To ensure that accounts for payment and settlement are verified in a cost-effective and efficient manner while maintaining the required level of control.
It is government policy to pay on time, neither early nor late, amounts that represent a legitimate obligation and are correct. Account verification processes are to be designed and operated in a way that will maintain probity while taking into consideration the varying degrees of risk associated with each payment.
This policy applies to all organizations considered to be departments within the meaning of Section 2 of the Financial Administration Act (FAA).
Criteria used to identify the risk level (high, medium or low) of the various types of transactions could include some or all of the following: type of transaction, the dollar value, and the supplier or payee. See Appendix A for definitions of risk. Appendix B provides an example of a matrix that can be used to clearly identify and document the risk levels of various types of transactions.
Departments must identify and document the specific payments that will be paid subject to this provision as well as the post-payment verification procedures.
The account verification process should be audited by the departmental internal audit group. Of particular interest is the implementation of the departmental criteria established for each category of risk and the types of payments identified for payment before completion of the detailed verification.
This policy which is issued under the authority of the Financial Administration Act supersedes T.B. Circular 1989-15, the Use of Statistical Sampling in Account Verification at the Payment Requisitioning Stage, August 1989 and should be read in conjunction with the following:
Inquiries concerning this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:
Financial Management Policy SectorDepartments should develop and publish specific policies and procedures for staff to follow for the verification of accounts pursuant to section 34 and for the quality assurance review of the adequacy of section 34 account verification. These departmental policies and procedures should take into consideration the departmental environment, including factors such as level of decentralization and use of automated expenditure management systems.
Departments should ensure that the responsibilities of each officer related to the account verification and quality assurance processes are clearly documented and understood.
As part of the account verification process, transactions should be reviewed for accuracy such as ensuring that the payment is not a duplicate, that discounts have been deducted, that any charges not payable have been removed and that the amount has been calculated correctly.
Payments that may be made in advance of the completion of the verification process may include for example the following:
Documentation may include information relating to: contracts, leases, purchase orders/requisitions, staffing requests, program terms and conditions and the like. Any other documentation that provides evidence of the extent of the commitments involved, the agreed prices for the services and supplies, the precise specifications and requirements, and the agreed payment terms should be maintained as required.
Each department should determine the appropriate documentation or information required to support the verification process for each type of payment in order to ensure an adequate audit trail is maintained.
Departments and agencies are required to prepare T4-A Supplementary slips reporting the amounts paid for service contracts and mixed goods and services contracts. All service and mixed goods and services contracts are covered by this requirement, however the following categories of payments are excepted:
T4-A supplementary slips must be prepared for all annual contract payments exceeding $500. The amount of the payment to be reported on each information slip is the total of payments made to the contractor in the calendar year, including any goods portion, expenses, indirect costs, etc. but excluding GST/HST or provincial sales taxes.
For more information, departments may consult the Information Letter of April 30, 1998, on the implementation of the T4-A Supplementary reporting requirement.
The quality assurance review performed by payment officers is in addition to requirements related to payment requisitioning as outlined in Chapter 2-6 and can be achieved by using sound sampling techniques.
The department's Senior Financial Officer should approve the sampling plan and periodic updates of the plan. Appendix D provides additional information regarding the implementation of sampling.
Where sound statistical sampling is implemented in compliance with an approved sampling plan, officers exercising payment authority under section 33 will not be held accountable for account verification errors, before payment requisitioning, in those transactions not included in the sample about which they have no personal knowledge.
Sampling techniques chosen should be sufficiently precise to allow conclusions to be drawn about the overall adequacy and reliability of the account verification process.
Criteria to identify risk level of transactions should include consideration of the type of transaction, the dollar value, and where appropriate, the current error rate from particular organizations. That is, if the payment officer is not confident about the adequacy of verification, transactions may be classified at a higher level of risk for a period of time.
If the errors discovered through the quality assurance review of the section 34 account verification are frequent and serious, a complete review of the particular organization's account processing practices should be carried out and the findings reported to the responsibility centre manager for corrective action.
When the account verification and certification pursuant to FAA section 34 are continually inadequate or otherwise unsatisfactory, withdrawing section 34 authority is preferable to duplicate checking because the latter leaves no one ultimately responsible.
High Risk: Transactions with the following criteria would be considered high risk: highly sensitive transactions, for example where an error in payment is non-recoverable, or payments which are largely judgemental or subject to interpretation. This category could also include payments of very large dollar amounts or payments that are considered highly error prone.
Low Risk: Transactions with the following characteristics would be considered low risk: transactions that are not sensitive in nature, have little or no potential financial loss associated with them, or a low error rate with a low dollar value impact of error (typically low to medium dollar value and recoverable).
Medium Risk: Transactions not considered either high risk or low risk will be considered medium risk.
Type of Transaction | Low Risk | Medium Risk | High Risk |
General accounts payable | < $$$ | $$$ - $$$ | > $$$ |
Grants and contributions | < $$$ | $$$ - $$$ | > $$$ |
Social assistance payments | < $$$ | $$$ - $$$ | > $$$ |
Travel expense claims | < $$$ | $$$ - $$$ | > $$$ |
Hospitality | < $$$ | $$$ - $$$ | > $$$ |
Conferences/training | < $$$ | $$$ - $$$ | > $$$ |
Relocation claims | < $$$ | $$$ - $$$ | > $$$ |
Payments to employees | < $$$ | $$$ - $$$ | > $$$ |
Interdepartmental settlements | < $$$ | $$$ - $$$ | > $$$ |
This is an example of the type of matrix that should be developed in order to identify risk levels for transactions.
This policy supports the use of sound statistical sampling which determines the sample size objectively according to the desired degree of confidence. Samples are selected in an unbiased and representative fashion. Sampling which is intentionally biased toward certain sources of transactions, those suspected of being error prone, for example, is judgemental sampling. Sound statistical sampling is recommended over judgemental sampling because it ensures that the conclusion to be drawn from the sample results will be reliable and statistically supportable.
The first step in implementing sampling is the completion of a feasibility study to determine the current state of the account verification process. Once it has been determined that sampling is feasible, the key to successful implementation of sampling within a department is the development of a sampling plan. A sampling plan sets out departmental policy and procedure statements and related data gathering and reporting requirements.
The sampling plan should be approved by the Senior Financial Officer who will ensure the sampling plan is documented in the departmental financial manual and understood by all staff involved in its implementation. The plan should be updated and approved on a regular basis.
The sampling plan should include information such as the following: sampling populations and transaction streams, sampling review period, point of testing (pre or post payment), the sampling approach (statistical or other), the critical errors, the maximum tolerable error rate, and the method of sample selection (manual or computerized), methodology assumptions to determine sample sizes for transaction streams. The sampling plan should also identify the evaluation and reporting that will follow the sample period as well as the approaches to corrective action.