Institutions.
ment committees of the MinistnJJ
All new policy proposals are examined for their financial impact.
Programs are examined for them
financial impact as MinistrS
budgets are developed. Again
Educational Finance officials are
involved.
A project is in its early definitio™
stage to revise school distriM
budget reports to the Ministry on a
program basis. The Assistant Deputy Minister — Educational Finance is involved.
A full review over control and use
of special program funds will be
undertaken as soon as resources
are available in the Finance Research area of the Education^
Finance department.
See Ministry's Comments on Recommendation 9.34.
At present budgets are reviewed
rather than challenged. A Management Indicators Report w
each school district indicates
variances from provincial norms.
All majors anomalies are followed
up by officials of the Schools
Department and the Department
of Educational Finance.
Budgets for post-secondary inM
tutions are developed at the local
level, examined by the Manage-
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        111
Recommendations
Ministry's Comments
9.39 The Senior Financial Officer should be involved in and effectively challenge the
budgets submitted by the Post-Secondary
Institutions.
- 9.40    In order to improve control over funds
issued for continuing adult education purposes to School Districts, the Ministry
should review the use of these funds at the
School District level with special emphasis
on determining that they have been used
only for intended purposes.
- 9.41    The Ministry should request the Post-
Secondary Institutions to prepare long-
term operating plans to assist it in providing
for sound, long-term planning for the most
appropriate use of available funding for
Colleges and Institutes.
FINANCIAL MANAGEMENT REPORTING
] 9.42 In order to enhance the benefit which can
be obtained from the Ministry's recently
developed financial management report-
ment Services section of the Post-
Secondary Department in conjunction with staff of Post-
Secondary Finance, presented to
the statutory Councils who make
further recommendations, and
built into the Post-Secondary Vote
which is managed by the Post-
Secondary Department. The further role of the staff of Post-
Secondary Finance is to ensure
that expenditures are properly
accounted for and that operational audits of post-secondary institutions are undertaken. The Senior
Financial Officer will be involved
in the review of al I budgets as sub-
mitted and incorporated in the
Ministry's Estimates.
See Ministry's Comments on Recommendation 9.38.
The staff of Continuing Education
in the Post-Secondary Department
will continue to make such reviews.
Long-term operating and capital
planning processes are under development.
Once the basic implementation of
the financial management reporting system is complete, our next
 112        REPORT OF THE AUDITOR GENERAL
I
Recommendations
Ministry's Comments
ing system, the Ministry should review the
system to determine the feasibility of incorporating Ministry revenues, operating performance and utilization measurement
data, and key aspects or control account
data from the subsidiary accounting systems in the Ministry.
9.43 The Senior Financial Officer or his designate should periodically review the subsidiary accounting systems operated in the
Ministry to ensure they embody adequate
controls. Any relevant data from those systems that may be useful to senior financial
managers should be included in regular
reports to the Senior Financial Officer.
9.44 The Ministry should prepare cost/benefit
analyses before it develops any major, new
systems or systems modifications to ensure
that the cost is commensurate with anticipated benefits.
DOCUMENTATION OF REVENUE AND
EXPENDITURE SYSTEMS
9.45 All expenditure and revenue systems
should be documented and applicable internal controls reviewed to ensure that they
are adequate.
ACCOUNTING CONTROLS
9.46 To ensure that the Ministry exercises adequate accounting control over all sums
charged to Vote #56, Grants to Reduce
Local School Taxes, and amounts credited
to Vote #60, Recovery of Rural District
Taxes, it should clarify its responsibility
and accountability for these expenditures
and recoveries, and obtain adequate sup-
major activity must be the implementation of zero-based
budgeting. Once this is complete,
further extensions of the reporting
system will be considered.
This work will be undertaken by
the Directors of Accounting and
Internal Audit in the MinistjS
Comptroller's branch, once these
positions are filled.
While costs are relatively straightforward to determine, benefits™
educational programs are often intrinsic and subjective, rather than
financial or objective. Nonetheless, cost-benefit analysis is part of
the consideration of every systerS
proposal, particularly where management or data processing systems are under consideration.BJ
The new officers in the Ministry
Comptroller's branch will undertake this work.
The management of these activities rests with the Ministry of Finance, although the items appear
in the estimates of the Ministry of
Education. This anomalous situation will be discussed with the
Ministry of Finance to see whether
we should assume responsibiJM
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS
113
porting information for these expenditures
and recoveries.
.. 9.47 The Ministry should ensure that it has
enough supporting information to verify
the accuracy of the amounts charged to
Vote #59, Teachers' Pensions Fund.
n Recommendations
Ministry's Comments
9.48 To ensure the adequacy of controls over
the Student Aid Program, the Financial Services Group should review the system used
to approve and pay Post-Secondary student aid.
9.49 To improve control over funds received
from the Federal Government for French
language education programs, the Ministry
should provide more detailed accounting
procedures relating to these funds.
I REVENUE CONTROLS
9.50 Financial Services should identify all revenue sources and review related accounting controls including reports to ensure
that they are adequate and that responsibility for managing revenue is clearly
assigned and consistently performed.
: 9.51 Revenue budgets should be developed and
regularly compared with actual revenue
and collection. Any unusual fluctuations
should be investigated and appropriate
corrective action instituted promptly.
RESPONSIBILITIES FOR CONTROL OVER ASSETS
AND LIABILITIES
| 9.52 The Ministry should establish policies and
procedures for controlling and accounting
for its assets. These should provide for
assigning and documenting responsibili-
and accountability as recommended.
The form of the annual statement
from the Superannuation Commissioner indicating financial
needs in the Teachers' Pension
fund Vote will be reviewed. The
Ministry of Education does not
have management responsibility
for this Vote although it appears in
our Estimates.
The systems used to pay Student
Aid will be reviewed annually by
the Senior Financial Officer and
his staff.
Accounting procedures related to
French language education programs will be documented.
The Ministry Comptroller's staff
will review revenue accounting
procedures and make necessary
improvements.
See Ministry's Comments on Recommendation 9.50.
Assets management will be reviewed and new procedures implemented by the Director of Internal Audit, when this official is
 114        REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
appointed.
See Ministry's Comments on Ref
commendation 9.52.
See Ministry's Comments on Recommendation 9.52.
See Ministry's Comments on Recommendation 9.52.
ties for asset management, control and
documentation and review of all systems in
use in the Ministry.
ACCOUNTING AND PHYSICAL CONTROLS IN
ASSET MANAGEMENT SYSTEMS
9.53 The Financial Services Group should review and document all controls relating to
assets owned by the Ministry in order to
ensure that controls are adequate for safeguarding these assets.
9.54 All attractive and/or valuable assets should
be listed and be subject to periodic physical counts. Accounting controls should be
used to ensure the integrity of fixed asset
records.
