Auditor General releases February Report

In his February 2013 report released today, Auditor General Merwan Saher includes the Office’s findings in audits at Alberta Health Services, the Office of the Public Trustee and Alberta’s post-secondary institutions. His report also includes a commentary on the province’s fiscal updates.

There are a total of 33 recommendations to government in the Report of the Auditor General of Alberta - February 2013, five of which are repeated. It was necessary to repeat these recommendations because management had not done enough to demonstrate they have implemented the previous recommendations.


Health - AHS Controls Over Expense Claims, Purchasing Card Transactions and Other Travel Expenses (page 21)

Albertans are entitled to assurance that public servants are not rewarding themselves at public expense. Recently there has been increased public disclosure of the travel, meal and hospitality expenses incurred by the public service.

We believe that public disclosure is useful, but Albertans need more. Albertans need assurance from those who have oversight of the public institutions they fund that the organization has a well-designed and functioning framework to control expenses. Those with oversight responsibility must be able to assert publicly that their organization’s policies and procedures ensure it reimburses expenses only if there is a business purpose and regard for economy - in other words, the expenses are a cost-effective use of Albertan’s resources.

Our recommendation to Alberta Health Services is designed to help AHS back up its public assertion.

Human Services - Office of the Public Trustee (page 33)

The Office of the Public Trustee is entrusted with protecting and managing the property of deceased persons, represented adults and minors when there is no one else to act on their behalf. These are some of Alberta’s most vulnerable citizens. We were asked by the Department of Justice to audit the files of the OPT when it had determined through an internal investigation that a senior trust officer had misappropriated trust funds. While our audit did not find other instances of misappropriation, it did determine that the OPT does not have adequate systems or controls in place to ensure its client files are being properly administered; to ensure there is sufficient rigour in its internal audit function; and to ensure its trust officers are performing their duties competently and acting in the best interests of their clients. Further, we found that there is improper segregation of duties between trust administration and financial services, which increases the risk that improper payments could go undetected.

Enterprise and Advanced Education - Report on Post-secondary Institutions (page 57)

This is our third report card on post-secondary institutions. The first was released in our March 2012 Report and the second in our October 2012 Report. These report cards were preparedin response to institutions requesting a means of differentiating themselves from their peers. In this report card we note that, while some institutions have made positive gains, there is still work to be done by others. The challenge will be for the boards of these latter institutions and the Minister, who have oversight responsibilities, to ensure there are adequate financial control environments in place. Albertans expect their post-secondary institutions to operate effectively.
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Note: Backgrounders on certain topics in this report follow. A list of all of the recommendations made to the Government of Alberta is located on the Office’s website at www.oag.ab.ca.

Backgrounder

Health - AHS Controls Over Expense Claims, Purchasing Card Transactions
and Other Travel Expenses

What we examined
In response to a request from both the Minister of Health and Alberta Health Services, we examined AHS’s systems for processing expense claims, purchasing card transactions, and other travel expenses. Our objective was to assess if AHS has effective controls to ensure that these types of expense payments comply with AHS policies.

In addition to our audit, under the direction of the Minister of Health, AHS hired Ernst & Young to perform an audit of expenses claimed by the former Capital Health’s Chief Financial Officer. Four executives who were, at that time, executives with the former Calgary Health Region also requested an internal audit of their expenses. AHS released both reports on December 13, 2012.

While the other two reports focus on the expense transactions of a small number of individuals, we focused on, and report our findings for, the whole system, not individuals.

Policies - We tested transactions against the expense reimbursement component of the Board Member Remuneration and Expense Reimbursement Policy; the Travel, Hospitality and Hosting Policy (and the predecessor policy); the Travel User Guide; the Purchasing Card Program User Guide; the Medical Staff Recruitment Incentives Policy; the Medical Staff Recruitment Guideline - Relocation Support; Medical Staff Strategic Workforce Incentives Guideline and the Employee Relocation Procedure in effect from April 1, 2011 to August 31, 2012. Essentially, these policy requirements were our detailed criteria.

What we found and what needs to be done
AHS is a large, complex organization that operates the delivery of the provincial health care system. Travel is essential to its operations. AHS spent about $100 million on travel expenses and other expense claim and purchasing card expenses (expenses) between April 2011 and August 2012.

We found that AHS needs to tighten its controls by:

• improving the analysis and documentation that support the business reasons for - and the cost effectiveness of - these expenses
• improving education and training of staff on their responsibilities for complying with policies
• monitoring expenses and reporting results to the Board

We also found that AHS needs processes to guide employees on how to achieve cost effectiveness. Specifically, it needs to:

• analyze the major expense categories to guide employees on minimizing travel costs by choosing cost effective alternatives
• provide guidance to&nbsp employees on where to document their analyses considering cost effectiveness and what to consider when doing these analyses
• We also found that AHS has improved controls over expenses since our 2008 audit (of Peace Country Health Region, a predecessor of AHS).

