Introduction

The Director of Internal Audit, Western Economic Diversification (WD) has requested that Grant Thornton provide an independent, objective statement of assurance that

1. Infrastructure Canada Program-Western Economic Diversification has met all the Treasury Board Secretariat (TBS) and Infrastructure Canada (INFC) requirements for audit from the inception of the Program to March 31, 2006, and
2. the management and administrative controls of the Infrastructure Canada Program (ICP) were operating effectively from the inception of the Program to March 31, 2006.

We have produced the following documents in the process of completing this project:

• Strategy to Complete the Audit of the Infrastructure Canada Program - Part 1 Program Controls, December 2005;
• A Guide to Implementing Risk-Based Audit Framework for the Infrastructure Canada Program, December 2005; and
• A Guide to Implementing Risk-Based Audit Framework for Infrastructure Canada's Municipal - Rural Infrastructure Fund, December 2005.

The above documents are included as Appendices G, H and I to this report.

The scope of our work included a review of the results of audits carried out by other auditors who had been engaged by each of the regions to complete specific annual audit plans. The names of these auditors and a brief summary of the work carried out by them are provided later in this report.

Statement of Assurance

Based on the results of our procedures set out in this report and those of the auditors engaged by each of the four regions, we provide reasonable assurance that the audit requirements of the TBS, of INFC, and of the ICP federal-provincial agreements have been complied with for the period from the inception of the Program to March 31, 2006. These requirements are described in Appendix A.

Furthermore, we are able to provide reasonable assurance that the management and administrative controls of the ICP were operating effectively for the period from the inception of the Program to March 31, 2006 including:

• the due regard to the intended purposes of the funds spent;
• the compliance to environmental obligations; and
• the appropriateness and effectiveness of the collection of information on intended benefits.

During the course of our visits to the regions, our discussions with regional and secretariat management and our examination of project files, we found those responsible for the administration and monitoring of the ICP projects, were knowledgeable of the Program requirements, were diligent in the management of the risks and were conscientious in the administration of the Program.

Our Audit Approach

We reviewed the policies and guidelines of TBS and INFC and the terms of the ICP provincial-federal agreements to determine the audit requirements for ICP. One of these requirements is that the audit of ICP be planned utilizing a Risk-Based Audit Framework. As we determined that such an approach had not been developed, we worked with the Steering Committee to develop a Framework that assessed and ranked both program and recipient/project risks.

When we applied the Framework, six key program areas of the ICP and 122 projects were identified as having the highest risk (66 in BC, 35 in Alberta, 11 in Saskatchewan, 10 in Manitoba). The six key program risks identified were:

1. failure of management control,
2. funding of ineligible costs,
3. failure to capture information on intended benefits,
4. insufficient due regard to economy (failure to tender),
5. efficiency and effectiveness (delays in the project completion), and
6. non-compliance with legislation, particularly environmental.

A listing of the 122 projects identified has been provided in our report attached as Appendix G. The Framework identified $315 million of the $554 million in approved projects or 57% as high risk and requiring application of audit procedures.

Based on this assessment and ranking of both program risks and project risks, we developed an audit plan for the ICP. The audit plan determined the need for the testing of controls in the six key program areas on 122 projects. We then compared this audit plan to the audit work that had been carried out by the regions and identified gaps between our plan and the audit work completed by other auditors to date. One type of gap was the difference in emphasis on six key program controls required under the agreement; the other type was the difference in the projects selected for audit. After these gaps were confirmed with the Steering Committee, we carried out the required audit work to eliminate the gaps. Our tests of controls were carried out on the 122 projects.

The results of these tests are the basis of our statement of assurance and recommendations included in this report.

The plan also found that for the risk “funding of ineligible costs” there would need to be additional testing of supporting documents for completed projects to March 31, 2006. Of 122 high risk projects, 90 were incomplete or did not have a final claim as at March 31, 2006. Of the remaining 32, 20 projects had been audited by the auditors engaged by each region. We then carried the necessary audit procedures on the remaining 12 projects to obtain reasonable assurance the costs incurred were eligible.

Details of the specific tasks in our approach are attached as Appendix B.