Internal Audit Report - Audit of the Infrastructure Stimulus Fund - Project Closure

January 2013

Table of contents

Executive Summary

The Government of Canada's Budget 2009 announced the Infrastructure Stimulus Fund (ISF) which was a two-year, $4 billion initiative to provide funding towards the rehabilitation or construction of provincial, territorial, municipal and community infrastructure projects. The program was intended to fund projects that could begin construction quickly, be built during the 2009 and 2010 construction seasons and completed by March 31st, 2011. In December 2010, the Government of Canada announced that the construction deadline for projects would be extended to October 31, 2011.

The objective of the ISF Audit was to provide a reasonable level of assurance that:

  • ISF project closure procedures were adhered to and contributed to reducing associated program risks.
  • ISF project and program data is available to support INFC's oversight role pertaining to Program closure.

The audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada and the International Standards for the Professional Practice of Internal Auditing.

The amount of time available to develop and implement the ISF program was less than what would normally be associated with such a large and complex initiative. The need to implement a program in such an environment created unique challenges such as the need to develop policies and procedures as the program evolved. Overall, Management was able to successfully implement the project closure component of the ISF program. 

The audit identified areas where Management could strengthen policies and procedures related to project closure requirements, specifically the solemn declaration of substantial completion and site visits. These improvements can be applied to the remaining ISF projects as well as other INFC programs which use a similar solemn declaration of substantial completion or site visits.

Management is in agreement with the audit findings and recommendations. Management has developed action plans to address the recommendations and these action plans have been included in the report. 

Original signed by

Inanc Yazar, CIA, CGA, CRMA
Director of Internal Audit for Infrastructure Canada

Date

Raymond Kunze
Chief Audit and Evaluation Executive for Infrastructure Canada

Date

1 Background

The audit assurance engagement on the Infrastructure Stimulus Fund was conducted as per Infrastructure Canada's (INFC's) approved risk-based internal audit plan.

The Government of Canada's Economic Action Plan (EAP) (Budget 20091) established the $4 billion Infrastructure Stimulus Fund (ISF) that provided funding towards the rehabilitation or construction of provincial, territorial, municipal and community infrastructure projects. Under the original terms and conditions, timely and targeted funding was to be made available for two years for eligible projects that could begin construction quickly, be built during the 2009 and 2010 construction seasons and completed by March 31st, 2011. On December 2, 2010, the Government of Canada announced that the construction deadline for projects under the Infrastructure Stimulus Fund would be extended to October 31, 2011.

Given the time-sensitive nature of the stimulus funding, the ISF was designed to ensure maximum flexibility. Funding allocations as well as project identification, selection and approval, were all developed to provide the Government of Canada with the necessary flexibility to allow timely delivery of the program, thus enabling the funds to flow quickly to construction-ready projects across Canada. 

During 2009-2010, INFC signed contribution agreements with a total of 42 provincial, territorial, municipal and non-governmental recipients and committed federal funding of $4 billion to over 4,000 projects. With almost $6 billion leveraged from funding partners (such as provinces, municipalities, and not-for-profit organizations), these projects injected nearly $10 billion into the economy.

The deadline to submit final claims for the ISF Program was January 31, 2012.  Since that time, INFC has worked to review and process final claims, and close out project files. At the time of the audit, only a small number of projects had yet to complete construction. 

Since the inception of ISF, there has been significant scrutiny of the program.  Given the public nature and large value of the program, several reviews and audits were conducted.  These include two reviews performed by INFC's Internal Audit Directorate as well as two audits conducted by the Office of the Auditor General of Canada (OAG).

The first review by internal audit, conducted in January 2010, focused on the following areas of ISF: project selection process, data collection and reporting, and monitoring.  The review identified recommendations to strengthen project and program administration. 

The OAG examined the ISF Program as part of its Fall 2010 Report on Canada's Economic Action Plan2 (EAP I) and found that the federal departments involved in the EAP, including INFC, had implemented appropriate management frameworks, put necessary controls in place to adequately mitigate the assessed risks, and put adequate processes in place to monitor and report on EAP progress and performance.  The OAG also commented that the departmental internal audit functions provided appropriate advice and assurance to senior officials regarding internal controls and management practices.

The second review by internal audit, conducted in March 2011, focused on file documentation, monitoring and payments associated with high risk projects.  This review contributed to the strengthening of ISF Program monitoring and claims processing procedures. 

The OAG examined the Program once more as part of its Fall 2011 Report on Canada's Economic Action Plan3 (EAP II) and found that selected federal departments and agencies, including INFC, had monitored progress and took corrective action where necessary.

