Archived - Audit of the Federal Budget Process

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Prepared by Internal Audit and Evaluation for:
Department of Finance
Audit and Evaluation Committee

January 4, 2012

Table of Contents

Executive Summary
Background
Audit Objective and Scope
Approach, Assurance and Auditing Standards Employed
Conclusions
Findings by Audit Criteria
Recommendations and Management Action Plan

Appendices

Appendix A – List of Finance Employees Interviewed
Appendix B – Key Reference Documents Consulted
Appendix C – Members of the Audit Team

Executive Summary 

The objective of the audit was to assess the management practices for the annual preparation of the Federal Budget, and identify (if applicable) opportunities for improvement.

The audit concluded that, overall, the Department of Finance has good management practices for the annual preparation of the Federal Budget.  In particular, this includes (1) Clear roles and responsibilities, as well as effective communication to coordinate among internal stakeholders, (2) Internal controls to support the completion of key deliverables, (3) Regular assessment of performance to identify opportunities for improvement; and (4) Controls in place to safeguard physical information related to the Federal Budget.

The audit identified opportunities for improvement in areas related to streamlining tracking tools used to manage and track Budget proposals; as well as conducting formal and documented post-mortem exercises at the branch level, for those policy branches not doing so already.

It should be noted that the Economic and Fiscal Policy Branch, who plays a lead coordination role in the preparation of the Budget, has been responsive and proactive to suggested improvements identified by the audit team throughout the course of the audit.

Background 

The Audit of the Federal Budget Process was approved as part of the Department of Finance’s three-year risk-based audit plan, tabled at the Departmental Audit and Evaluation Committee meeting on December 8, 2009. 

A key deliverable for the Department is the preparation of the annual Federal Budget (the Budget) for the Government of Canada.  The annual Budget sets out the Government’s economic and fiscal agenda and is usually tabled in Parliament early in the year (January-March). 

The preparation of the Budget is heavily influenced by current and projected economic and financial conditions.  During preparations for the Budget, a detailed assessment of the economic outlook, based on a survey of private sector economic forecasts, and its impact on the government’s fiscal position is undertaken.  This assessment, combined with the Department ongoing policy analysis, provides the context for Budget decisions on new spending and taxation measures, which reflect the Government of Canada’s policy priorities.  Once these new policy decisions have been approved, a final fiscal forecast, with measures, is developed for the Budget document.

As such, the preparation for the Budget takes a considerable amount of time and effort, requiring the input and cooperation of all branches of the Department.  In that context, policy branches provide subject matter expertise through their respective analysis, advice and input on areas within their mandates. 

The tight timeline to deliver the Budget and extensive analysis and input needed from all branches require that the process be well coordinated and organized.  There are three areas within the Department that, in particular, play a central role in the process:

  • the Deputy Minister’s Office (DMO) manages the briefing process and plays a key role in priority setting;
  • the Fiscal Policy Division (FPD), within the Department’s Economic and Fiscal Policy Branch (EFPB), in collaboration with the DMO, liaises with the branches, the Minister’s Office (MINO) and key external stakeholders, provides direction and leadership by establishing processes to ensure effective and timely delivery of the Budget, provides fiscal context for the decision making process and prepares the content of the Budget document; and
  • the Department’s Consultations and Communications Branch (C&C) is responsible for the lay-out, design, editing and translation of all Budget documents in Web and print formats as well as the drafting of related communication products. C&C also oversees distribution and tabling in Parliament and the management of Budget day “lock-ups” / secured readings for media and stakeholders.

Audit Objective and Scope 

Objective

The objective of the audit was to assess the management practices for the annual preparation of the Federal Budget, and identify (if applicable) opportunities for improvement.

Scope

The audit scope included key activities related to the development of the March 2011 Federal Budget:

  • clarity and communication of roles and responsibilities of internal stakeholders, including the provision of senior management oversight;
  • processes related to the delivery of the Federal Budget in a timely manner;
  • the self-assessment of performance and identification of opportunities for improvement; and
  • effectiveness of controls to safeguard budget documents.

