Archived [2009-07-01] - Directive on Small Departments and Agencies Audit Committee

This document provides direction on the responsibilities, membership and operations of the small departments and agencies (SDA) Audit Committee.
Date modified: 2005-10-21

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1. Purpose

1.1 This document provides direction on the responsibilities, membership and operations of the small departments and agencies (SDA) Audit Committee.

2. Context

2.1 The Comptroller General is required to establish an audit committee to provide oversight and guidance on internal auditing done by the Comptroller General in SDAs. Deputy heads of SDAs undertaking internal audit work in their departments may choose to access the SDA audit committee for oversight and guidance.

2.2 This directive is issued pursuant to paragraph 7. (1) (a) of the Financial Administration Act.

3. Effective Date

3.1 This directive will take effect on April 1, 2006. (See Policy 1.1)

4. Requirements

4.1 SDA Subcommittees

With the approval of the Comptroller General, the SDA Audit Committee may establish portfolio-based subcommittees to fulfill its responsibilities more effectively.

4.2 Responsibilities of SDA Audit Committee

4.2.1 Risk Assessment

The audit committee shall ensure that the Comptroller General conducts, and presents to the committee, at least annually:

  • An assessment of broad risks relating to SDAs across government; and
  • A summary analysis of the control environment for SDAs or clusters of SDAs.

4.2.2 Internal Auditing Undertaken by the Comptroller General

The audit committee shall:

  • Ensure that the Comptroller General prepares an internal audit charter for the conduct of internal auditing in SDAs, review and approve the charter, and regularly review its continuing appropriateness. As a minimum, the charter shall describe:
  • The scope of internal auditing to be undertaken in SDAs by the Office of the Comptroller General;
  • The internal audit planning process for SDAs;
  • Protocols for the conduct of internal audit engagements;
  • The internal audit reporting process; and
  • Communications protocols among the committee, deputy heads of SDAs and the Office of the Comptroller General.
  • Regularly review the adequacy of resources provided by the Comptroller General for the internal auditing in SDAs;
  • Regularly review the performance of the Office of the Comptroller General in conducting internal audit services in SDAs;
  • Review and provide input on the internal audit plan for SDAs prepared by the Comptroller General and on the allocation of internal audit resources;
  • Receive and recommend for approval internal auditing reports and management action plans to address recommendations; and
  • Be aware of internal auditing engagements initiated by deputy heads of SDAs, which were not in the approved internal audit plan, and receive the reports arising from such engagements.

4.2.3 Agents of Parliament and Central Agencies

The audit committee shall:

  • Review audit reports of the Office of the Auditor General (OAG) and other agents of Parliament and central agencies that have implications for SDAs and, if appropriate, recommend for approval responses and action plans developed by SDA management to address recommendations;
  • Be briefed on the audit-related issues and priorities related to SDAs raised by central agencies; and
  • Be briefed on the impact of government-wide initiatives on SDAs.

4.2.4 Follow-up on Management Action Plans The audit committee shall:

  • Ensure that there are effective arrangements in place to monitor and follow-up on management action plans responding to recommendations from internal audit, the OAG, or other sources; and
  • Periodically receive follow-up reports on actions taken. The Comptroller General shall report periodically to the audit committee on whether management's action plans have been implemented and whether the actions taken have been effective. The Comptroller General's report shall identify any areas where he or she believes management has accepted a level of risk that is unacceptable to a department or to the government.

4.3 Membership of the SDA Audit Committee

4.3.1 The SDA audit committee must include independent, external members who are not currently in the federal public service. Members from the federal public service shall be limited to deputy heads and senior assistant deputy ministers from other departments. By April 1, 2009 the SDA audit committee must have a majority of external members.

4.3.2 The Comptroller General shall jointly select with SDA deputy heads to identify and engage suitably qualified external members subject to Treasury Board approval. The Comptroller General shall also establish competency profiles for external audit committee members and standards for tenure, terms of service, conditions for removal, conflict of interest, liability indemnification, security clearance, remuneration, and protocols to address disagreements.

4.3.3 The SDA audit committee may have up to seven members.

4.3.4 Members of the audit committee shall be selected so that their collective skills, knowledge, and experience will allow the committee to competently and efficiently carry out the functions assigned. Members of the audit committee should be free of any real or perceived conflict of interest.

4.3.5 A member shall serve no more than two terms. To ensure adequate continuity, engagements can be staggered and initial terms may be less than four years.

4.3.6 All members of the audit committee shall be familiar with private or public sector financial reporting, or undertake to become familiar within the first year after appointment. At least one member shall be a financial expert. A financial expert must possess:

  • An understanding of generally accepted accounting principles and financial statements;
  • The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
  • Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the financial statements of small departments and agencies, or experience actively supervising one or more persons engaged in such activities;
  • An understanding of internal controls and procedures for financial reporting; and
  • An understanding of audit committee functions.

4.3.7 The Comptroller General shall appoint a member to chair the committee.

4.3.8 The quorum for an audit committee or subcommittees shall be a majority of the members. No alternates shall be permitted.

4.3.9 The chair shall, as necessary, ask representatives of the OAG to attend committee meetings to discuss the OAG's plans, findings and other matters of mutual concern. The chair of the audit committee or a subcommittee shall invite the deputy head of any SDA to attend a meeting when any matter relating specifically to that SDA is on the agenda for consideration.

4.3.10 Audit committee members shall receive orientation and training on the committee's responsibilities and objectives from the Comptroller General.

4.4 Operations of the SDA Audit Committee

4.4.1 The roles, responsibilities, and operations of the SDA audit committee and subcommittees shall be documented in an audit committee terms of reference or charter, approved by the SDA audit committee. The document shall be reviewed periodically.

4.4.2 The Comptroller General shall provide administrative and secretarial support to the SDA audit committee and subcommittees. The chair of the SDA audit committee shall prepare a plan to ensure that the annual and ongoing responsibilities of the committee are scheduled and fully addressed. The plan shall be presented to the committee for approval.

4.4.3 The SDA audit committee shall meet at least four times a year. The committee is encouraged to schedule their meetings one year in advance so that departmental management and auditors can prepare the information and reports required to support the committee's work. Rescheduling of audit committee meetings would be by exception only.

4.4.4 The SDA audit committee, at their discretion, can meet individually and in camera with SDA deputy heads or other SDA officials.

4.4.5 The SDA audit committee shall prepare an annual report that shall:

  • Summarize the committee's activities and their results;
  • Document any significant concerns the committee may have regarding risk management, controls and accountability processes for SDAs;
  • Provide the committee's assessment of the Comptroller General's capacity and performance in conducting internal auditing in SDAs; and
  • Provide, as required, recommendations for the improvement of risk management, controls, accountability processes, including recommendations for the improvement of internal auditing in SDAs.

4.4.6 The committee's annual report shall be distributed to the Secretary of the Treasury Board and the Comptroller General.

5. Enquiries

Please send any questions about this directive to:

Office of the Assistant Comptroller General, Internal Audit
Treasury Board of Canada Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5

Fax: (613) 952-3698

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