Presentation of Findings

Summary of Findings

The following tables summarize the high level results of the audit findings in each of the in-scope audit elements.

Strong	Controls are in place and appear to be operating effectively.
Average	Controls may be in place but are not operating ideally, or controls appear to be operating effectively but are not formally documented.
Weak	Controls are not formally defined or are not operating effectively.

	BC	AB	SK	MB
Adherence to WD and TB Policy	Strong	Strong	Strong	Strong
Financial Controls	Average	Average	Average	Average
Budgeting, Strategic Planning and Financial Reporting	Strong	Strong	Strong	Strong
Statistical Reporting	Strong	Strong	Strong	Strong
Corporate Level Controls	Average	Average	Average	Average
Human Resources	Strong	Strong	Strong	Strong
Loan Policy Adherence	Strong	Strong	Strong	Strong
Governance	Strong	Strong	Strong	Average

Audit Performance Indicators

This table summarizes the indicators used to assess the performance of each WEI. The results map to the higher level table on the previous page with one exception. Where Alberta and Saskatchewan score "Average" in policy, when combined with the effectiveness indictor KPMG determined that the overall performance was "Strong".

Audit Scope	Indicator / Measure	BC	AB	SK	MB
Adherence to WD and TB Policy	# Instances of non-compliance identified	0	0	0	0
Financial Controls	# Control deficiencies identified	1	2	1	1
Budgeting, Strategic Planning and Financial Reporting	Level of robustness of strategic planning and budgeting policies and procedures in place (strong/average/weak)	Strong	Strong	Strong	Strong
	# Instances of non-compliance with WD financial reporting expectations	0	0	0	0
Statistical Reporting	WD satisfaction with quality and timeliness of statistical reporting provided from each WEI (good/satisfactory/unsatisfactory)	Strong	Strong	Strong	Strong
Corporate Level Controls	# Control deficiencies identified	1	1	1	1
Human Resources	Level of robustness of policies and procedures in place (strong/average/weak)	Strong	Strong	Strong	Strong
	# Instances of non-compliance discovered	0	0	0	0
Loan Policies and Procedures	Level of robustness of WEI loan policies and procedures in place (strong/average/weak)	Strong	Average	Average	Average
	% Compliance with WD Contribution Agreement loan documentation criteria	100%	100%	100%	100%
Governance	Level of robustness of WEI governance policies and procedures in place (strong/average/weak)	Strong	Average	Average	Average
	Effectiveness of the chosen governance model for WEI (good/average/weak)	Strong	Strong	Strong	Average

Observations, Control Gaps and Recommendations

This section provides key observations, control gaps identified and recommendations for each of the control elements in each provincial entity. The observations, control gaps and recommendations is based on KPMG's review of documentation as was provided by each WEI and one-on-one interviews. It should be recognized that detailed testing of the effectiveness of specific controls was not completed and that the observations are based primarily on inquiry of WEI management and staff. For further supporting detail please refer to the MCA Tool for each WEI included in Appendix B.

British Columbia

A. Key Observations

• BC has documented controls appropriate for an organization of its size. BC's documentation is of a significantly higher standard than other entities, this should serve as a source of leading practice information on policies and procedures for other provinces.
• The BC Board has fully implemented the Carver model of governance and maintains a level of oversight appropriate for the risk inherent in the program. External auditors are engaged to provide an external opinion on selected management controls annually.
• Staff appear to have the appropriate skills for their position. Activities observed are reflective of job descriptions. Adequate training and professional development opportunities are provided.
• Information Technology access controls have been implemented and appear to be appropriately designed.
• A sufficient level of communication is present between head office and field offices. Changes to policies and procedures are made collaboratively with staff.
• Reporting relationships are clearly defined.
• Financial and operational reporting occurs on a regular and consistent basis. Reporting is reviewed by appropriate management and is signed off where required.
• Strategic and business planning activities are appropriate and occur consistently.