9.55 Segregation of duties between physical
custody and record-keeping at all inventory locations shold be developed sufficiently to ensure that asset inventories are
adequately safeguarded.
MINISTRY INTERNAL AUDIT
9.56 In order to provide for internal audit commensurate with its needs, the Ministry
should thoroughly review all its internal
audit requirements. In consultation with
the Office of the Comptroller General it
should determine the manner in which its
needs in this important area can most efficiently be fulfilled.
9.57 According to the results of its review of
internal audit, the Ministry should implement a comprehensive internal audit program with particular focus on the concerns
of Ministry management and those of the
central agencies.
OPERATIONAL REVIEWS OF SCHOOL
DISTRICTS, COLLEGES AND INSTITUTES
9.58 The Ministry should consider auditing the       It is the Ministry's intention, when
A new position, Director of Internal Audit, has been establish^
and will be filled as soon as possible. A full program of internO
audit will be developed to supples
ment services from the ComptrfH
ler General's Office and the Auditor General.
See Ministry's comments on Recommendation 9.56.
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS
Recommendations
M in istry's Com ments
use of funds provided to School Districts,
Colleges and Institutes to ensure that these
resources are being managed and used
with due regard to economy, efficiency
and effectiveness.
B.59 Operational review units should be established within the Ministry's Schools and
Post-Secondary Departments, and the designated staff member responsible for these
units should routinely provide summaries
of audit results to the Senior Financial
Officer.
SCHOOLS' ENROLMENT DATA
9.60 The Ministry should independently verify
the enrolment data submitted, and then
carry out checks in schools in the Districts
to ensure that these data are complete and
accurate enough to use as a basis for calculating School District funding.
sufficient resources have been
identified, to undertake operational audits of field agencies.
Staff from all Departments will be
involved. The results of all audits
will be documented and filed with
the Assistant Deputy Minister -
Educational Finance.
See Ministry's Comments on Recommendation 9.58.
The Ministry undertook audits of
enrolment data in selected school
districts in 1980 and plans to do so
again in future years.
Ministry of Finance
REPORT PRECIS
9.61 The Ministry of Finance is responsible for the direct collection of most of the
Province's revenues and is also custodian and manager of almost all of the
Province's cash and investments. Although relatively few people are employed
to carry out the Ministry's programs, these programs are nevertheless critical to
the management of the Province's revenues, cash and investments.
9.62 Because most of the Ministry's activities are financial in nature, adequate systems of financial management and control are essentialto its operations. In many
- cases it will be a complex task to design and maintain the systems and procedures that are necessary to carry out these operations properly. Complexity also
becomes apparent in defining the role of financial managers in the Ministry and
in designing, developing and implementing cost-effective controls over revenues, expenditures, assets and liabilities.
 116        REPORT OF THE AUDITOR GENERAL
9.63 A key conclusion arisingfrom our audit is that the Ministry could take many mom
steps to improve both its organization and its system of financial management
and control in order to bring them to an acceptable level. It is particula^B
important that the Ministry should:
• strengthen the organization, leadership and staffing of the financial furiwj
tion so that it can operate effectively;
• coordinate its planning, budgeting and budgetary control systems and
improve financial reports issued to managers in order to provide them wiW
proper information and support;
• reinforce the role of internal audit so that it can become a key part of thS
management and financial control system, and thus provide assurance tol
management that its control and management systems are adequate; anH
• maintain operating controls over revenues and expenditures, and inverJJ
tory controls over assets.
9.64 Successfully strengthening financial management and control could provi™
significant benefits to the Ministry by:
• providing the type of financial management information that would projj
mote accountability and improve performance in all of the Ministr^B
operations; and
• helping the Ministry to cope with increasingly complex management tooH
in a changing environment which will undoubtedly be affected by advances in electronic data processing technology for some time to comeBJ
9.65 When we were carrying out our audit, we observed that the Ministry had
recognized the need to strengthen the role of financial management and conti™
in the management process. The Ministry had commissioned a special study^B
evaluate its organization and structure, including the organization of thefirj^BJ
cial management function. The Ministry is also taking steps both to improve'™
methods of communicating financial control policies and procedures, and m
rectify previously identified control weaknesses.
9.66 The Ministry's initiatives, therefore, represent positive steps, which shdl&l
contribute to creating an environment in which financial management arM
control can be developed to a level that will satisfy the Ministry's needs.   ]
Recommendations and Ministry's Comments
Recommendations Ministry's Comments
ROLE OF FINANCIAL MANAGEMENT
9.67    Management of the financial function. The An organizational structure for the
role and organization of the financial func- financial function has been^S
tion should be clearly defined. Its res- veloped  and  is  being iM
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        117
|'Recommendations
Ministry's Comments
ponsibilities should be organized in such a
way as to ensure the reliability, completeness, relevance and accuracy of financial
information, advice and services provided
to management.
19.68 Functional direction. The lines of authority, both direct and functional, should be
communicated throughout the Ministry.
Strong financial direction should be provided to all personnel with financial responsibilities to ensure that all activities are
managed according to consistently applied
standards.
K.69 The Senior Financial Officer. The Deputy
Minister should designate a Senior Financial Officer who will have the responsibility for designing, communicating and
maintaining all financial administration
systems within the Ministry. This officer
should be given enough functional authority to be seen throughout the Ministry as the
source of leadership and direction in all
matters concerning the systems of financial
administration. He should report directly
to the Deputy Minister and be a member of
the management committee.
^AFFING OFTHE FINANCIAL FUNCTION
|fe.70 Position classifications. The Ministry
should review the responsibilities of all
financial management and supervisory
positions to ensure that the classification
levels of those positions are commensurate
with the responsibilities associated with
them.
Ife.71 Training and professional development. A
staff training and career development policy should be developed. Both inhouse and
external training programs should be
established throughout the Ministry in
order to ensure that financial personnel
plemented. Roles and responsibilities of managers and the Controller have been defined in a policy
statement.
As indicated above, roles and responsibilities have been defined,
reporting requirements established and an annual budgeting
and review cycle put in place.
This position has been defined
and is in place. The position reports to the Assistant Deputy
Minister, Treasury and Administration.
All position classifications within
the Administration Branch are
under review.
The Ministry's Personnel and
Payroll staff is developing an inhouse and external staff training
program for implementation in
1981/82.
 118
REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
have skills commensurate with their
responsibilities.
9.72 Financial function staff requirements. The
number and quality of financial staff
should be reviewed. If necessary it should
be augmented to allow the financial management function to serve the needs of the
Ministry adequately.
COMMUNICATION AND DOCUMENTATION
9.73 Financial policies and procedures manual.
The Ministry should document all financial
policies, responsibilities, systems, procedures, directives and guidelines as part of a
ministry manual to help ensure that financial management and control systems and
procedures are clearly understood and
consistently applied at all levels.