The scope did not include:

  • an assessment of policy decisions within the Budget documents and/or advice provided to the Minister of Finance by the Department’s branches during the preparation of the Budget;
  • an assessment of the IT Security infrastructure related to the Budget (Although the security of electronic information is a significant area of risk, it was excluded from the audit because the Department’s IT infrastructure is currently undergoing significant structural changes);
  • risks related to Values and Ethics arising from the handling of the budget documents, as a Department-wide audit of Values and Ethics was conducted in 2010 with positive results; and
  • communication and involvement with external stakeholders, such as PCO and PMO.

Approach, Assurance Statement and Auditing Standards Employed

The audit was conducted in accordance with Treasury Board policy, directives and standards on internal audit and the procedures used meet the professional standards of the Institute of Internal Auditors.  These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that the audit objective is achieved. During the audit, appropriate procedures were followed and sufficient evidence was obtained to support the accuracy of findings and the overall audit opinion presented in this report.  The findings are based on a comparison of the conditions, as they existed at the time of the audit, against the audit criteria identified within this report, which was accepted by management.  The opinion is applicable only to the entity examined and are supported by relevant and sufficient evidence to ensure its integrity.

Audit procedures included, but were not limited to, interviews, observations, review of supporting documentation, and analytical testing.  The audit criteria used to develop the required audit tests were based on good management practices such as relevant elements of the Office of the Comptroller General’s Audit Criteria Related to the Management Accountability Framework.

In total, 23 individuals were interviewed including personnel from eight of the Department’s branches, as well as representatives from the Deputy Minister’s Office (list of interviewees is provided in Appendix  A).  The audit team also conducted a review and analysis of applicable authorities and policies, as well as others documents from various relevant sources (list of key documents consulted is provided in Appendix B).

The audit approach allowed for the audit results to be communicated in such a manner as to enable management to review and provide feedback on the findings and conclusions before they were finalized.

Conclusions 

The audit concluded that, overall, the Department has good management practices in place for the annual preparation of the Budget. In particular, the following good management practices and key aspects are worth noting in the context of the Budget preparation:

  • clear roles and responsibilities, as well as effective communication to coordinate among internal stakeholders;
  • internal controls to support the completion of key deliverables;
  • regular assessment of performance to identify opportunities for improvement; and
  • controls are in place to safeguard physical information related to the Federal Budget.

Overall good management practices are in place. However, opportunities for improvement were noted in the following areas:

  • streamlining of Tracking Tools: While effective tracking tools exist, designed by branches for their own needs, there is scope to further explore opportunities to streamline the process; and 
  • post-Mortem Exercises: All policy branches should conduct a formal and documented branch specific post-mortem exercise, in addition to the information they contribute through the Departmental Co-ordination Committee (DCC) to the department-wide post-mortem conducted by Economic and Fiscal Policy Branch on an annual basis. 

It should be noted that the EFPB and DMO will take steps towards the streamlining of tracking tools as part of their annual post-mortem exercises. EFPB and DMO have been responsive and proactive to suggested process improvements identified by the audit team throughout the course of the audit.

Findings by Audit Criteria 

The following pages present the assessment of risk exposure identified in the audit. Risk exposure for each audit criteria is categorized as follows:

High exposure
Medium exposure
Low exposure

A high, medium or low ranking corresponds to the potential risk exposure auditors believe may have an impact on the achievement of Department objectives, and is indicative of the priority management should give to the recommendations.

The assessment summarizes the audit observations based on the factual evidence gathered and analyzed during the audit. Based on these assessments, issues/themes along with potential causes, impacts, management initiatives and recommendations are summarized in the “Recommendations and Management Action Plan” section.

Findings by Audit Criteria
Criterion Risk Exposure Assessment
1.0 Governance and Communication
The Federal Budget process is supported through clear  roles and responsibilities, as well as effective communication to coordinate among internal stakeholders Low

Within the Department, the Federal Budget process is supported through clear roles and responsibilities, as well as effective communication to coordinate among internal stakeholders.