2 Audit Objectives

The objective of the ISF Audit was to provide a reasonable level of assurance that:

Objective 1:    ISF project closure procedures were adhered to and contributed to reducing associated program risks.

Objective 2:    ISF project and program data are available to support INFC's oversight role pertaining to program closure. 

3 Audit Scope

An assessment of risk related to the ISF Program identified closeout activities of individual projects and program closure as the main risks that had not been subject to review through previous audit and review engagements.  The audit also serves as a lessons learned exercise on project and program closure that could be applied to other INFC programs that will sunset in the near future.

The scope of the audit involved an examination of the work undertaken by INFC in relation to closure of ISF projects for the period from March 31, 2011 to June 30, 2012.  The audit included an examination of pertinent program documentation, as well as an examination of the management systems, practices and controls in place related to ISF Program administration.

4 Audit Approach

The audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada and the International Standards for the Professional Practice of Internal Auditing.

The planning phase of the audit began in March 2012.  The examination phase took place from July to August 2012.  The examination employed various techniques such as a review of project files, including both financial and non-financial documentation, and interviews with officials. 

A risk-based sampling methodology was used as the basis for selecting the sample of 50 ISF projects to be tested in the examination phase of the audit. The sample included projects of both high and low monetary value from all provinces and territories (P/Ts). It was selected using a judgmental sampling approach and consisted of projects that were funded jointly with P/T partners as well as projects where funding was provided directly to the recipient. The sample served as an indicator of the documentation in place to support program delivery.  In addition to the project files, other program documentation, such as provincial files, were reviewed during the examination phase.  As a non-statistical sample was used, the results cannot be extrapolated to all ISF projects.

5 Audit Findings

The sampled project files were reviewed to ensure compliance with applicable policies and procedures developed for the ISF Program. The project files were also reviewed to determine whether required data was available to contribute to the effective management of the Program.

The initial review of sampled project files indicated missing documentation in some files. However, following further review and discussions with officials, it was determined that the information had been stored elsewhere. We advised ISF Program management of these isolated cases so that they could add the required information to the project files and take steps to prevent similar errors from occurring.

The audit found that overall the project closure risk mitigation processes and procedures put in place for ISF functioned effectively. Nevertheless, in examining the risk mitigation processes, we identified potential improvements related to the efficiency and effectiveness of the policies and procedures developed to manage projects. The findings resulting from this part of the audit were used to develop the observations and recommendations contained in sections 6.1 and 6.2 of the report.

5.1 Solemn Declaration of Substantial Completion

The objective of the Treasury Board Policy on Transfer Payments is to ensure that transfer payment programs are managed with integrity, transparency and accountability in a manner that is sensitive to risks and are designed and delivered to address government priorities in achieving results for Canadians. Furthermore, there is a need to obtain sufficient assurance that funds are utilized for the purposes agreed to by both parties. This risk is inherent in all transfer payment programs and can be mitigated through the use of instruments such as a Solemn Declaration of Substantial Completion (SDSC). (A copy of the SDSC template is provided in Appendix B)

As per INFC close-out procedures, several requirements must be met by the recipient as per the Contribution Agreement. One of the primary project closure requirements is the need to submit a completed SDSC.  The signed declaration is intended to provide assurance to INFC that the projects were substantially completed as specified in the Contribution Agreements.

It was expected that the policies and procedures governing the SDSC would have sufficient clarity and detail to provide INFC and its partners with appropriate guidance on its use.

We found that, while a template of the SDSC was included as a Schedule in the Contribution Agreements with provinces, territories and other recipients, there was limited additional guidance provided to outline the requirements and expectations for the declarations.  In addition, the policies and procedures for the ISF Program contained very few details on the use of the SDSC. ISF officials stated that the environment in which the ISF Program was developed resulted in some unique challenges. Specifically, the objective of the ISF was to provide timely and targeted short-term stimulus to the economy. Therefore, the Program was developed in a short time frame and some elements, including the final version of the SDSC, were developed throughout program implementation.  This contributed to the lack of clarity regarding the use of the SDSC. 

In fact, INFC had no prior experience using this type of declaration. The Department had developed a SDSC for one of its other programs. However, that program had not yet reached the project completion phase and therefore, the SDSC had not yet been used as a project completion tool.