PLANNING, BUDGETING AND BUDGETARY
CONTROL
9.74 As part of the Ministry's continuing efforts
to improve its management and control
systems, special emphasis should be given
to designing an integrated system of planning, budgeting and budgetary control in
order to ensure that managers at all levels
have the information they need to manage
effectively, and that they can be held
accountable for discharging their responsibilities.
ACCOUNTING AND FINANCIAL REPORTING
SYSTEMS
9.75 In conjunction with making improvements
to the planning, budgeting and budgetary
control systems, the Ministry should design
a financial reporting system that generates
financial and non-financial data. Reports
should clearly show both the levels of re-
This is an ongoing consideration
in the Ministry's staff training and
recruitment program.
A Central Ministry Services polkB
and procedures manual is being
developed. Three of the items S
be included are: 1) Budgets anra
Expenditure Control 2) Signing
Authorities and 3) Vote Expenditures. These policy and procedures are designed to ensurS
budget control both at the Branch
level and Ministry level.
An annual budgeting and review
cycle has been put in place. Trm
includes priority setting, object™
setting, performance measurement, budgeting techniques and
management evaluation.
Monthly financial management
reports, both from the Controller
to managers and from managers to
the Controller, are in place. Non-
financial reports, based on exception reporting are being de-
 1
SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        119
recommendations
Ministry's Comments
sources used and the results of their utiliza
veloped at the Branch level.
tion.
CONTROLS OVER EXPENDITURES
19.76    Preparation of expenditure vouchers in the
A signing authority policy is in
Treasury Section. All expenditure vouchers
place. Documentation of sample
should be prepared in Treasury Section and
signatures is near completion. We
should be based on approved invoices and
do not agree that all vouchers
payroll information from authorized
should be prepared centrally.
branch officers. Documented authorities
Vouchers should be prepared and
and sample authorizing signatures should
certified by each responsible man
be available to Treasury Section personnel.
ager and approved centrally in
accordance with documented
procedures.
K.77    Approval of claims against the "Conting
A procedure for claims against
encies (All Ministries)" Vote. Charges
Building Occupancy Contingen
against the salary and other contingencies
cies is in place. It is based on
vote should be supported by the indepen
Treasury Board pre-approval. A
dent approval of Treasury Board Staff, in
similar system will be put in place
order to provide assurance that the
for Salary Contingencies, in 1981/
amounts charged to the vote are accurate
82. We do not agree that Treasury
and properly authorized.
Board Staff should again approve
at the time the charge is being
made.
1 9.78    Expenditure controls in the Securities Sec
tion. In order to strengthen its system of
internal control over expenditures, the
Securities Section should:
•   Clearly divide duties between pur
The issue is currently being ad
chasing investments and arranging
dressed in the Ministry's reorga
bank transfers.
nization.
•   Require that cheque vouchers be
This has been done.
approved by personnel whose duties
do not include approving invoices
and preparing cheque vouchers.
•   Ensure that invoices and supporting
This has been done.
documents are effectively cancelled
to prevent resubmission in error.
•   Routinely subject vouchers and sup
This is currently being incorpo
porting information to accounting
rated into Branch procedures.
scrutiny before central processing.
•   Try to have the Section's temporary
The entire staffing issue has been
 120
REPORT OF THE AUDITOR GENERAL
1
Recommendations
Ministry's Comments
accounting positions changed into
permanent positions to ensure that
current levels of accounting performance and efficiency are maintained.
CONTROLS OVER REVENUES INCLUDING
ACCOUNTS^CEIVABLE
9.79 Revenue control and collection policies. I n
order to ensure that revenue is consistently
and reliably collected and accounted for, a
ministry-wide statement of policies relating to accounting and financial control
over revenues should be developed. These
policies, formulated by senior financial
management, should state the standards to
be met in the collection of and control over
revenues. The policies and procedures for
the control and collection of revenue
should be based on applicable legislation
and directives of central agencies.
9.80 Treasury Section cash and banking procedures. In order to strengthen control over
cash handling and recording procedures,
there should be a supervisory review or
independent check made of the daily cash
reconciliations and bank deposits in the
Treasury Section.
9.81 Consumer Taxation Branch cash handling
procedures. To provide protection for revenue receipts throughout the processing
cycle, the Branch should adopt the following procedures:
• Victoria Consumer Taxation Branch
receipts of cash and cheques should
be listed and controlled if not deposited immediately, and cheques res-
trictively endorsed as soon as possible after mail opening.
• Vancouver cash and cheques should
be I isted as soon as they are received,
and subsequently cleared against a
copy of the "Receipt - Tax Transmit-
addressed in the reorganization]
master plan.
A pol icy statement for governmerwj
is being prepared.
Cash management supervisory
role was discussed in a recent con-
sultant's report on the Minist^B
organization. The recommend™
tions are currently being implemented.
The revenue functions of the
Ministry are being reorganize™
The concerns addressed here are
being dealt with.
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        121
Recommendations
tal Form", receipted by the Government Agent.
©.82 Income Taxation Branch collection and
accounting procedures. Efforts should be
made as soon as possible to separate the
duties of the cash handling and accounts
receivable functions in the Income Taxation Branch.
9.83 Real Property Taxation Branch billing and
accounting systems. In order to ensure that
management is provided with accurate
and reliable financial management information, the Ministry should consider improving both the reliability and capabilities
of the Real Property Taxation Branch billing and accounts receivable systems.
:ONTROLS OVER ASSETS
9.84
9.85
Asset policy statement. In order to clarify
responsibility and accountability for the
control of assets, a ministry financial
manual should clearly document policies
defining both the assets requiring ongoing
control, and the responsibilities for their
management.
Inventory count of securities. In order to
verify the existence of securities it holds for
safekeeping, the Securities Section should
count the securities at least once each year,
under the supervision of senior section
staff. The physical counts should be independently compared and reconciled to
written control records and accounts.
9.86
Fixed assets inventory. In order to provide
protection over and accountability for
ministry assets that are not subject to
Ministry's Comments
These concerns are being addressed in the reorganization of the
Revenue Division.
The Ministry will be reviewing
these systems as soon as the
availability of resources permits.
We are in agreement with this recommendation. It is planned to
have such a policy and procedure
in place by the end of 1981/82.
With the full implementation of
the Ministry reorganization, adequate resources will be available
to allow such a count. While we
agree with completing a count
other than the Auditor General's
count, it may be advisable to have
it done by staff from another section of the Branch. It may be that
spot checks, particularly with regard to bearer securities, would
provide a more effective control
mechanism.
It is planned to have an assets registry in place by the end of 1981/
82.
 122        REPORT OF THE AUDITOR GENERAL
Tj
Recommendations
Ministry's Comments
ongoing accounting control, an inventory
of furniture, equipment and vehicles
assigned to the Ministry should be maintained. Assets should be subject to verification by periodic physical counts. The
Ministry should consider using the existing
computer program for fixed assets in the
Data Procesisng Branch.
