Indian and Northern Affairs Canada Internal Audit Report Financial Audit of the Settlement Allotment Prepared by: Audit and Assurance Services Branch April 9, 2009 pptx

Indian and Northern Affairs Canada Internal Audit Report Financial Audit of the Settlement Allotment Prepared by: Audit and Assurance Services Branch April 9, 2009 This is trial vers

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Indian and Northern Affairs Canada

Internal Audit Report Financial Audit of the Settlement Allotment

Prepared by:

Audit and Assurance Services Branch

April 9, 2009

This is trial version www.adultpdf.com

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Financial Audit of IRSRC Settlement Allotment – draft

Table of Contents

Initialisms and Abbreviations 1

Executive Summary 2

1.0 Introduction 4

1.1 Background 4

1.2 Settlement Allotment Process 4

2.0 Objectives 6

3.0 Scope 6

4.0 Approach and Methodology 6

5.0 Conclusions 7

6.0 Observations and Recommendations 7

6.1 Management control framework for the Settlement Allotment 7

6.2 Compliance with TB Policies 8

Annex A – Audit Criteria 10

Annex B – Management Action Plan 11

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Financial Audit of IRSRC Settlement Allotment 1

Initialisms and Abbreviations

CEP Common Experience Payment

CFO Chief Financial Officer

DOF Department of Finance

DOJ Department of Justice

FAA Financial Administration Act

HQ Headquarters

IAP Independent Assessment Process

INAC Indian and Northern Affairs Canada

IRSRC Indian Residential Schools Resolution Canada

MCF Management Control Framework

TB Treasury Board of Canada

TBS Treasury Board of Canada Secretariat

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Executive Summary

Introduction

Within Indian and Northern Affairs Canada, the Resolution and Individual Affairs Sector,

formerly Indian Residential Schools Resolution Canada, is responsible for addressing and

resolving issues arising from the legacy of Indian Residential Schools In June 2001, the

Government of Canada created the Department of Indian Residential Schools Resolution

Canada to focus federal efforts toward managing and resolving abuse claims in a fair, less

adversarial manner

On May 10, 2006, the Government of Canada announced the approval of a final Indian

Residential Schools Settlement Agreement (the “Settlement Agreement”) The settlement

provided for a Common Experience Payment; a lump sum payment available to former

students who lived at one of the listed residential schools The Settlement Agreement also

included an Independent Assessment Process which allowed those former students who

suffered sexual or serious physical abuses or other abuses that caused serious

psychological effects, to apply for compensation

The Resolution and Individual Affairs Sector was provided with funding in the amount of

$160.0M per annum for six fiscal years ending in 2012/13 in the form of a Special

Purpose Allotment whose purpose is for out-of-court settlement payments, Dispute

Resolution payments, top-up payments, IAP payments and associated costs related to

claims from Indian Residential Schools Only allowable costs can be charged against the

Settlement Allotment As part of a Treasury Board decision, a financial audit of the

Settlement Allotment is required Expenditures against the Settlement Allotment totaled

$72.0M in 2006/07 and $186.4M in 2007/08

Objectives and Scope

The objective of the financial audit of the Settlement Allotment was to provide assurance

on the adequacy and effectiveness of controls over the disbursement of the Settlement

Allotment funds and compliance with the terms of the TB decision and applicable INAC

and TB policies

The scope of the audit included an overall assessment and detailed testing of a sample of

transactions from the population of expenditures charged against the Settlement

Allotment for the fiscal years ended 2006/07 and 2007/08

The financial audit of the Settlement Allotment did not assess the completeness of the

Settlement Allotment balance for the fiscal years under examination

Conclusion

Internal Audit selected a statistically valid sample in order to conclude on the adequacy

and effectiveness of controls over the disbursement of the Settlement Allotment funds In

our opinion, the charges to the Settlement Allotment for the fiscal years 2006/07 and

2007/08 are accurate, complete and comply with the requirements of the Settlement