In the case of the ISF program, as the first ISF projects neared completion, P/T partners expressed concerns primarily related to the wording of the SDSC and the requirements for the signatory's professional accreditation. In some instances, the P/T partners requested that the wording of the declaration be amended resulting in additional challenges in administering the Program. Issues also arose concerning the requirement that only certain professionals could sign the document. The lack of clarity regarding the SDSC led to INFC officials having to amend and clarify SDSC requirements during program implementation, resulting in delays. In some instances, P/T partners had to complete the declaration forms more than once.

As one of the key risk mitigation components of the ISF Program, we expected to find more detail and clarity related to the use of the SDSC. Additional guidelines that would have mitigated the department's risk exposure may have included criteria related to acceptable signatories of the document and the department's approach in dealing with requests to deviate from the list of approved professionals. The procedures could have also contained guidelines to address any potential conflicts of interest by the registered professionals.

Going forward, developing a comprehensive departmental SDSC policy and guidelines on its use would not only prevent any administrative delays and inefficiencies but would also address the department's risk exposure regarding any potential or perceived risks on acceptable signatories and/or conflict of interest issues by the registered professionals who sign these declaration forms. The Department may want to consider consulting with relevant professional bodies when revisiting this tool.

Recommendation 1:

It is recommended that the Assistant Deputy Minister of Program Operations Branch ensure that policies and procedures for the Solemn Declaration of Substantial Completion contain sufficient detail and clarity to provide the Department and its partners with appropriate direction to ensure its effective use.

Management Response: for Recommendation 1

Agree. Program Operations Branch (POB) recognizes the Solemn Declaration of Substantial Completion as an effective tool for ensuring that projects were completed appropriately and will continue to use it for other programs delivered by INFC where appropriate. As a result of lessons learned from the use of the SDSC for approximately 4,000 ISF projects covering a range of asset type, size and ownership structure, POB has already undertaken analysis as to how it may apply to other programs administered by INFC such as the Building Canada Fund – Major Infrastructure Component. Where the SDSC will be used, POB will further clarify, in consultations with stakeholders as necessary, the procedures governing its use internally, and with funding recipients – including the issue of acceptable sign-off on the declaration forms.

Due Date: Fall 2013

5.2 Site Visit Information

The objective of the Treasury Board Policy on Information Management is to achieve efficient and effective information management to support program and service delivery; foster informed decision making; facilitate accountability, transparency, and collaboration; and preserve and ensure access to information and records for the benefit of present and future generations.

The Treasury Board Policy on Transfer Payments requires that opportunities are pursued to standardize the administration of transfer payment processes, procedures and requirements within the department.  Site visits are used in virtually all programs at INFC and the policies and procedures regarding site visits are a prime example of where standardization can and should be pursued.

It was expected that the ISF site visit information would be managed in a manner consistent with this Policy and would include the following elements:

  • An assessment of site visit requirements for each project;
  • Rationale supporting the chosen timing for the visit in the project's life cycle;
  • Consistency in the level of detail contained in site visit reports;
  • Evidence related to the use of the information obtained from site visits.

INFC's ISF Extension Project Monitoring Policy states that projects must have their risk rating evaluated at least every two months and adjusted as necessary.  Projects that are deemed to be high risk must undergo a site visit at least once a year, whereas medium and low risk projects may be subject to site visits, as determined by the analyst.  The policy also states that all site visits must be pre-approved by the responsible Director and that a Site Visit Report must be approved by the responsible Director following the site visit.

We found that site visits were conducted on all projects in our sample that remained rated as a high risk for an extended period of time.  We also noted that a system was in place to ensure that site visits were pre-approved, and that all site visit reports for the sampled projects were approved by the responsible Director.  Furthermore, we noted that some sampled projects that remained rated at low or medium risk for extended periods, were also subject to site visits.  However, the rationale for selecting these projects for site visits was not identified in the site visit reports or in the project files.

Procedures for project closure require that site visit reports be included in the project files. We found site visit reports in all sampled project files for which they were required.  However, the site visit reports contained varying amounts of information. In some instances, the reports contained a high level of detail. While in other instances, very little information was provided. We also noted that the project files did not include a rationale identifying the timing for when a site visit should occur.

Site visits are a key component of monitoring progress on project milestones and completion. The lack of policies and procedures for site visits has resulted in inconsistent information being collected and made available to support evidence-based decisions on whether the current approach to site visits was appropriate or whether changes were required.

Furthermore, there is also a reputational risk to the Department, as INFC lacks documented justification to support decisions to expend resources on conducting site visits.

Developing a site visit policy that incorporates the requirement to document the rationale for site visits, and more stringent requirements regarding the specific information that must be collected and recorded, would provide the department with information to assess whether site visits contribute to the effective monitoring of projects and support project closure.