The preparation of the Federal Budget requires the input and cooperation of all branches within the Department.  As such, clarity of roles and responsibilities and effective coordination are essential to the timely and effective delivery of the Budget.

The audit found that roles and responsibilities related to the delivery of the Budget were clearly understood among the Department’s stakeholders.  The EFPB effectively coordinated the Budget deliverables submitted to DMO for approval, with the extensive input and support from the policy branches.  Each branch has designated budget coordinators, as their main contact point for EFPB, to communicate expected deliverables and timelines.

For example, the EFPB and the branch coordinators contributed to the timely delivery of the Budget through their respective support of the “two-pager” process. This process, through the use of standardized templates, allowed Budget proposals (i.e. two-pagers) to be presented in a structured and consistent manner.  The process also helped prioritize Budget proposals for approval by ADMs and the DM, before being submitted to the Minister’s Office.

The audit also found that communication mechanisms to support the achievement of operational goals and specific timelines were effective.   Examples of these included:

  • The use of an electronic distribution list to coordinate budget deliverables with branches; and
  • Documented critical paths to coordinate efforts with key internal stakeholders.
In addition, Department wide committees, such as the senior level DCC, played an integral role in the effective communication and coordination amongst branches.
2.0 Management Controls
Effective controls exist to manage and support the completion of key deliverables related to the Federal Budget. Low

Effective controls were in place to support the completion of key deliverables related to the Federal Budget.

There are several deliverables that contribute to the timely completion of the Federal Budget.  These include, but are not limited to, the preparation of Budget proposals (i.e. two-pagers) submitted to the Minister’s Office and the production and translation of the Budget and related documents.  As such the audit examined the controls related to:

  •  The consistency in the preparation of Budget proposals;
  •  The tracking of Budget proposals; and
  •  The translation and production of the Budget.

The audit found that there were effective controls in place to ensure consistency in providing Ministerial advice on budget initiatives through the use of a standardized template.  Since there are a significant number of budget proposals prepared by each branch, mechanisms are required to track and manage these documents. 

The audit found that effective tools existed to manage and track the various Budget proposals (i.e. two-pagers). Specifically, the EFPB and the Deputy Minister’s Office both maintained Department-wide spreadsheets, while policy branches maintained their own respective tracking spreadsheets.  Although effective tracking tools existed, the multiple number of spreadsheets created a duplication of efforts and required additional time for reconciliation.  As such, the audit recommends that EFPB and DMO, in consultation with the branches, explore options to streamline the various tracking tools.

Regarding production and translation of the Budget and related documents, the audit found that controls were in place to support the timely delivery of quality products in both Official Languages.  Specifically, contingency plans existed to mitigate risks related to the timely completion of translation and production of the Budget and related communication products.

3.0 Results and Performance
Performance is regularly assessed and opportunities for improvement are identified and addressed, as required. Low

Budget process-related performance was regularly assessed and opportunities for improvement were identified after each Budget period.

Formal performance measurement for the Budget process is a challenging task for the Department, considering that overall performance can be affected by factors such as changing priorities and timelines.  As such, post-mortem exercises to identify lessons learned are critical in assessing performance from year to year and the continuous improvement of departmental processes.

The audit found that the EFPB, in collaboration with C&C and DMO, leads an effective post-mortem exercise, to identify lessons learned on an annual basis, involving all branches at the DCC. Examples of successful improvements to processes resulting from the annual departmental lessons learned exercise include:

  • The use of standard identifier codes to track the status of budget proposals; and
  • The use of a “Word” based master copy system for editing and translation, instead of the “Adobe Acrobat PDF Review and Commenting system”, to reduce turnaround times for daily revision of master documents among EFPB, policy branches and C&C.
  • Ongoing suggestions for streamlining tracking tools.

At the outset of the audit, the EFPB and the audit team discussed the importance of assigning a comprehensive Action Plan to address issues identified in the post-mortem, which included specific timelines and individuals assigned to items. Such a plan features prominently as part of EFPB’s 2011 Budget post-mortem exercise.

At the policy branch level, the audit found that only two of the branches interviewed conducted a formal and documented internal post-mortem exercise.  As branch coordinators often rotate from year to year, the best practice of having branch-level post-mortem exercises ensures that lessons learned are retained, documented and formally passed on to their successors.  As such, the audit recommends that all policy branches conduct formal and documented branch-specific post-mortems after each annual Budget exercise. 

4.0 Information Management
Controls exist regarding the physical safeguarding of information related to the Federal Budget. Low

Controls are in place to safeguard physical information related to the Federal Budget.

The content of the Budget and related documents are sensitive information due to their potential impacts prior to their tabling in Parliament.  For example, financial markets may be impacted should related information be leaked before it is tabled.  As such, controls are necessary to protect these documents.

The audit found that the Department has a formal Budget Security Plan and Budget Contingency Plan to protect the Budget information.  Furthermore, the Departmental Security Officer developed and implemented several mechanisms to further promote security awareness and to strengthen the control environment. These included, but were not limited to:

  • Regular reminder emails and other communiqués pertaining to security measures;
  • Awareness tools distributed to departmental employees, such as posters, pamphlets; and
  • Regular security sweeps conducted by the Security Services Division.
Moreover, the following controls were carried out within the branches to safeguard physical Budget information:
  • Preventive practices and controls to ensure that sensitive budget documents are locked and access-restricted; and
  • Classification of documentation to protect Budget documents and related information from unauthorized disclosure.

Recommendations and Management Action Plan

The following section presents the key opportunities for improvement identified during the audit.  The impact and recommendations are also presented. When applicable, relevant management initiatives already underway are included.  For each recommendation, management has provided:

  • An action plan, which addresses the recommendation;
  • The position responsible for implementing the action plan; and
  • The target date for completion.

1. Explore options towards streamlining the tracking tools

Observations and Impact

The process for Budget preparation takes a considerable length of time and effort to produce a high volume of two-pagers. For example, during the Budget 2011 over four hundred two-pagers were completed by the Department’s policy branches. As such the EFPB, the DMO and policy branches used various tracking tools to manage and track the status of the Budget proposals.

The audit team conducted interviews with the EFPB, the DMO and policy branches to understand their respective tracking needs.  In addition, the audit team conducted a comparative analysis of the available tracking tools and found that although each  branch maintained tracking tools for their own purposes and needs, there was an overlap, to some extent, in their content, particularly between EFPB and DMO’s tools. Consequently, the policy branches were required to update both EFPB and DMO’s tracking spreadsheets, in addition to their own. This situation created a duplication of efforts. Streamlining the tracking tools could potentially improve efficiency; and reduce efforts related to reconciliation of spreadsheets.

As such, the audit recommends that EFPB and DMO, in consultation with the branches, continue to explore options to streamline the various tracking tools.

Recommendation

The audit recommends that EFPB, in consultation with DMO, as well as the branches, explore options towards streamlining the various tracking tools after the 2012 Federal Budget

Management Response

“Agreed. Led by the Director Fiscal Policy Division - EFPB, in collaboration with the Departmental Secretary, the branch is streamlining the tracking tools in preparation for Budget 2012.  The new tools will be operational by end -2011.”

2. Conduct and implement post-mortem at branch level

Observations and Impact

After each Budget, EFPB organizes a departmental post-mortem session based on input provided by internal stakeholders. Results of this exercise are ultimately presented and approved at the Departmental Coordinating Committee, a senior level committee that meets weekly to review emerging policy developments and strategies.  The audit found this to be an effective exercise.

At the branch level, the audit found that a formal and documented post-mortem exercise was conducted by two of the Department’s branches in order to improve their specific operations relating to the preparation of the Budget. 

Since branch coordinators often rotate from year to year, the best practice of conducting formal branch-level post-mortem exercises ensures that lessons learned are retained, documented and formally passed on from year to year.  Furthermore, such a branch level initiative could further optimize the branch contributions to the departmental post-mortem exercise.