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Allotment As a result of the audit, however, specific observations related to the

management control framework have been made

1 The design of the controls over the disbursement of Settlement Allotment funds is

adequate, however, when assessing effectiveness, it was identified that in 12% of

the files selected for testing, the original source documentation to support the

claims could not be located and, as a result, duplicate copies had to be provided

by the Department of Justice (DOJ)

2 For the sample files selected for review, 28% were not approved by the Deputy

Minister, as required by TB Policy on Ex-Gratia Payments This error was

discovered through an Auditor General observation in November 2006 and was

immediately corrected The audit testing confirmed that all subsequent payments

reviewed were appropriately approved by the Deputy Minister

Recommendation

To address the first of our audit findings, Internal Audit recommends that the Director

General of Dispute Resolution Operations leverage the existing tracking database to

ensure that all claims are accounted for and tracked, including original supporting

documentation, throughout the life cycle of the claim

No recommendation is required to address the second audit finding as the issue has been

corrected

Statement of Assurance

In my professional judgment, as Chief Audit and Evaluation Executive, sufficient and

appropriate audit procedures have been conducted and evidence gathered to support the

accuracy of the conclusions reached and contained in this report The conclusions were

based on a comparison of situations, as they existed at the time of the audit and against

the audit criteria It should be noted that the conclusions are only applicable for the areas

examined

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1.0 Introduction

1.1 Background

Within Indian and Northern Affairs Canada, the Resolution and Individual Affairs Sector,

formerly Indian Residential Schools Resolution Canada, is responsible for addressing and

resolving issues arising from the legacy of Indian Residential Schools In June 2001, the

Government of Canada created the Department of Indian Residential Schools Resolution

Canada to focus federal efforts toward managing and resolving abuse claims in a fair, less

adversarial manner To provide increased choice for former students in addressing their

claims, the Government launched the National Resolution Framework in November

2003, which included a litigation strategy, health support, a Commemoration Program

and an Alternative Dispute Resolution process

On May 10, 2006, the Government of Canada announced the approval of a final Indian

Residential Schools Settlement Agreement (the “Settlement Agreement”) The settlement

provided for a Common Experience Payment; a lump sum payment available to former

students who lived at one of the listed residential schools The Settlement Agreement also

included an Independent Assessment Process which allowed those former students who

suffered sexual or serious physical abuses or other abuses that caused serious

psychological effects, to apply for compensation The Settlement Agreement also

included collective measures including a Truth and Reconciliation Commission, a

Commemoration initiative and funding for the Aboriginal Healing Foundation and other

health support programs

The Resolution and Individual Affairs sector was provided with funding in the amount of

$160.0M per annum for six fiscal years ending in 2012/13 in a Special Purpose Allotment

entitled the “Settlement Allotment” The intention of the Settlement Allotment is for

out-of-court settlement payments, Dispute Resolution payments, top-up payments, IAP

payments and associated costs related to claims from Indian Residential Schools

Only allowable costs can be charged against the Settlement Allotment As part of a

Treasury Board decision, a financial audit of the Settlement Allotment is required

Expenditures against the Settlement Allotment totaled $72.0M in 2006/07 and $186.4M

in 2007/08

1.2 Settlement Allotment Process

The responsibility for the settlement of claims resulting in payments from the Settlement

Allotment is shared among Headquarters Financial Services and Dispute Resolution

Operations branches of INAC and the Department of Justice

The roles and responsibilities are identified in Annex J to the TB Decision which outlines

the procedures for managing the Settlement Allotment and the conditions that must be

met before payment of compensation can be made to claimants

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1.2.1 Claims Settlement Process