Recommendation 2:

It is recommended that the Assistant Deputy Minister of Program Operations Branch ensure that policies and procedures for site visits incorporate requirements related to documenting the rationale for conducting site visits, including project selection and timing of the visit. The policies and procedures should also specify the need to consistently document the information collected from the site visits in addition to addressing how the collected information is used to manage projects and programs more effectively.

Management Response: for Recommendation 2

Agree. Assisted by the audit findings, POB agrees to review and modify, as necessary, existing procedures regarding site visits, including the timing and type of information collected, with the view to further strengthen overall project management effectiveness.

Due Date: Spring 2013

6 Audit Opinion

Based on the audit evidence, it was found that overall the current ISF closure procedures were followed and the information required was collected and held by Management for the files that were reviewed.

It was also found that the policies and procedures related to the solemn declaration of substantial completion and site visits should be strengthened to ensure that they contribute to reducing program risk in the most effective and efficient manner.

The amount of time available to develop and implement the ISF Program was less than what would normally be associated with such a large and complex initiative. The need to implement a program in such an environment created unique challenges such as the need to develop policies and procedures in a reactive manner as the Program evolved. Overall, Management was able to successfully implement the project closure component of the ISF Program.

7 Statement of Assurance

In the professional judgment of the Chief Audit and Evaluation Executive, sufficient and appropriate audit procedures have been performed and evidence gathered to support the accuracy of the conclusions reached and contained in this report. The extent of the examination was planned to provide a reasonable level of assurance with respect to the audit criteria. The audit findings and conclusions are based on observations and analyses of conditions as they existed on the audit date, against established criteria agreed upon with management. The opinion is applicable only to the entity examined and within the scope described herein.

8 Statement of Conformance

The audit conforms to the International Standards for the Professional Practice of Internal Auditing, and the Internal Auditing Standards for the Government of Canada as supported by the results of INFC Internal Audit function's quality assurance and improvement program.

Appendix A: Audit Criteria

Criteria Detailed Criteria
Project closure procedures and documentation requirements have been adhered to in accordance with the contribution agreement and program terms and conditions.
  • Management has established project closures procedures, and communicated those procedures to staff.
  • Management has the ability to adapt to circumstances that do not fit into the established procedures.
  • Documentation exists to support management decisions.
  • Management provided adequate oversight to the process.
Project closure risk mitigation processes and procedures functioned effectively.
  • Risk mitigation processes were well defined and communicated to all parties.
  • The established risk mitigation processes functioned as intended.
Program data for closed projects is available, complete, accurate and timely.
  • Project closure procedures included procedures to ensure INFC collected sufficient data to meet INFC's reporting requirements.
  • Policies and procedures are in place to ensure data collected is complete, accurate, and timely.

Appendix B: Example of Solemn Declaration of Substantial Completion Template

SOLEMN DECLARATION OF SUBSTANTIAL COMPLETION

(Note to Officer:  This is a generic format declaration only and will be required for each project upon substantial completion of the project)

In the matter of the Agreement entered into between Her Majesty the Queen, in right of Canada, represented by the Minister of Transport, Infrastructure and Communities, and the (Province / Territory), represented by representative's title, on date.

I, Full Name, a Registered accreditation or certification in the Province of name of province, do solemnly declare as follows:

1. That I am the job title, department title, name of province, and as such have knowledge of the matters set forth in this affidavit;

2. That the work identified as Project project number in the above-mentioned Agreement has been substantially completed as described in Schedule A, dated on the 2-digit day day of month 20last 2-digits of year.

3.  That the work:

  • was carried out by (the prime contractor), between the dates (start date) and (completion date);
  • was supervised and inspected by qualified staff;
  • conforms with the plans, specifications and other documentation for the work;
  • conforms with applicable environmental legislation, and appropriate mitigation measures have been implemented; and
  • conforms with the guidelines referenced in Section 3.9 or any other equivalent provincially sanctioned guidelines approved by the Committee established under the above mentioned Agreement.

Declared at city, in the Province of name of province this number day of month 20last 2-digits of year.

Full Name
Title: Job Title
No. Phone Number

Witness Full Name
Job Title

[1]See Budget 2009 (January 27, 2009)

[2]See 2010 Fall Report of the Auditor General of Canada, Chapter 1 (October 26, 2010)

[3]See 2011 Fall Report of the Auditor General of Canada, Chapter 1 (November 22, 2011)

Date modified: