Special
Audit – The Big Picture
In
February 2002, the office of the Auditor General of Canada released its
special audit report on the Canadian Wheat Board. Since then the
CWB and its supporters have used the existence of this special
examination to deflect detailed financial questions about the board
and its operations. It is not appropriate for directors and
senior management to assume that because the CWB has gone through a
one-time audit, everyone should cease to ask questions. To date, no one
has taken the time to explain the background of the audit and show the big
picture of what the report actually means to farmers. To try to
accomplish this we must examine Part X of the FAA, the types of audits
available, and what can be done to assure farmers that the improvements
called for by the Auditor Generals office will be implemented and
monitored.
First
we must establish the legal status of the CWB. It has moved from an
enterprise crown corporation to a shared governance corporation in an
attempt to make the board more open and accountable. Unfortunately,
despite the change of name and what it infers, there is no concrete
evidence that the corporation has changed its status in any significant
way. It is not considered a crown corporation within the meaning of the
FAA, but is still owned or controlled by the government and ultimately
accountable to parliament through a Minister of the Crown for the conduct
of its affairs. The Population Affiliation Report, that was updated
and released in January 2002 by the Treasury Board of Canada, shows no
major changes to the status of the CWB. The board is still exempt
from Part X of the Financial Administration Act (FAA) and it is still not
subject to the Access to Information Act (AIA).
The
fact that the CWB has always been exempt from Part X of the FAA is
significant because Part X of the Financial Administration Act provides
the control and accountability framework for Crown Corporations.
Lets examine this part of the Act. In 1984 one of the main issues
in drafting the legislative amendments to the Financial Administration Act
was the need to clarify the roles and responsibilities of the various
players. It was essential that all parties in the accountability chain
fulfill their responsibilities. The objective of this area of the act is
to strike a balance between the need for adequate control and direction by
Parliament and government on the one hand, and the need for an appropriate
measure of independence of action and accountability by the corporation on
the other. The framework provides a number of key features including:
- a
clear explanation of “who
is responsible for doing what” (Parliament, government, board and
management);
- good
planning and reporting provisions, and
- a
well defined, rigorous audit regime (internal audit, annual reports
and special examinations).
The
exemption from Part X means that the CWB is not subject to certain
provisions that support good management and accountability. For example,
they do not have to submit to a regular regime of internal audits, annual
audits and special examinations by the Auditor Generals Office. (*note) When
you revisit the significant deficiencies and areas where improvements can
be made in the Special Audit done on the CWB you can see where the board
would benefit greatly from being subject to this area of the act.
This
now leads us to discuss the different audits done by the Auditor
General’s Office. There
are three types of audits used on crown corporations; an internal audit
(which assesses for management the adequacy of the systems and practices
set out in Part X of the FAA); an annual audit (which provides
assurance to Boards, ministers, parliament and the Treasury Board
respecting Financial Statements, compliance with authorities and other
matters of significance) and a special examination audit. The one
done on the CWB was a special examination audit. Please note that a
special examination is an audit of Management Systems and Practices,
not an audit of financial statements. The big difference
between an annual audit and the special examination is that, in an annual
audit the opinion expressed is with respect to the financial position and
financial results of the Corporation’s operations, whereas in a special
examination, the opinion is with respect to the achievement of the
statuary control objectives by way of the corporations systems and
practices.
In
carrying out the special examination it is significant to also note
that the examiner is required to rely, to an extent considered
practicable, on the internal audit done by the CWB’s own accountants.
The purpose of the special audit is to determine whether, in the period
under examination, the systems and practices maintained provided “reasonable
assurance” that:
- assets
were safeguarded and controlled
- resources
were managed economically and efficiently
- operations
were carried out effectively
- the
transactions of the corporation are in accordance with Part X of the
FAA, with the regulations, the Charter and by-laws of the corporation
and with any directive given to the Corporation…….This
is not applicable to the CWB because of their exemption to Part X of
the FAA.
The
scope of the special audit included governance, strategic planning,
performance measurement and reporting, marketing, grain transportation,
financial operations, communications and corporate policy, information
technology and price pooling. The audit did not examine or comment on
the mandate and role of the CWB, in particular its role as a
monopoly, single desk seller of wheat and barley, including:
- the
objects or purposes of the Corporation or restrictions on the
businesses or activities it may carry out
- the
objectives of the Corporation, and
- any
policy decisions of the government that relate to the CWB
*It
is important to note that some of the 21 core questions asked by
Jim Chatenay of the CWB, fall into the area of the audit that the Auditor
General did not examine.
The
audit of procedures done by the Auditor General was very thorough and
brought out significant deficiencies in four of the nine
areas examined. The report also brought out the fact that, except for
the significant deficiencies, there was “reasonable assurance”
that the key systems and practices operated in accordance with relevant
legislation and corporate policies, and that those key systems and
practices were maintained to provide reasonable assurance that the
resources of the corporation were managed economically and efficiently.
Unfortunately,
this was a one-time audit and while we are aware (because of the
report), of the areas that need to be changed or improved,
there is no guarantee that the CWB will follow through with the
recommendations. There is no incentive for change when there is little
chance of a follow-up audit in the near future. If the CWB were subject
to Part X of the FAA there would be a reason to do something
about their “significant deficiencies”. Part X of the FAA
provides a control and accountability framework for Crown Corporations
that gives both the corporation and its shareholders peace of mind. The
rigorous audit regime carried out by the Auditor Generals Office is a
powerful tool for keeping corporations on the straight and narrow. If the
CWB is really serious about moving from their “old image of secrecy”,
to the “new open and accountable farmer run corporation”, there
should be no question about placing themselves under Part X of the
Financial Administration Act and giving up their exempt status.
Sources
- Manual
on Special Examinations of Crown Corporations – Office of the
Auditor General of Canada
- 2002
Canadian Wheat Board Special Audit
- Population
Affiliation Report 2002
- Financial
Administration Act
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