The settlement of claims involves a series of steps that include participation and

coordination with DOJ and quarterly reporting on the status of the Settlement Allotment

to the Treasury Board of Canada Secretariat and DOF

The first step in the process is to validate and screen claims against established program

eligibility criteria and management practices established by TBS The claim can then be

settled through one of two streams: litigation (includes out-of-court settlements), or ADR,

replaced by IAP as of September 2007

1.2.2 Litigation

In the case of Litigation, the DOJ prepares a legal risk assessment to determine the

likelihood of reaching an out-of-court settlement and provides a recommendation as to

liability and appropriate damages The settlement recommendation is reviewed by the

departmental client, INAC and if it is consistent with policy and operational objectives, a

report requesting a mandate to settle is prepared The INAC report and DOJ

recommendation are presented to a Litigation committee co-chaired by management

representatives from INAC and DOJ

If the settlement mandate is approved, INAC provides instructions for DOJ to make an

out of court offer to the plaintiff If an out of court settlement is reached, the claimant

signs a legal release and DOJ prepares and forwards all requested documents to INAC

with instruction for payment If no out of court settlement is reached, the matter is

referred to the court of jurisdiction to proceed toward trial

1.2.3 Alternative Dispute Resolution

The ADR process is a non-adversarial approach where claims are categorized into one of

two models: Model A or B Model B claims involve cases of low physical abuse and

settlements are capped at $3,500 and $500 for legal costs Model A claims involve more

severe cases of physical or sexual abuse and settlement is based on the severity of abuse

Model B settlements are capped at $250,000 and an additional 15% of the settlement

value as a contribution towards for legal costs (plus reasonable reimbursement)

For claims settled through the ADR process, the claim, once screened by the Dispute

Resolution Operations Branch, is sent to the Adjudication Secretariat who schedules a

formal hearing and assigns an Adjudicator The claim is settled at a hearing, after which

the Adjudicator prepares a Decision stating the decision and establishes the amount of the

settlement based on a point rating compensation grid as outlined in the Settlement

Agreement The Decision is submitted to the Chief Adjudicator’s Office where it is

subject to an administrative review to ensure consistency among the decisions of

adjudicators in the interpretation and application of the ADR Model (or the IAP Model)

before it is sent to the claimant A signed legal release is obtained from the claimant

before the compensation can be paid by INAC It should be noted that releases are no

longer required for settlements under the IAP

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1.2.4 Independent Assessment Process

The IAP process is similar to the ADR process except that the distinction between Model

A claims and Model B claims has been abandoned Other changes included making the

compensation grid national and expanded in scope, as opposed to regional and

establishing the independence of the Adjudication Secretariat from Dispute Resolution

Operations Branch which is responsible for representing Canada at hearings, negotiating

claims without a hearing, researching and paying the claims

2.0 Objectives

The objective of the financial audit of the Settlement Allotment was to provide assurance

on the adequacy and effectiveness of controls over the disbursement of the Settlement

Allotment funds

3.0 Scope

The scope of the audit included an overall assessment and detailed testing of a sample of

transactions from the population of expenditures charged against the Settlement

Allotment for the fiscal years ended 2006/07 and 2007/08

The financial audit of the settlement Allotment did not assess the completeness of the

Settlement Allotment balance for the fiscal years under examination

4.0 Approach and Methodology

The audit was conducted in accordance with the requirements of the TB Policy on

Internal Audit and followed the Institute of Internal Auditors’ Standards for the

Professional Practice of Internal Auditing Sufficient and appropriate audit procedures

have been conducted and evidence gathered to support the accuracy of the opinions

provided and contained in this report

The audit team assessed the management control framework in place to ensure that

expenditures against the Settlement Allotment were in compliance with requirements of

the Indian Residential Schools Settlement Agreement

The planning phase of the audit involved various procedures including: documentation

review, interviews with management representatives within the Resolution and Individual

Affairs and Chief Financial Officer Sectors and identification and assessment of the

existing management control framework for the payment of funds against the Settlement