INTERNAL AUDIT
9.87 The Ministry's internal audit requirements
should be comprehensively assessed and a
plan developed to meet these requirements. As part of this process, the Ministry
should consider how best to organize and
staff the internal audit function. Particular
emphasis should be given to planning the
frequency of internal audits in the Ministry.
9.88 In order to provide senior management
with an independent and objective measure of the adequacy of its management
and control systems, the scope of internal
audit should be expanded to include reference to important questions of economy,
efficiency and effectiveness.
Ministry of Human Resources
A comprehensive audit plan foB
the Ministry has been developed
and is in the process of implemerS
tation.
The audit program planned forthaj
Ministry of Finance includes a review of all processes of financial
administration to assess their ecoj
nomy, efficiency and effectivS
ness.
REPORT PRECIS
9.89 Our review of financial management and control was carried out in conjunction
with the comprehensive audit of the Ministry's Income Assistance programf,
Accordingly, we have included a summary of our major findings and recomf
mendations with the comprehensive audit observations in Section 8 of this
Report (paragraphs 8.115 to 8.133). We have reported the recommendation
arising from our review of the Internal Audit function in Section 8 (paragraph
8.234 to 8.252) and therefore we have not repeated them below. All oth™
recommendations dealing with the financial management and control aspectsM
our comprehensive audit work are listed below, together with responses frorm
the Ministry.
U
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        123
Btecom
mendations
Ministry's Comments
Recommendations and Ministry's Comments
ORGANIZATION AND MANAGEMENTOF THE
FINANCIAL FUNCTION
9.90
The administrative responsibilities of the
Comptroller should be reviewed to ensure
that they do not hinder him from carrying
out his primary role.
Agreed. A review of the organization and staffing of the Comptroller's Office is underway and admi-
nistrative responsibilities are
being reassigned so as to ensure
that the Comptroller is better able
to carry out his primary role.
9.91
The role of financial management, and the
organizational plans of the Comptroller's
Office showing direct and functional responsibilities, should be clearly articulated
and communicated to all levels of the organization to ensure that they are fully recognized and understood.
Agreed. Organizational plans of
the Comptroller's Office, clearly
delineating direct and functional
responsibilities, will be circulated
within the Ministry immediately
following completion of the organization and staffing review noted
above.
9.92
In order to ensure that line operating personnel receive sufficient direction on
financial and control matters, the Ministry
should clearly define how the Comptroller's organization is to carry out its functional responsibilities (i.e. whether the
Comptroller is to issue broad criteria or
detailed procedures). All personnel should
then be advised accordingly.
Agreed. The question as to how
the Comptroller's Office is to carry
out its functional responsibilities
will be clarified within the context
of the organization and staffing review noted above.
9.93
To ensure that the financial function serves
the needs of the Ministry more effectively,
we recommend that the Comptroller develop an operational plan, that specifies
goals, objectives, activities, timing, assessment criteria and required resources. The
plan should then be submitted to the executive for approval, assignment of priorities and allocation of resources.
Agreed. The development of an
operational plan for the Comptroller's Office will form a part of the
organization and staffing review
noted above.
1 9.94
The Ministry should continue developing
procedures which require responsibility
areas to formally approve ("sign-off") new
Agreed. The Ministry is in the process of developing procedures
which will address these issues.
 124
REPORT OF THE AUDITOR GENERAL
i
Recommendations
Ministry's Comments
systems and procedures. As well, responsibility areas should participate in all stages
of the design and development of any systems that they are being asked to approve.
9.95 The Comptroller should fully assess plans
for the development and implementation
of on-line computer systems and should
document the financial, accounting and
control implications. This analysis should
incorporate:
• feasibility studies including post-
evaluation procedures;
• assessment criteria and procedures to
be followed during the testing
phases;
• controls over the conversion and
ongoing operation of the system; and
• an analysis of the current and projected impact of the on-line program
on both the organization and operation of the financial function.
9.96 In order to ensure that both manual and
electronic data processing systems incorporate adequate safeguards, the Comptroller should establish financial control criteria against which to assess their development and operation.
9.97 To provide assurance about the adequacy
of accounting controls in the Income
Assistance computer system, the Ministry
should act on its plans to review and document the accounting requirements for the
system. Current accounting practices
should then be documented and compared
with the accounting and control requirements.
9.98 The number and quality of financial personnel in the Comptroller's Office should
be reviewed to ensure that it can effectively
carry out alI of its responsibilities, with par-
Agreed. The Ministry is in the pfdJJ
cess of aquiring qualified staff tol
address this issue; it should be
noted, however, that the MinistS
has experienced some considi|B
able difficulty in securing qualB
ified accounting staff given the
current Government-wide classa
fication plan.
Agreed. The Ministry will develoS
a project administration manual to
provide control standards and guidance for Ministry staff involved in
computer systems development*
Included in this manual will be
financial control criteria.
Agreed. A formal review of the Income Assistance computer syst^B
will be carried out, giving particH
lar attention to the adequacy of
existing accounting controls.
Agreed. The Ministry has recogS
nized the need to upgrade the]
quality and quantity of financial
personnel.
D
 •Recommendations
Ministry's Comments
ticular emphasis on:
• assessing and providing for adequate
controls in electronic data processing
systems;
• providing the type of direction
needed by non-financial staff who
perform financial tasks; and
• identifying training needs of financial
and non-financial staff.
9.99 The Comptroller's Office should prepare
accounting manuals that cover the responsibilities and authority of financial and
operating staff who carry out financial
tasks. The manuals should provide appropriate information on financial policies
and procedures used at headquarters and
in the field.
B. 100 In order to ensure the orderly development
of new procedures and documentation
projects, the Comptroller's Group should
prepare comprehensive terms of reference
for all significant assignments. Procedures
should also be established to monitor work
in progress.
Planning, budgeting and budgetary
kcontrol
|»;101 Strategic (five-year) and long-term (two to
five-year) financial and operating plans
should be prepared for the Ministry. These
plans should provide guidance and direction to departments in preparing their sections for the annual Estimates and should
permit these departments to coordinate
their own strategic and long-term plans
with the goals of the Ministry.
). 102 In order to ensure that budget estimates do
not rely unduly on prior years' expenditures, a review of objectives, priorities and
alternative means of achieving objectives
should be incorporated in the budgetary
Agreed. A headquarters accounting procedures manual has been
started and will be completed by
April 1981.
A project control system was
established in June 1980 which
details terms of reference and
monitors work assigned within the
systems area. This system will be
expanded to other areas within the
Comptroller's Office.
Agreed. The Ministry is reorganizing headquarters staff to establish
a Strategic Planning branch. One
of the core functions of this branch
will be to coordinate and provide
technical support to the development of strategic and long-term
plans for the Ministry.
The Ministry is continuing to develop its budgetary process towards these objectives.
 126
REPORT OF THE AUDITOR GENERAL
1
Recommendations
Ministry's Comments
process for existing programs as wel I as for
new initiatives or programs.
9.103 The Comptroller's Office should provide
guidance to Regional Managers to ensure
that budgeting activities are more consistent among District Offices and that the
budgetary responsibility assigned to District Offices is commensurate with their
operating authority.
9.104 The Comptroller's Office should provide
guidance and direction to line managers to
enable them to translate the annual Estimates into operational work plans. Such
plans should help management to monitor
performance and to assess progress in relation to the budget.
9.105 In order to monitor the budget more accurately, the Ministry should establish a policy requiring variance analysis, and the
Comptroller's Office should develop related procedures. Budgeting transfers
should also be appropriately recorded,
analysed and reported for management review.
Agreed. The review of budgetary!
planning procedures is an
ongoing activity within the MinS
try, and the Ministry will continue
to place high priority on the involvement and training of Region]
al Managers in this process.
Agreed.
Agreed. Revised policy and procS
edures relating to variance analjH
sis and financial reporting will pel
developed during the 1981/82 fisa
cal year.
9.106 To ensure that the budgetary process is
understood, it should be documented in a
manual, which should be made available
to all personnel involved in this activity.
ACCOUNTING AND FINANCIAL REPORTING SYSTEMS
Agreed. A project to consolidate!
in a manual the written instruS
tions which currently exist ha]
been initiated.
9.107 The Ministry should continue to review its
financial reporting requirements and
should take full advantage of the increased
number of reports recently made available
by the Office of the Comptroller General.
9.108 A policy and related procedures should be
developed concerning cost benefit analysis for all major accounting and operating
systems.
A review of financial reporting requirements has recently been
completed and the Office of tha
Comptroller General has beer]
asked to produce appropriate reS
ports.
Agreed.
J
 m
SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        127
',  Recommendations
Ministry's Comments
1 9.109
To ensure that financial records are accu
The Comptroller General's Office
rate and complete, the Ministry should im
has scheduled the implementa
plement a batch control procedure as soon
tion of a batch control system for
as this task can be coordinated with the
the fall of 1981.
Comptroller General's Office. In the mean
We do not consider it practical to
time, all personnel who submit documents
develop the suggested alternate
for processing should be instructed to ex
procedure due to the short time
amine financial management reports to en
involved and number of staff
sure that all data submitted has been pro
affected in our decentralized en
cessed in a timely and accurate manner.
vironment.
9.110
In order to prevent an interruption in electronic data processing and the ability to
distribute cheques, the Ministry should develop, document and test contingency
plans.
Agreed.
FINANCIAL CONTROL OF REVENUE AND
EXPENDITURE
U 9.111
The Ministry should provide for sufficient
Agreed; however, implementa
segregation of duties to ensure that person
tion of this recommendation pre
nel who authorize input to the computer
sents significant practical difficul
do not have access to either prepared or
ties, particularly in the small out
returned cheques, or to vouchers that are
lying districts.
rejected during the processing operation.
9.112
The Ministry should review its payroll pro
Agreed. The Comptroller was
cedures to standardize them between Van
assigned this project but progress
couver and Victoria. It should produce a
has been slow due to insufficient
manual to guide staff both at Headquarters
staff.
and in the field.
9.113
To ensure that all amounts recoverable by
the Ministry are controlled and followed-
up, it should give priority to establishing a
policy and procedures for accounts receivable.
Agreed.
1  9.114
All cheques should be restrictively endorsed when received and independently
compared to acknowledgement of deposit,
in order to improve the control over cash
receipts.
Agreed.
9.115
In order to permit an effective, ongoing
The Comptroller has established a
 128
REPORT OF THE AUDITOR GENERAL
1
Recommendations
Ministry's Comments
assessment of the accounts processing      reporting system which addressS
operation, the Ministry should document      this issue,
procedures for monitoring this activity to
detect errors and encourage prompt processing.
ACCOUNTING CONTROLS OVER ASSETS
9.116    To ensure that all assets are adequately      Agreed,
safeguarded, policies and procedures for
the control of assets should be established
and coordinated with other ministries or
central agencies.
Ministry of Lands, Parks and Housing
REPORT PRECIS
9.117 The Ministry of Lands, Parks and Housing was established in December 197OT
when parts of three ministries were combined. The Ministry is not a large ori^H
terms of program expenditures, which amounted to $65 million in the 1980]
fiscal year. However, it is complex because of the diversity of its operations and]
its responsibility for two large, special-purpose funds (the Crown Land Fund and]
the Provincial Home Acquisition Fund), with combined assets of $558 million]
9.118 The Ministry faced major challenges in integrating the staffs of three otheB
ministries. Therefore, in its early stages, it concentrated on organization, progB
ram direction and development and policy formulation. Throughout this critical
period, however, key financial staff were not in place.
9.119 The Ministry has recognized that as a consequence, deficiencies in many areas
of financial management and control have arisen, and has taken steps to improve!
its practices. Nevertheless, many improvements will still have to be made befora
the Ministry can meet its objective of developing an adequate system of financial I
management and control. The Ministry must continue to invest considerar^B
time and effort in developing and acquiring the financial skills requiredlH
provide adequate financial management and control, and to design and impleS
ment the necessary systems and procedures. Our recommendations are
designed to suggest what direction the Ministry might follow in overcom^BJ
deficiencies that we noted during our audit.
9.120 We believe that if the Ministry is to emphasize the importance of the finajgHJ
function, the Senior Financial Officer should report directly to the DepuH
u
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        129
Minister and his role should be formally endorsed and communicated. Our audit
showed that management throughout the Ministry did not fully understand the
ministry-wide role assigned to the Senior Financial Officer and his staff. In some
cases, management did not recognize their importance in the planning and
monitoring of the Ministry's activities. For example, managers often addressed
and tried to solve financial management and control problems without first
consulting with the Senior Financial Officer.
|9.121 The Ministry has developed a well-defined and documented budget process, but
it could be improved if the Ministry were to establish clear, long-term objectives,
stated in measureable terms. In addition, the Ministry must devote much more
effort to developing reporting systems that will provide for sound budgetary
control.
9.122 We found that internal controls over the processing of expenditure, payroll and
revenue transactions were being applied inconsistently among field offices.
Specifically, we noted variances in delegated authority for expenditures, weaknesses in the processess of hiring and paying auxiliary staff, and duplication of
checking procedures between staff in field offices and financial staff at Headquarters. Finally, we noted inadequacies in the revenue monitoring function.
