Executive Summary

The Loan and Investment Program (LIP) is intended to leverage an incremental source of capital to western Canadian firms.  The program is intended to be pan western in nature and to support the continued development and diversification of the western Canadian economy.

The LIP shares losses with eligible Recipients (Capital Providers) thus allowing them to provide a pool of capital for loans and equity investments with targeted groups.  Under this program, the Department of Western Economic Diversification (WD) contributes funds to provide loss support which partly offsets higher risks associated with eligible loans or investments to small businesses.

The regional office in Manitoba, under the leadership of the Assistant Deputy  Minister has administrative responsibility for the LIP.

The 2007/2008 Audit and Evaluation Business Plan, approved by the Departmental Audit and Evaluation Committee (DAEC) in February 2007 identified that an audit was to be undertaken on the Loan and Investment Program.

1.1 Audit Objective

The objective of the audit is to provide independent and objective assurance on the following:

1. The management control framework and overall management and administration of the program is appropriate and ensures compliance with Treasury Board approved terms and conditions for the program as well as WD’s policies and practices;
2. Funds were expended for the intended program purposes with due regard to economy, efficiency and effectiveness by examining the various stages in the project cycle (selection, approval, payment and review);
3. Program information and monitoring processes and systems are sufficient and accurate for the collection and capture of relevant information for monitoring, audit and evaluation purposes;
4. Agreements with Recipients are in place which outline purpose and expected results to be achieved along with reporting requirements; and
5. Where Recipients receive funding from multiple departments and levels of government (stacking), a limit to the level of project assistance for each program will be included as required by the program’s terms and conditions approved by Treasury Board.

1.2 Audit Opinion

In our opinion, the Loan and Investment Program is well managed, but minor improvements as discussed in Section 2.5 are needed.

1.3 Statement of Assurance

Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed with management. The opinion is applicable only to the program examined. The evidence was gathered in compliance with Treasury Board policy, directives, and standards on internal audit and the procedures used meet the professional standards of the Institute of Internal Auditors. The evidence has been gathered to be sufficient to provide senior management with the proof of the opinion derived from the internal audit.

1.4 Summary of Recommendations

Despite the limited number of people responsible for the LIP, the internal audit disclosed that due diligence is exercised in the administration and management of the program through all stages of the project cycle.  The existing controls which include the completion of the Quality Assurance Review File Contents and Best Practices Checklists and the on-going monitoring performed by the LIP staff ensures that the program meets its objective.

The recommendations, summarized under each stage in the management of the project cycle and other significant matters, are as follows:

Project Approval

The responsibility to review and recommend the Due Diligence Report (DDR) should always be exercised by the supervisor of the officer who prepared the document.

The Department should include the stacking provision in the Agreements as per approved terms and conditions of the program.  Likewise, the Agreements should include a provision for the Recipients to disclose all sources of funding related to the project before the start and end of a project.  We suggest that the Department re-visit the need to include the stacking provision in the Agreements as per approved LIP Terms and Conditions.

Payment Process

LIP staff should consider preparing a template (e.g. spreadsheet) to incorporate the information gathered from the Recipient and WD analysis.  The template can be used as the request for payment form to be reviewed and signed by the Financial Administration Act (FAA) Section 34 delegate to initiate payment.

Monitoring and Review

As part of its succession planning, the Department should consider the need to have a policy and procedures manual for the LIP.  The LIP manual will assist in training future staff in administering and managing the program.

For a more efficient process in gathering the data for the Quarterly Statistics Report required by headquarters, the Department should consider the need to set up a customized program to perform the data gathering function.

After completing the on-site review of the financial records of the Recipient related to the LIP, a report summarizing the significant results of the review should be prepared by the WD Monitoring and Payments Officer and forwarded to the LIP staff.  A plan can then be developed to ensure any findings indicating non-compliance to the Agreement are addressed (e.g. follow-up review).  Also, the need to conduct a preliminary review of active Agreements on a sample basis should be considered.

Other Items for Consideration

If warranted, the role and responsibilities of the Management Committee should be clearly stated in the Agreements.

Since the timely receipt of the Recipient’s quarterly reports is vital in the completion of the required reports needed by headquarters, the Agreements should specify the due date for the Recipients to submit the required reports.

In the future, the format of the Amendments to the Agreements should be consistent among the regions.   The same applies to Agreements related to the LIP.  The Department should also consider the merits of having both the Agreements and the Amendments prepared by the LIP Manitoba office.