As such, the audit recommends that all policy branches conduct formal and documented branch specific post-mortems after each annual Budget exercise.

Recommendation

The audit recommends that the following policy branches involved in the Budget process conduct formal and documented branch-specific post-mortems after each annual Budget exercise, beginning after the 2012 Budget:

  • Economic Development and Corporate Finance (EDCF)
  • International Trade and Finance Branch (ITF)
  • Federal-Provincial Relations and Social Policy (FPRSP)
  • Financial Sector Policy (FSP)

Management Response

“Agreed.  The Assistant Deputy Ministers of the EDCF, ITF, FPRSP and FSP branches will ensure that a formal and documented branch-specific post-mortem is conducted, within their respective branches, a few weeks after the completion of the 2012 Federal Budget exercise.”

Appendix A 

List of Department of Finance Canada Personnel Interviewed

  • Director, Fiscal Policy Division (Economic and Fiscal Policy Branch)
  • Chief, Fiscal Policy Division, (Economic and Fiscal Policy Branch)
  • Senior Chief, Rev. & Exp. Fiscal Policy Division (Economic and Fiscal Policy Branch)               
  • Senior Economist, Fiscal Policy Division (Economic and Fiscal Policy Branch)
  • Senior Economist, Fiscal Policy Division (Economic and Fiscal Policy Branch)
  • Departmental Secretary, Deputy Minister’s Office (DMO)
  • Assistant Departmental Secretary, Deputy Minister’s Office (DMO)
  • Assistant Deputy Minister (Communications and Consultations Branch)
  • Director of Public Affairs and Operations (Communications and Consultations Branch)
  • Senior Chief, Web Communications and Publishing (Communications and Consultations Branch)
  • Policy Analyst (Federal-Provincial Relations and Social Policy Branch)
  • Economist (Federal-Provincial Relations and Social Policy Branch)
  • Chief, Industry and Knowledge Economy (Economic Development and Corporate Finance Branch)
  • Senior Economist (Economic Development and Corporate Finance Branch)
  • Senior Economist, International Trade Policy Division (International Trade and Finance Branch)
  • Senior Chief, Personal Income Tax Division (Tax Policy Branch)
  • Chief, Personal Income Tax Division,  (Tax Policy Branch)
  • Chief, Personal Income Tax Division (Tax Policy Branch)
  • Analyst, Personal Income Tax Division (Tax Policy Branch)
  • Senior Project Leader, Financial Institutions Division  (Financial Sector Policy Branch)
  • Executive Director, HR Directorate  (Corporate Services Branch)
  • Director, Security Services Division (Corporate Services Branch)
  • Chief – IT Security, Information Management and Technology Directorate (Corporate Services Branch)

Appendix B 

Key Reference Documents

Reports

  • Budget 2011 (March 22, 2011 and June 6, 2011)

Guidelines

  • Office of the Comptroller General’s Audit Criteria Related to the Management Accountability Framework

Other Documents

  • An overview of the Canadian Budget Process, Parliamentary Centre, June 2005
  • Expenditure Management System of the Government of Canada, TBS, 1995

Documents Specific to Finance Canada

  • Budget process and related documentation
  • Budget preparation tracking tools
  • Post-Budget analysis and lessons learned
  • Budget security related documentation
  • Other relevant internal documents

Appendix C 

This audit was conducted by:

  • Rim Ben Saad, B.Comm, Senior Auditor, Internal Audit and Evaluation
  • Abdillahi Roble, CGA, B.Comm - Senior Auditor, Internal Audit and Evaluation
  • Olivia Zhu, MPA, CIA - Senior Auditor, Internal Audit and Evaluation
  • Ziad Shadid, CGA, B.Comm - Audit Manager, Internal Audit and Evaluation
  • Christian Kratchanov, MBA, CIA, Adm.A, CMC, Chief Audit and Evaluation Executive, Internal Audit and Evaluation