In his Report of the Auditor General of Alberta—February 2014 released today, Auditor General Merwan Saher includes five new and five repeated recommendations to government to improve control systems and processes.
Treasury Board and Finance—The Department’s Oversight Systems for Alberta’s Public Sector Pension Plans (page 15)
The financial health and design of Alberta’s public sector pension plans can affect the government’s and other plan employers’ ability to cost effectively deliver public services, attract and retain quality employees and provide a level of benefit security for plan members. Albertans need to know if Alberta’s public sector pension plans are sustainable. The plans face retirees who are living longer and low interest rates that result in large unfunded liabilities. The minister and department need performance measurement systems to help them assess if the plans are continuing to meet their objectives.
Our recommendations are intended to help ensure that each plan’s objectives and tolerances for its cost and funding components are clearly articulated. Clear objectives and risk tolerances will help the minister and department monitor plan performance. They will also help all stakeholders reach a consensus about what to do when a plan exceeds its tolerances. This should prompt timely responses to such risks as they arise. Furthermore, an improved approach to pension risk management should make it clear in advance who will bear which risks and costs when plans exceed their tolerances.
During this new systems audit, we identified that better tools and strategies are currently in use by other defined benefit pension plans to assess and mitigate risk. With proper standards and guidance, Alberta’s public sector pension plans can use these risk management techniques to increase the likelihood that the plans are sufficiently funded to meet their obligations and that costs do not become more than plan sponsors can afford.
We found that pension plan boards have, to varying degrees, implemented risk management systems. However, no one organization has clear responsibility for coordinating and monitoring the performance of the plans or taking a consolidated approach to managing risk. The department has managed risk to some extent by providing policy support to the minister, who is the trustee and administrator of the plans. We recommend the department establish an Alberta public sector pension plan risk management system to support the minister in fulfilling his responsibilities for Alberta’s public sector pension plans.
The department completed significant research and analysis on plan design, governance and sustainability risks, which supported the advice it provided to the minister. However, this analysis was constrained by time limits for the review and the existence of significant unfunded liabilities for past service that need to be funded. We make recommendations for improvement to this ongoing sustainability review.
We are pleased to report that all of the 13 outstanding recommendations we followed up in these audits have been implemented.
Education—School Board Budgeting (page 47)
We followed up on our October 2005 recommendation to the Department of Education regarding improving the school board budgeting process and working with key stakeholder associations to provide guidance on the standards and best practices for financial reporting. We found the department has implemented our recommendation.
Human Services—Administrative Support Systems for Child Intervention Services (page 51)
The 2007 audit that we conducted and this follow-up examine administrative systems the department has to support child intervention services, such as agency accreditation and case file review. We did not evaluate the work done by caseworkers or the department’s external reporting system. The original recommendations are primarily centered on the monitoring systems that provide assurance that child intervention standards are adhered to consistently. These administrative systems are important since they provide oversight, identify trends and provide feedback to frontline caseworkers. In 2007 we made five recommendations to the then Department of Children Services and Child and Family Services Authorities, to improve administrative systems that support child intervention services. In 2010 we found the department had implemented one of the recommendations. In this audit we conducted further follow-up work and found the four remaining recommendations have been implemented by the Department of Human Services.
Human Services—PDD Service Provider Monitoring (page 57)
We followed up on our 2004 and 2009 audits of the systems used to monitor and evaluate the performance of service providers to the Persons with Development Disabilities Community Boards. Of the three original recommendations made in 2004, one remained outstanding—the department should work with the boards to strengthen the monitoring and evaluation of the performance of service providers through the provision of adequate financial reporting from service providers, by obtaining annual financial statements, implementing a risk-based internal audit plan, developing and implementing standard communications procedures, and evaluating service provider performance. This recommendation has been implemented by the Department of Human Services.
Human Services—Systems to Monitor Training Provider Compliance (page 59)
In 2008 we audited the former Department of Employment and Immigration’s systems for delivering training to Albertans who need to improve their employment skills. We made three recommendations. In 2012 we reported the department had implemented two of three recommendations. We found that the Department of Human Services has fully implemented the final outstanding recommendation. Systems for monitoring training providers have been improved by implementing a detailed monitoring, auditing and remedial action policy that requires the department to perform regular audits of training providers and perform follow-up procedures on post-audit action plans. Reports have been developed to monitor whether training providers are meeting performance outcomes and expectations.