9.123 The Ministry has clearly recognized the need to develop a strong internal audit
function. Accordingly, it has been working with the Office of the Comptroller
General to develop a plan for doing so. However, its efforts in this direction have
thus far been unsuccessful. In any organization, which like the Ministry has
complex and decentralized activities and systems, internal audit is the key to
providing assurance to senior management that its management and control
systems and procedures are suitable, and that they are operating reliably and
consistently. Internal audit is critical in keeping management aware of the extent
to which operations within the organization are being managed with due regard
to economy, efficiency and effectiveness.
h. 124 While much remains to be done, it is important to note that throughout our audit,
the Ministry was working to solve many of the problems that we found, and that it
had launched initiatives aimed at improving its financial management and
control practices.
I Recommendations and Ministry's Comments
I   Recommendations Ministry's Comments
ORGANIZATION OF THE FINANCIAL
FUNCTION
§).125 The Deputy Minister should formally en- Agree. Some facets already corn-
dorse the Senior Financial Officer's role as pleted and in place with addition-
encompassing all components of financial      al documentation to follow.
 130        REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
management and control. The role and responsibilities should then be documented
and communicated to all levels of personnel throughout the Ministry to ensure that
they are clearly understood.
9.126 The Ministry's Senior Financial Officer
should report directly to the Deputy Minister, both to ensure an appropriate reporting
relationship that will support the Deputy
Minister, and to emphasize the importance
of the role of financial management and
control.
9.127 The Senior Financial Officer's non-
financial responsibilities should be reviewed to ensure that they do not detract
from his primary responsibility for the
financial management and control function.
9.128 The Senior Financial Officer should develop without delay a comprehensive plan
to provide adequate financial management
and control within the Ministry. The plan
should be approved by senior management.
9.129 The Ministry should evaluate the staffing of
the Central Financial Group to ensure that
it has enough personnel with the necessary
skills to carry out its mandate.
9.130 The Ministry should document the functional relationships between the Central
Financial Group and all other financial
officers in the Ministry. These relationships
should be communicated to all personnel
to ensure that the financial management
and control function operates consistently
and reliably throughout the Ministry.
9.131 The Senior Financial Officer should review
the non-financial responsibilities of other
financial officers to ensure that they are
able to devote enough time to financial
matters.
The Ministry is prepared to give
this recommendation serious coS
sideration.
The Ministry is satisfied that tha
Senior Financial Officer's range of
responsibilities does not jeopaS
dize or detract from his mandate!
for effective financial manage]
ment and control.
Agree. This plan will be finalizem
and endorsed shortly and wijm
contemplate a time table of at leas]
three years duration.
Agree. An organization, staffing]
and training needs analysis revie\w
is currently underway.
Same comment as for 9.129.
Same comment as for 9.129.
 If
SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS
Recommendations
Ministry's Comments
|9.132 The Ministry should review all of its staff
resources in the financial management and
control function throughout the Ministry to
ensure that both the number of staff and
their skills are sufficient in relation to their
assigned responsibilities.
|B.133 The Ministry should establish training
programs to upgrade or provide staff with
the required skills and should initiate
career development plans for its financial
officers.
19.134 To provide the framework for appropriate
systems and controls, the Central Financial
Group should document and communicate financial responsibilities, policies,
procedures and systems throughout the
Ministry.
PLANNING, BUDGETING AND BUDGETARY
jfcONTROL
El 35 The Ministry should develop and cost
strategic and long-term plans. Plans should
state objectives and should assess various
means of meeting these objectives and the
costs of doing so.
Same comment as for 9.129.
i©.136
« 9.137
U 9.138
Estimates should be based upon a long-
term plan. They should include measurable objectives to ensure that subsequent
performance can be reliably assessed and
that corrective action can be taken where
appropriate.
All programs should be fully costed and
reviewed together with their objectives as
part of the Estimates process.
Operating budgets should be prepared that
recognize the seasonal nature of expenditures, and which contain key performance
indicators. They should be subject to challenge and approval by senior manage-
Same comment as for 9.129.
This task has already commenced
but due to size of task this will be
addressed on a priority basis and
will require considerable time for
completion.
The Ministry recognizes a need for
greater development in this area,
but current planning strategies do
apply techniques of cost effectiveness set in the context of a long
term view.
Estimates are currently built within a management by objectives
and zero based budgeting system,
but additional emphasis will be
given to measurement and program evaluation.
To the extent that this is useful the
Ministry will continue to enhance
its costing technique.
While benefits may be derived
from the development of more
specific and measureable performance indicators the Ministry
believes it has an effective budget
 ~~fl
132
REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
ment, and consolidated to provide the
necessary Ministry budget.
9.139 The Ministry should formulate a policy of,
and develop procedures for, providing
meaningful variance analysis to all levels
of management so that it can assess operations and take prompt corrective action
where warranted. The Ministry should review current proposals in this area in order
to ensure that they will meet the Ministry's
needs for this type of information.
ACCOUNTING AND FINANCIAL REPORTING
SYSTEMS
9.140 The Central Financial Group should review all accounting and financial systems
within the Ministry in detail to determine
their appropriateness and the quality of information they produce.
9.141 The Senior Financial Officer should, as
soon as possible, ensure that a complete
and coordinated financial reporting system
is designed in order to provide reliable
financial information in a format useful to
managers at all levels. Any new system
should ensure the orderly processing and
efficient accumulation of data on a timely
basis. Existing fragmented and ad-hoc reporting systems should be eliminated
wherever possible.
9.142 A policy should be implemented to ensure
that no new financial systems or modifications to existing financial systems can be
developed without the approval of the
Senior Financial Officer. The policy should
also ensure, as appropriate, that all new
systems and modifications are supported
by cost/benefit analysis.
9.143 The Central Financial Group should review all existing reporting systems to eli-
development system in place
which provides ample opportug
ity for scrutiny and challenge.
With the exception of minor improvements the Ministry is satisfied that its financial review policy j
is adequate to ensure effective I
program and financial control.
Agree. This will be a major objec-j
tive of the financial systems de-4
velopment plan.
Agree. A plan will be developed «
which articulates Ministry infojpj
mation requirements and which]
can be blended with central agency initiatives for a Governments
wide financial systems network.*
Agreed. This policy now in effect!
Agreed. This task will be under]
taken in conjunction with thedeS
 SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS
133
Recommendations
Ministry's Comments
minate duplication among them. The reports produced should be reconciled to
each other to ensure that the information
used for monitoring and decision-making
purposes is complete and consistently prepared.
FINANCIAL CONTROL OF EXPENDITURE AND
REVENUE
9.144 To ensure that transactions are accurately
and consistently approved and processed,
the Ministry should develop a manual that
documents accounting policies, responsibilities and procedures for processing
transactions, both in field offices and at
Headquarters.
| 9.145 The Central Financial Group should establish a training program for financial staff,
and should visit field offices regularly in
order to resolve problems and monitor
adherence to policies and procedures.
