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 evaluated the following key indicators of effective financial processes and internal controls:
- the time it took institutions to prepare complete and accurate year-end financial statements
- the quality of draft financial statements we received, including the number of errors our audit found
- the number and type of current and outstanding recommendations
To govern effectively, boards need accurate and timely financial information throughout the year, not just at year-end. To manage effectively, management needs the same information. We see a direct correlation between a strong year-end process to prepare financial statements and the ability to prepare quality financial information throughout the year.
A post-secondary institution could have a yellow or red status yet still receive an unqualified audit opinion on its financial statements as management can correct errors and financial statement disclosure deficiencies during the audit process. The number of errors and disclosure deficiencies we find in the draft financial statements indicates how effective financial controls are for preparing accurate financial statements.
Effective control environments include clear policies, well-designed processes and controls to implement and monitor compliance with policies and secure information systems to provide timely and accurate financial and non-financial information to manage and govern the institutions. Recommendations that are not implemented promptly erode the effectiveness of the institution’s control environment. Weak control environments impact the quality of decisions made by management and the board of governors and can result in an institution not achieving its goals by operating in a cost-effective manner and managing operating risks.