B. Key Control Gaps Identified

• Due to the limited number of staff, segregation of duties is not always ideal.
• Criminal background checks are not conducted prior to hiring.
• Staff are not required to declare understanding and adherence to policies and procedures.

C. Key Recommendations

• KPMG recommends that BC WEI prepare a segregation of duties matrix to mitigate the inherent risk that limited personnel present to segregation of duties controls. In circumstances where duties cannot be appropriately segregated due to the small size and geographic layout of the organization, additional review steps should be added to standard procedures.
• KPMG recommends the BC WEI implement policy requiring staff to annually declare understanding of policies and procedures.
• KPMG recommends that criminal background checks be required as a condition of employment for staff involved in financial transactions or approving loans.

Alberta

A. Key Observations

• Alberta WEI has undergone a reorganization in the past year as a result of the hiring of a new CEO. Policies and procedures have been updated to reflect the new structure. The CEO is actively working on documentation of new policy, which is well understood and reinforced amongst staff, but is not in finalized written form yet.
• The CEO is actively involved in operations and communication flows well amongst staff.
• Reporting relationships and financial authority limits are clearly defined and well understood.
• The Board executes its oversight responsibilities. The Board is in process of shifting to a policy governance (Carver) model, with a focus on strategic planning, budget review, community impact, and policy direction. The Board Chair is in regular and frequent communication with the CEO. The Board is currently involved with loan approval decisions.
• The CEO and the loans manager appear to have sufficient skill, training, and experience to execute their duties and responsibilities.
• Management monitors operational performance, and tracks results against strategic and business plans and budgets.
• Operational and financial reporting is sufficient for users' needs, and is reviewed by management and the Board on a regular basis, and provided to WD quarterly.
• Strategic and business planning activities are appropriate and occur consistently.

B. Key Control Gaps Identified

• Staff are not required to declare understanding of polices and procedures.
• Alberta does not appear to segregate access to client, personnel or confidential data on its shared server.
• Documented key corporate policy is lacking, including a code of conduct, conflict of interest, and ethical policies and procedures. KPMG understands this is in process of being completed.
• Updated job descriptions are required to ensure roles and responsibilities and authorities are clear and appropriate for the organization, performance can be appropriately evaluated, and performance issues can be addressed.
• Management has not specifically documented the skills required to perform job tasks, although they are verbally understood and reinforced. Employee performance goals are not documented. KPMG understands that this policy and procedure is in process of being developed.
• The accounting function is not appropriately segregated. The person responsible for accounting entries also performs functions related to banking, banking reconciliation, and lending. Additionally, this person does not have formalized accounting or bookkeeping training.
• Alberta does not conduct criminal background checks of employees prior to hiring.

C. Key Recommendations

• KPMG recommends that the CEO should continue to document corporate policy as it is understood amongst staff members. KPMG recommends that WEI develop policy to ensure that employees understand the consequences of ethical and policy violations. Additionally, policy requiring staff to annually declare understanding of policies and procedures should be implemented.
• KPMG recommends that job descriptions should be updated or created to reflect current roles and responsibilities, skills required, and reporting relationships. Training needs identified should be addressed.
• KPMG recommends that Alberta WEI prepare a segregation of duties matrix to mitigate the inherent risk that limited personnel present to segregation of duties controls. In circumstances where duties cannot be appropriately segregated due to the small size and geographic layout of the organization, additional review steps should be added to standard procedures.
• KPMG recommends that the person responsible for financial recordkeeping be adequately training in accounting and bookkeeping.
• KPMG recommends that criminal background checks be conducted as a condition of employment for staff involved in financial transactions or approving loans.
• KPMG recommends that the Board set and communicate with the CEO new evaluation metrics for her performance to satisfy itself the WEI is being adequately managed, as it will be no longer participating in operational decisions.
• KPMG recommends that information protection processes need to be further considered to ensure access to data and personal information is only available to those who require it and is otherwise secured from view.