Allotment

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Audit criteria were determined based on information gathered during the planning and

risk assessment phase conducted by the audit team during the period of December 2008

through January 2009 The audit criteria served as the basis for developing the audit

approach and detailed audit program for the conduct phase The audit criteria are

provided in Annex A

Subsequent to a review of the population of transactions from the two fiscal years under

audit and assuming a homogeneous population, a randomly selected sample of 100

transactions representing a 95% confidence level (plus/minus 10% confidence interval)

was chosen from the total population of 8,902 transactions (2,161 for 2006/07 and 6,741

for 2007/08)

The statistically valid sample size was selected to conclude on the adequacy and

effectiveness of controls over the disbursement of the Settlement Allotment funds This

confirmed that the claims were allowable as per the requirements of the Settlement

Allotment, were paid in accordance with the Settlement Agreement, included appropriate

supporting evidence to support the claims and associated disbursements, reflected

appropriate approvals during the claim processing and payment phases and were in

compliance with the requirements of the Financial Administration Act

Audit fieldwork was conducted at Headquarters in January and February 2009

5.0 Conclusions

In our opinion, the controls over the disbursement of Settlement Allotment funds are

designed adequately; however, specific observations related to the effectiveness of the

management control framework are described in Section 6.0 below

6.0 Observations and Recommendations

6.1 Management control framework for the Settlement Allotment

The design of the management control framework over the disbursement of Settlement

Allotment funds is adequate,; however, for 12% of the files reviewed the original

documentation to support the disbursement could not be located and, as a result,

duplicate copies had to be requested from and forwarded by the DOJ

The review of the management control framework over payments against the Settlement

Allotment revealed that key controls have been designed and are sufficient to mitigate the

risk of non-compliance with TB and INAC policies and procedures Roles and

responsibilities are clearly understood Processes have been designed to ensure

appropriate segregation of duties and review to confirm the accuracy, completeness and

appropriateness of claims paid Further, the financial position of the Settlement

Allotment is monitored on a quarterly basis by management and the reports are submitted

to TBS and DOF

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To assist in the monitoring and reporting of disbursements made against the Settlement

Allotment, the Dispute Resolutions Operations Branch has developed a tracking database

to monitor the claims at each stage of payment approval and the timing of payments This

database also provides information for the preparation of monthly reports to the Deputy

Minister on the Settlement Allotment balance and has recently been expanded to provide

further controls to prevent duplicate payments and improve the budgeting and forecasting

of Settlement Allotment funds

While the design of the management control framework over the disbursement of

Settlement Allotment funds is adequate, the audit identified that for 12% of the files

selected for testing, the original documentation to support the disbursement of funds

could not be located and therefore, duplicate copies were required to be provided by the

DOJ

As INAC is accountable to Parliament for the stewardship of the Settlement Allotment

funds, there is a requirement for the Department to fully document and maintain evidence

that the funds have been disbursed in accordance with the terms and conditions approved

by TB Further, as these documents are classified as Protected B and contain sensitive

claimant information, oversight is required to be in place to ensure the appropriate

management of files

Once the supporting documentation was obtained from the DOJ, there was sufficient

supporting evidence available to confirm the accuracy and completeness of the payments

made and compliance to the requirements of the Settlement Allotment

Recommendation:

1 The General Director of the Dispute Resolution Operations Branch should

leverage the existing tracking database to ensure that all claims and original

supporting documentation are accounted for, throughout the life cycle of the

claim

6.2 Compliance with TB Policies

For the claims reviewed that preceded November 2006, the payments were not

approved by the Deputy Minister, as required by the TB Policy on Ex-Gratia Payments

According to the TB Policy on Ex-Gratia Payments, only the Deputy Minister has the

authority to approve and pay amounts from the settlement of liability claims against the

Crown The audit procedures revealed that in 28% of the files examined, the payments

were approved by a person who did not have the delegated authority to approve payments

arising from claims In November 2006, the error was identified through an Auditor

General observation Immediately after this discovery, all requisitions for payment of

this nature were sent to the Deputy Minister for approval The audit testing confirmed

that all payments reviewed made subsequent to November 2006 were approved by the

Deputy Minister

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