Infrastructure—Alberta Schools Alternative Procurement (page 61)
In 2010 we audited systems the Department of Infrastructure used in applying the private–public partnership framework to the Alberta Schools Alternative Procurement project. The P3 framework identifies an alternative approach to building and paying for public facilities such as schools and hospitals. Our objective was to determine whether the department had effective systems to assess the potential value for money of the ASAP project, and ensure procurement activities were fair and transparent. We made two recommendations in our April 2010 report, to improve the processes the department uses to challenge and support maintenance costs and risk valuations and to publish value for money reports upon entering into P3 agreements. In this audit we found the Department of Infrastructure has implemented both recommendations.
Innovation and Advanced Education—Post-secondary Institution Non-Credit Programs (page 65)
In 2008 we recommended that the Department of Innovation and Advanced Education clarify its standards and expectations, and improve monitoring of non-credit programs at post-secondary institutions. The department has implemented our recommendations by annually communicating its expectation that institutions recover at least the total direct cost of delivering their non-credit programs, allowing the rate of cost recovery to vary for each program. It also obtains financial reports approved by each institution’s vice president of finance, performs improved reconciliation processes and analysis of this information, and follows up with institutions when they do not recover the total direct costs for non-credit programs.
Service Alberta—Information Technology Control Framework (page 67)
An information technology framework is an efficient way to ensure that there are sufficient and effective controls over an organization’s information and the systems and processes that create, store, manipulate and retrieve important data.
A framework can mitigate risks and:
- provide secure programs and services to employees and Albertans
- protect the confidentiality and security of information
- ensure that systems work as expected and are available when needed
In 2008 we recommended that Service Alberta, in conjunction with all ministries and through the Chief Information Officer Council, develop and promote a comprehensive information technology control framework and guidance for implementing it, and well-designed and cost-effective IT control processes and activities. We revisited Service Alberta in 2010 and 2012 but the department was not ready for a follow-up. This year we conducted a follow-up audit and found that Service Alberta had implemented our recommendation.
Other Audit Work
Innovation and Advanced Education—Report on Post-secondary Institutions (page 71)
This report card on internal controls over financial reporting highlights our observations on financial statement preparation and outstanding recommendations from our audits of colleges, technical institutions, MacEwan University and Mount Royal University. Our October 2013 report provided our observations on Athabasca University, University of Alberta, University of Calgary and University of Lethbridge.
We found three institutions have improved their preparation of accurate and timely financial statements—NorQuest College, MacEwan University and Mount Royal University—and three continue to struggle—Olds College, Northern Lakes College and Alberta College of Art + Design—because of weaknesses within institutional internal controls and processes.
Sustaining a strong internal control environment is difficult for any organization. Post-secondary institutions must continuously re-assess if their control environment is operating effectively as their operations change and evolve. An institution’s ability to prepare timely, accurate financial reporting may be temporarily impacted by the institution’s inability to adjust to unexpected changes in its operations or staffing.
A number of institutions faced various obstacles in maintaining the effectiveness of their financial reporting processes in the past year. In particular, Keyano College did not prepare timely, accurate financial reporting this year, due to challenges in staffing and unexpected events impacting their operations. These obstacles appear to be temporary. We expect all institutions that have been unable to maintain their prior year ranking will re-establish the effectiveness of their processes and make further improvements where required in the next fiscal year.
We issued unqualified audit opinions on the financial statements of the 14 institutions where our audit is complete.
We followed up on outstanding recommendations made in our February 2013 report. Overall, institutions either improved or maintained their ranking on the number and nature of outstanding recommendations. NorQuest College significantly improved its internal control environment by implementing eight of our prior years’ recommendations. Lethbridge College, Mount Royal University and Keyano College also implemented recommendations to improve their control environments. MacEwan University implemented a number of recommendations to continue its process of strengthening its overall internal controls.
The boards of governors of Alberta College of Art + Design, Northern Lakes College and Olds College must hold management accountable to implement recommendations that will establish and sustain a strong internal control environment. Institutions with strong internal control environments have demonstrated that effective processes can be implemented and sustained in periods of economic and operational change.
While Medicine Hat College’s financial reporting process was effective, the college must make significant improvements to some of its operating activities. In our July 2013 report we recommended significant improvements to the college’s international education activities.
Portage College also has adequate processes to prepare its financial reporting. However, we followed up on the college’s implementation of our prior year’s recommendation on improving the accuracy of bookstore inventory. We conclude not all necessary improvements have been made and repeat our recommendation.