Saskatchewan

A. Key Observations

• Key corporate policies are developed and implemented, including code of conduct, conflict of interest, harassment, privacy, and confidentiality policies.
• Job descriptions exist for each position and reflect the positions' roles and responsibilities.
• Ongoing training is provided and employees appear competent and comfortable in their roles.
• The Board has implemented the Carver model of policy governance. The Board actively communicates with the CEO, and believes the level of reporting it receives in the Executive Limitations and Ends reports is sufficient to exercise their oversight responsibilities and evaluate management's performance.
• Lines of accountability and financial authorities are clear and understood.
• Expectations of staff are clear. These are communicated and reinforced throughout the year and in particular during the annual planning and performance appraisal processes. The CEO monitors performance closely and has regular contact and expectation conversations.
• Communication amongst team members appears open and efficient.
• Organizational goals are communicated and incorporated into field unit/program business planning and individual goal setting.
• Strategic and business planning activities are appropriate and occur consistently. Reporting on Ends, Executive Limitations, and planned performance occurs monthly to the Board and quarterly to WD.
• Financial and administrative policies are documented and routinely reinforced at meetings.
• Resources are appropriate for the volume of work and staff have significant experience for their positions.

B. Key Control Gaps Identified

• Saskatchewan does not conduct criminal background checks of employees prior to hiring.
• Saskatchewan does not require staff to declare familiarity with policies and procedures.
• Due to the limited number of staff, segregation of duties is not always ideal.

C. Key Recommendations

• KPMG recommends that Saskatchewan WEI prepare a segregation of duties matrix to mitigate the inherent risk that limited personnel present to segregation of duties controls. In circumstances where duties cannot be appropriately segregated due to the small size and geographic layout of the organization, additional review steps should be added to standard procedures.
• KPMG recommends Saskatchewan WEI implement policy requiring staff to annually declare understanding of policies and procedures.
• KPMG recommends that criminal background checks be required as a condition of employment for staff involved in financial transactions or approving loans.
• KPMG recommends that disciplinary policy and processes be defined by the CEO and communicated to staff.

Manitoba

A. Key Observations

• Manitoba WEI has developed and implemented key corporate policies, including code of conduct and conflict of interest. The corporate policies include guidance on how to respond to conflicts of interest of other ethical concerns. Manitoba is the only province where WEI staff are required to annually declare familiarity with the entity's corporate policies and procedures.
• The Board is currently involved with loan approval decisions. The Manitoba WEI is considering its governance structure options and may plan to move to more of an oversight only role (such as the Carver model) however this has been temporarily delayed until the first quarter of 2008.
• Manitoba has used external parties to perform reviews of the internal control environment (reports in 2002 and 2006). Reports include some minor findings that were subsequently addressed by management.
• Job descriptions exist for each position and reflect the reality of the role and responsibilities
• Most staff have been in their positions for a number of years, and appear comfortable and competent in their roles
• Communication appears to be ongoing and transparent
• There is a good system for the CEO and senior management to track financial and operational performance.
• Clear lines of accountability exist and financial authority is well understood.
• Strategic, business, and financial planning occurs and is reviewed by WD and the Board. Planning of all kinds takes place with input from all staff. Strategic planning is directed by the Board and focuses on short and long term strategies. Planning and budgeting strategies exist.
• Detailed financial and administrative policies exist and are well documented.
• The loans manager randomly reviews financial information for compliance with policy.

B. Key Control Gaps Identified

• A process should be in place to allow staff to report concerns outside of standard reporting lines.
• Due to the limited number of staff, segregation of duties is not always ideal.

C. Key Recommendations

• KPMG recommends that the Code of Conduct and Conflict of Interest policies be updated to reflect an alternative reporting line option outside of the norm.
• KPMG recommends that Manitoba WEI prepare a segregation of duties matrix to mitigate the inherent risk that limited personnel present to segregation of duties controls. In circumstances where duties cannot be appropriately segregated due to the small size and geographic layout of the organization, additional review steps should be added to standard procedures.