Why it is important to Albertans
An effective control framework ensures that public servants do not subsidize the government - or reward themselves at public expense. It protects employees and helps ensure organizational policies are implemented. It also enables AHS’s Board to show and publicly state that AHS expenses are incurred only for business reasons, with proper consideration of economy and efficiency - in other words, that AHS expenses are cost effective.

Although these types of expenses are a very small percentage of the total expenses spent by AHS, an effective control framework over these types of expenses helps reduce reputational risk to AHS and promote an overall proper control environment.

Enterprise and Advanced Education - Report on Post-secondary Institutions

We continue our theme from previous reports, that boards and audit committees of Alberta’s post-secondary institutions must hold management accountable for implementing and maintaining effective processes and internal controls. We make recommendations to Alberta’s colleges, technical institutes, and Grant MacEwan and Mount Royal universities. We also include a report card on their internal controls over financial reporting. Following are highlights from our work. This report does not include the University of Alberta, University of Calgary, University of Lethbridge or Athabasca University.

Grant MacEwan University significantly improved its internal controls through several initiatives. The University implemented financial reporting processes to close its financial records every month. After every month-end, the University made further improvements, which resulted in accurate and timely financial statements at year-end. The University also defined roles and responsibilities, trained staff and continues to resolve outstanding deficiencies in its enterprise resource planning system. It also implemented two of our prior years’ recommendations. These improvements produced a better overall report card.

Lakeland College, Lethbridge College and Portage College improved their internal controls over financial reporting, which resulted in better overall report cards.

Alberta College of Art + Design, NorQuest College, Northern Lakes College and Olds College still need to significantly improve their processes and internal control environments. In the individual sections that follow, we explain the outstanding problems as well as new ones we found. A list of outstanding recommendations, in our October 2012 Report (pages 159-183), includes other recommendations these institutions have not yet implemented. Many of our recommendations relate to basic internal controls in areas such as financial reporting and risk management. The Minister should continue to hold boards accountable, who in turn must hold management accountable to implement effective internal controls.

Internal controls - a report card

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 the ability to prepare quality financial information throughout the year and a strong year-end process to prepare financial statements.

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
A report card outlining the results from this year’s assessment, together with comparative assessments from 2011, is included in this report on pages 58 - 59.

Human Services - Office of the Public Trustee

The role of the Public Trustee is to protect and manage the property of deceased persons, represented adults and minors when there is no one else to act on their behalf.

In 2010, Service Alberta notified the Office of the Public Trustee that one of its senior trust officers had obtained a government identification card under another name. Upon further investigation, the OPT found that in 1997 the senior trust officer paid $102,000 to an individual of that name, identified as the sole beneficiary in an estate file that the officer administered. The funds were deposited into a bank account opened using the government identification. In 1998, the senior trust officer approved a final distribution from the same estate of $20,000 that was deposited into the same bank account.

After completing its internal investigation and finding that funds were improperly disbursed, the OPT terminated the employment of the senior trust officer administering the file. The Public Trustee, as personal representative of the estate, filed a civil suit seeking to recover the funds the senior trust officer allegedly misappropriated. The Deputy Minister of the Department of Justice asked the Office, and we agreed, to do two things:

• an investigation to assess the risk that the dismissed senior trust officer misappropriated other client funds
• an audit of the design and operating effectiveness of the OPT’s systems to safeguard and administer client assets
• What we examined
• Our examination included reviewing files the former employee had handled and auditing the internal controls the OPT uses to protect its clients’ financial interests.

Why it is important to Albertans
Albertans should be confident that the financial interests of vulnerable individuals are being properly safeguarded and managed by the Public Trustee.

What we found
The OPT has inadequate systems to safeguard and administer clients’ assets. We found inadequate:
supervisory review and internal audit of client files
compliance with policies and procedures
segregation of duties
supporting documentation in client files
We are concerned about the lack of proper management oversight in the administration of the client files. We found examples where the OPT has not followed its own policies for the administration of estate files. In some cases, management was unaware of these shortcomings. In other instances, management was aware but did not take the action needed.

We found no evidence of further misappropriation of client funds by the former senior trust officer. Accordingly, we can conclude there is a low probability that other client funds were diverted by this former employee.

Overall, our findings relating to the OPT’s current control environment showed many files were poorly organized and lacked adequate supporting documentation, including evidence that the files had been adequately reviewed and internally audited. In effect, the Public Trustee does not have the necessary assurance that its clients’ interests are being safeguarded. Unless the OPT significantly improves its systems and processes, unnecessary risk exists that the financial assets of vulnerable Albertans may be improperly diverted or misused.

What needs to be done
The OPT needs to:

• improve its file management processes and oversight of client files by ensuring adequate supervisory review and internal audit
• review and assess whether its policies are appropriate; ensure that processes adequately mitigate the risk that client assets could be mismanaged or misappropriated; and ensure policies and processes are being followed
• strengthen its processes for approving and paying client expenses
• improve its processes for ensuring client files are appropriately documented, including adequate documentation of administration, supervisory review and internal audit

Website: http://www.oag.ab.ca/