B.146 The Ministry should review internal controls over hiring and paying auxiliary staff
and should standardize these controls
throughout the Ministry in order to ensure
the integrity of payroll expenditures.
I 9.147 To ensure that only authorized personnel
can approve expenditures, the Ministry
should institute a policy and associated
procedures for delegating commitment,
spending and payment authority.
|! 9.148 A manual that documents all policies, responsibilities, and procedures for parks revenue should be developed to ensure adequate internal controls over revenue.
I 9.149 The Ministry should consider transferring
ongoing responsibility for monitoring revenue to Parks regional offices, supplemented centrally by regular analytical
review and annual internal audit work.
velopment of a financial systems
network, but due to the size of the
task will be addressed on a priority
basis and will require considerable time for completion.
The development of revised and
enhanced procedure manuals will
be given priority attention.
Training program review presently underway and additional on-
site field reviews will be expanded.
It is agreed that a review of payroll
procedures for auxiliary staff is
warranted.
A project is already underway to
institute a new financial signing
authority policy.
This will be examined in concert
with the requirements noted
under Section 9.144 above.
This will be considered as part of
the organization review currently
underway.
 134        REPORT OF THE AUDITOR GENERAL
Recommendations
Ministry's Comments
9.150 The Ministry's Computer Enhancements
Committee should review the land lease
revenue system before it carries out major
proposed enhancements in order to ensure
that the system incorporates adequate internal controls.
9.151 The Central Financial Group should establish adequate accounting systems, procedures and records for controlling land sales
and receivables.
9.152 Responsibilities for monitoring and controlling land leases and sales should be
established, both in the field and at Headquarters.
9.153 In order to ensure reliable processing of
data, the Ministry should establish a formal
training program for computer operators
and supervisors responsible for the land
lease system.
ASSET CONTROLS
9.154 The Ministry should develop, document
and communicate an asset control policy.
It should cover the assets being controlled,
the levels of control required, systems and
procedures, and ongoing monitoring responsibilities in order to ensure an effective
and efficient asset control system.
9.155 The Ministry should assign responsibility
for systems that control assets to the Central
Financial Group.
CROWN LAND FUND
9.156 The Ministry should clearly establish and
communicate responsibilities for recording, monitoring, and controlling transactions in the Crown Land Fund.
The Computer Enhancements!
Committee has a detailed working j
list of enhancements required to]
remedy certain internal controw
deficiencies.
The Computer Enhancements
Committee has already identified!
this task and will incorporate land I
sales and receivables into thaj
system.
This will be considered as parto]
the organization review currentlaj
underway.
The Computer Enhancement]
Committee has taken on the design of such a program as part of
their mandate.
Ministry agrees that further de]
velopment is warranted here bu]
efforts on asset control will requirgj
slotting into the overall priorities
for a longer term financial man]
agement enhancement plan.
This recommendation will becoraj
sidered.
A project is currently underwaj
which will address some of thaj
concerns noted in this recommeraj
dation as they pertain to regionaB
offices. Further review will baj
taken in respect to central and exB
ternal relationships.
 1
SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        135
Recom
mendations
Ministry's Comments
9.157
The Ministry should reconcile and correct
An analysis of existing and old
account balances for existing and old pro
projects is now in progress.
jects as soon as possible to ensure that the
fund balance is correctly stated.
19.158
Given that the current reporting system for
While it is agreed that a review of
the Crown Land Fund does not appear to
potential revisions to the Crown
be meeting the information needs of man
Land Fund is warranted, the
agement, the Ministry should assess
Ministry believes that the fund
whether or not its continued use is appro
statement as currently constituted
priate.
does provide a useful management information tool.
BRITISH COLUMBIA HOUSING MANAGEMENT COMMISSION (BCHMC)
9.159
The Ministry should establish monitoring
In recognition of the potential for
responsibilities and reporting requirements
differing assumptions to be made
for all programs administered by BCHMC
in respect to responsibilities be
and subsidized by the Ministry's vote in
tween the Ministry and BCHMC,
order to ensure proper control over assets
the Ministry will undertake a re
and program expenditures.
view that will articulate each party's role in respect to program and
financial monitoring, controlling
and reporting.
[©.160
The Ministry should conclude a written
agreement with BCHMC covering the
above requirements.
Same comment as for 9.159.
:   9.161
The Central Financial Group should work
closely with BCHMC to ensure that the
Commission's existing accounting controls
are adequate.
Same comment as for 9.159.
9.162
The Ministry should direct BCHMC auditors to report on certain programs, such
as High Impact Grants, that have created
problems in the past.
Same comment as for 9.159.
!   INTERNALAUDIT
I  9.163
In order to provide for internal audit com
Agree. Discussions are now being
mensurate with its needs, the Ministry
arranged to review the Ministry's
should review its requirements. Then, in
requirements for internal audit
consultation with the Comptroller Gener
and to determine the most effec
al, the Ministry should determine how its
tive means of meeting these
needs can most efficiently be met. A corn-
needs.
 136        REPORT OF THE AUDITOR GENERAL
I
Recommendations
Ministry's Comments
prehensive internal audit program, based
upon the results of this review, should then
be implemented.
! J
 APPENDICES
  Table of Contents
APPENDICES
I Sections of the Auditor General Act Relevant to the Respon-  141
sibilities of the Auditor General.
II Public Bodies of Which the Auditor General was the   145
Appointed Auditor as at 31 March 1980.
III Public Bodies, of Which the Auditor General was not the  146
Appointed Auditor, Whose Financial Statements are
Included in Section F of the Public Accounts.
IV Sections A (pages A1 to A13), B and C of the Public Accounts 147
 ▼l
 141
[Appendix I
Sections of the Auditor General Act Relevant to the Responsibilities of
the Auditor General
\EXAMINATION OF ACCOUNTS
6. (1) The Auditor General shall examine in the manner he considers necessary the
accounts and records of the government relating to the consolidated revenue fund and
all public money, including trust and special funds under the management of the
government, and to public property.
(2) Notwithstanding any other Act, the Auditor General
(a) shall be given access to the records of account and administration of any
ministry; and
(b) may require and receive from any person in the public service, information,
reports and explanations necessary for the performance of his duties.
REPORT ON FINANCIAL STATEMENTS
:   7. (1) The Auditor General shall report annually to the Legislative Assembly on the
:inancial statements of the government, including those required by section 40 of the
financial Control Act, respecting the fiscal year then ended.
(2) The report shall form part of the public accounts and shall state
(a) whether he has received all of the information and explanations he has
required; and
(b) whether in his opinion, the financial statements present fairly the financial
position, results of operations and changes in financial position of the government in accordance with the stated accounting policies and as to whether
they are on a basis consistent with that of the preceding year.
'.   (3) Where the report of the Auditor General does not contain the unqualified opinion
■equired under this section, the Auditor General shall state the reasons why.