WD

A. Key Observations

• WD client liaisons have an appropriate level of communication with the WEIs.
• WEI management have reported good working relationships with the WD client liaisons.
• Between its program managers and client liaisons, WD demonstrates an appropriate level of due diligence and administration of the WEI program through its communication lines and review of reporting.
• WD monitors performance and financial reporting of the WEIs

B. Key Control Gaps Identified

• While the method of calculating performance metrics for each entity is clearly defined, interpretation of these definitions is inconsistent resulting in the potential for each entity to report their results differently. KPMG understands that communication between WD and each WEI is ongoing to provide consistent interpretation of performance metrics.
• While not a control gap, KPMG has identified a limitation of the loan funding maximum. The current loan maximum amount of $100,000 per loan may be restrictive to the organization in meeting its goals. The amount is seen as being too low to meet its full loan funding capacity and limits the types of client opportunities. Furthermore, it is viewed as inhibiting strategic planning to target specific industries or type of businesses.
• Performance measurement relies largely on historical statistical data, and does not measure the impact of the program on the business community. KPMG understands there is an impact study underway to measure program impact.
• Performance measurement for lending practices does not take into account portfolio diversification or segmentation metrics

C. Key Recommendations

• KPMG recommends that WD continue to work with WEIs to ensure consistency in interpreting performance metric definitions.
• KPMG recommends that WD consider increasing the maximum loan amount if it is deemed integral to the type of economic impact the program is hoping to have.

Loan Sampling and Testing

A. Key Observations

Each WEI has implemented appropriate loan policies. All WEIs have internal policies and procedures which are more robust than those required by WD. WEIs are not subject to Treasury Board policies. The only restrictions or guidance they have related to the loan fund and lending practices are what is identified in the WD Contribution Agreements and their own individual internal policies.
A total of 41 loans were tested of 366 in total (11.2%), with a minimum of 10 for each WEI. All loans were found to be in compliance with the requirements listed in the WD Contribution Agreement.
The loan testing detailed findings are included in this report in Appendix C.

B. Key Recommendation

• WD should consider evaluating the specific loan policy and procedural requirements under the contribution agreements to determine if these are robust enough to meet their needs as the funding partner of the WEI centres. The BC WEI has exhibited the strongest documented policies and procedures surrounding loans and financial controls. Two specific leading practice documents are the "Integrated Loan Control Framework" and the "Financial Controls Framework".
• As the WEI's are separate entities from WD they are governed only by their contribution agreement, and are not required to be in compliance with Treasury Board policies.

Governance

A. Key Observations

The WEIs have all moved, or in process of moving, to full adoption of the Carver model of governance. BC has moved the furthest along the scale to maturity with this model, fully implementing the model in 2004 as evidenced by the disbandment of the Loan Committee. The remainder of the WEIs are in process of fully implementing the new governance model.

"In contrast to the approaches typically used by other Boards, Policy Governance separates issues of organizational purpose (Ends) from all other organizational issues (Means) placing primary importance on those Ends. Policy governance boards demand accomplishment of purpose, and only limit the staff's available means to those which do not violate the board's pre-stated standards of prudence and ethics."²

The transition from operational governance to policy governance represents a substantial shift from the manner in which the Boards of Directors were originally involved in the WEIs. In order for Boards to effectively govern using the Carver model, they need to delegate effectively to the CEO and retain their oversight role by regularly monitoring the CEO against defined criteria. Under the Caver model all operational tasks are delegated to the CEO, which are monitored through the use of Executive Limitations and Ends report.

B. Key Recommendations

• WEI Boards should ensure that the CEO performance evaluation metrics are clear and allow them to obtain sufficient comfort that the CEO is managing operations effectively and appropriately.

__________