\NNUAL REPORT
8. (1) The Auditor General shall report annually to the Legislative Assembly on the
i/vork of his office and call attention to anything resulting from his examination that he
:onsiders should be brought to the attention of the Legislative Assembly including any
i :ase where he has observed that
(a) accounts have not been faithfully and properly kept or public money has not
been fully accounted for;
(b) essential records have not been maintained;
(c) the rules, procedures or systems of internal control applied have been insufficient
(i) to safeguard and protect the assets of the Crown;
(ii) to secure an effective check on the assessment, collection and proper
allocation of the revenue;
 T
142        REPORT OF THE AUDITOR GENERAL
(iii) to ensure that expenditures have been made only as authorized;*!^™
(iv) to ensure the accuracy and reliability of the accounting data; or
(d) public money has been expended for purposes other than for which it wa»
appropriated by the Legislature.
(2) In the report the Auditor General may also include an assessment
(a) as to whether the financial statements of the government are prepared in
accordance with the most appropriate basis of accounting for the purpose of
fair presentation and disclosure; or
(b) as to whether any program being administered by a ministry is being adminial
tered economically and efficiently.
TRIVIAL MATTERS
9. The Auditor General need not report to the Legislative Assembly on any matter he
considers immaterial or insignificant.
SUBMISSION OF ANNUAL REPORT
10. (1) A report of the Auditor General to the Legislative Assembly shall besubmiSj
ted by him through the Minister of Finance.
(2) On receipt of a report of the Auditor General, the Minister of Finance shall lay the
report before the Legislative Assembly as soon as possible.
(3) If the Minister of Finance does not lay the report before the Legislative AssemblBj
on the first sitting day following the receipt of the report by him, the Auditor Genera™
shall transmit the report to the Speaker and the Speaker shall lay the report before the
Legislative Assembly.
(4) On being laid before the Legislative Assembly, the annual report of the Audit^B
General shal I be referred to the Publ ic Accounts Committee of the Legislative AssemblyB
SPECIAL REPORT
11. The Auditor General may at any time make a special report to the Legislat^BJ
Assembly on a matter of primary importance or urgency that, in his opinion, should f^BJ
be deferred until he makes his annual report.
OTHER REPORTS
12. The Auditor General may at any time make a report to the Minister of FinanoaJ
the Treasury Board, the Lieutenant Governor in Council, or any public officer on any
matter that in the opinion of the Auditor General should be brought to his or th^
attention.
SPECIAL ASSIGNMENTS
13. The Auditor General may undertake special assignments at the request of the
Lieutenant Governor in Council, but he is under no obligation to carry out any
»
 143
Hpfested assignment if, in his opinion, it would interferewith his primary responsibilities.
I STAFF IN MINISTRIES
14. (1) The Auditor General may station in any ministry a person employed in his
office to enable him to more effectively carry out his duties, and the ministry shall
provide the necessary office accommodation for a person so stationed.
(2) The Auditor General shall require every person employed in his office who is to
©amine the accounts or the administration of a ministry pursuant to this Act to comply
with any security requirements applicable to, and to take any oath of secrecy required to
be taken by, persons employed in that ministry.
INQUIRY POWERS
15. The Auditor General may examine any person on oath on any matter pertaining
to his responsibilities and for that examination the Auditor General has all the powers,
protection and privileges of a commissioner under sections 12, 15 and 16 of the Inquiry
Act.
PUBLIC BODIES
16. (1) Notwithstanding any other Act, where the Auditor General is not the auditor
of a public body,
(a) the public body shall, on the request of the Auditor General, supply the
Auditor General with a copy of all financial statements and reports relating to
the public body;
(b) the auditor of the public body shall, on the request of the Auditor General,
within a reasonable time, make available to the Auditor General, all working
papers, reports and other documents in his possession relating to the public
body; and
(c) the Auditor General may conduct examinations of the records and operations of the public body he considers necessary or advisable to carry out his
duties under this Act.
(2) Notwithstanding any other Act, the Auditor General
(a) shall be given access to the records of account and administration of any
public body; and
(b) may require and receive from any officer or employee of a public body
information reports and information necessary for the performance of his
duties.
ELIGIBILITY AS AUDITOR
17. Notwithstanding any other Act, the Auditor General is eligible to be appointed
the auditor, or a joint auditor, of a Crown corporation, Crown agency or public body.
 T
144        REPORT OF THE AUDITOR GENERAL
TRANSFER OF AUDIT DUTIES
18. The Lieutenant Governor in Council may transfer to the Auditor General the dufS
imposed by any Act on the Comptroller General to conduct an audit.
 Appendix II
Public Bodies of Which the Auditor General was the appointed Auditor
at 31 March 1980
"British Columbia Assessment Authority
"British Columbia Educational Institutions Capital Financing Authority
"British Columbia Harbours Board
"British Columbia Health Care Research Foundation
British Columbia Heritage Trust
British Columbia Institute of Technology
British Columbia Power Commission Superannuation Fund
British Columbia Railway Company Pension Fund
"British Columbia Regional Hospital Districts Financing Authority
"British Columbia School Districts Capital Financing Authority
Captain Cook Bi-Centennial Committee
College Pension Fund
| Creston Valley Wildlife Management Authority Trust Fund
Health Facilities Association of British Columbia
| "Legal Services Society
I"Medical Services Commission
Municipal Superannuation Fund
Pacific Vocational Institute
Provincial Capital Commission
Provincial Rental Housing Corporation
Simon Fraser University
Teachers' Pensions Fund
The University of British Columbia
The University of British Columbia Health Sciences Centre
University of Victoria
"Workers' Compensation Board of British Columbia
c Workers' Compensation Board Superannuation Fund
'Included in Section F of the Public Accounts
 146        REPORT OF THE AUDITOR GENERAL
1
Appendix III
Public Bodies, of Which the Auditor General was not the Appointed
Auditor, Whose Financial Statements are Included in Section F of the
Public Accounts
British Columbia Buildings Corporation
British Columbia Cellulose Company
British Columbia Development Corporation
British Columbia Ferry Corporation
British Columbia Housing Management Commission
British Columbia Hydro and Power Authority
British Columbia Petroleum Corporation
British Columbia Railway Company
British Columbia Steamship Company (1975) Ltd.
British Columbia Systems Corporation
Housing Corporation of British Columbia
Insurance Corporation of British Columbia
Ocean Falls Corporation
Pacific Coach Lines Limited
Science Council of British Columbia
Surrey Farm Products Investments Ltd.
T.S. Holdings Ltd.
Universities Council
Urban Transit Authority
 147
Appendix IV
Sections A (pages A1 to A13), B and C of the Public Accounts
The material which forms Appendix IV is an excerpt from the Public Accounts of British
Columbia for the fiscal year ended 31 March 1980.
L

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