Management Framework of the Space Science Branch

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Audit Report

Project #06/07 01–01

Prepared by the
Audit and Evaluation Directorate

February 2008

Table of contents

Executive Summary

The objective of this audit project was to evaluate the extent to which elements of the management framework of the Space Science Branch concerning governance, operations and information systems allow the Branch to fulfil its mandate, carry out operations effectively, efficiently and economically while complying with legislative and policy requirements, and protect and account for the use of resources.

We are of the opinion that the Space Science Branch has a management framework, which in a general way is to achieve the objectives of the organization. Nevertheless, we would like to make comments and recommendations to management, the purpose being to ensure certain elements of its management framework are more effective and compliant.

At Space Science, financial monitoring of annually approved planning elements is currently based on complementary systems developed by the audited entity, since the corporate financial system does not record all the relevant information. At the corporate level, financial management should be improved by ensuring that the financial information in the Financial Management Report (FMR) is based on Program Activity Architecture (PAA) initiatives that were approved at the beginning of the year in work plan summaries.

Management should incorporate the relevant elements of the PAA into its working environment so as to demonstrate the relationships between its routine activities and PAA initiatives to which the audited entity contributes.

The mandate of the Space Science Branch is carried out largely by third parties through service contracts, a large number of which are awarded to Canadian universities. The universities should exercise greater diligence in submitting their invoices, in accordance with related contract provisions. This would reduce the administrative burden at the end of the year, particularly with regard to accounts payable and cash management accounting.

In addition, where disbursements are similar to transfer payments, management should review its operating and funding methods to ensure that the disbursements are subject to the appropriate management framework and made using the proper parliamentary votes.

Some administrative practices related to the identification of expenditures and accounting of financial operations will have to be reviewed so as to improve the quality of information recorded in the Agency's management information systems and financial statements.

This internal audit was carried out in accordance with the Treasury Board Policy on Internal Audit and the IIA Standards for the Professional Practice of Internal Auditing. In our professional opinion, the audit procedures followed and evidence gathered were sufficient and appropriate and support the accuracy of the conclusions in this report. The conclusions are based on a review of the situations in question using established audit criteria.

Description of the Mandate

1.0 Introduction

1.1 Audit project rationale

This audit is part of the 2006–2007 Audit Plan approved by the Audit Committee.

1.2 Audit project objective

The objective of this audit project is to determine the relevance of the key elements of the Space Science management framework. The objectives of these elements include

  • Achieving operational objectives and implementing programs;
  • Using resources effectively and efficiently;
  • Ensuring compliance with acts, regulations, policies, guidelines and procedures;
  • Safeguarding assets;
  • Ensuring the accuracy and integrity of information.

Appendix A provides a more detailed description of the audit objectives and criteria.

1.3 Scope

This internal audit project deals with Space Science systems and procedures concerning

  • Operations planning, which includes identifying, selecting, approving, justifying and allocating resources for a range of program elements;
  • Operations performance;
  • The monitoring of operations and evaluation of performance;
  • Reporting.

1.4 Methodology

This audit engagement was carried out in accordance with audit standards set forth in the Treasury Board Secretariat (TBS) Policy on Internal Audit, which requires that audit objectives be based on audit criteria.

Audit standards also require that the audit engagement be carried out in a structured manner in keeping with a procedure that includes three phases:

  • Preliminary planning and review;
  • Performance;
  • Reporting and disclosure of results.

Various audit procedures were used, including interviews with employees and reviews and analyses of documents, records and reports.

1.5 The organization and its resources

The Space Science Branch reports to the President since May 2007 reorganization. At the time of the audit, the audited entity reported the Vice President, Science, Technology and Programs. Aside from the Director General's office, Space Science is made up of three directorates: Life and Physical Sciences, Planetary Exploration and Space Astronomy, and Solar, Terrestrial and Atmospheric Sciences.

In the 2005–2006 fiscal year, Space Science allocated roughly $22.5 million to its operations and had about 35 approved positions. Table 1 shows the financial resources used by the various financial centres, which were established to assign and identify responsibilities and parliamentary votes used during the period.

Table 1

Actual expenditures 2005-2006

Office of the DG Life and Physical Sciences Plan. Explo. and Space Astr. Sol., Terr. and Atmo. Sciences Total
Financial centres
3100 Director General, Space Science 1,186,872       1,186,872
3101 Co-ordinator, Management Planning 195,568       195,568
3110 Director, Life and Physical Sciences   442,785     442,785
3111 Senior Scientist, Life and Physical Sciences   367,216     367,216
3112 Program Mgr, Life and Physical Sciences   2,979,469     2,979,469
3113 Manager, Applied Sciences   286,298     286,298
3120 Director, Plan. Expl. and Space Astr.     390,386   390,386
3121 Senior Scientist, Plan. Expl. and Space Astr.     756,995   756,995
3122 Program Manager, Plan. Expl. and Space Astr.     8,736,586   8,736,586
3130 Director, Sol., Terr. and Atmo. Sciences       280,463 280,463
3131 Senior Scientist, Sol., Terr. and Atmo. Sciences       433,396 433,396
3132 Program Manager, Sol., Terr. and Atmo. Sciences       5,930,842 5,930,842
Total - not including EBP 1,382,440 4,075,768 9,883,967 6,644,701 21,986,876
Parliamentary votes
101 - Votes for operating expenses - Salaries 398,477 866,418 676,729 622,236 2,563,860
201 - Votes for operating expenses - Other 393,196 3,209,350 9,207,238 6,022,465 18,832,249
301 - Votes for capital expenses        
401 - Votes for grants and contributions 590,767       590,767
Total - not including EBP 1,382,440 4,075,768 9,883,967 6,644,701 21,986,876
EBP 79,695 173,284 135,346 124,447 512,772
Total - including EBP 1,462,135 4,249,052 10,019,313 6,769,148 22,499,648

1.6 Mandate of the organization and its contribution to program activities

The mandate of Space Science, as indicated on the intranet site, is as follows:

  • The mandate of Space Science is to work with the Canadian space science communities and other branches of the Agency to lead the development of new, first-class scientific ideas that can be flown in space or that support space science missions and that meet the mandate of the CSA (new knowledge of benefit to Canada and humanity).
  • Space Science develops these new ideas through a competitive, peer-reviewed process or through peerreviewed international opportunities of interest to the respective communities, and then manages the most promising through Phase 0 and Phase A studies to a point where they can be developed into missions (Phases B to E).
  • The branch also acts as the interface with and provides support to the science team during the development of the hardware and operations in order to obtain the maximum benefit from the selected missions.

Table 2 provides a list of program sub-sub-activities to which the audited entity contributes and amendments made following a revision of the PAA in fiscal 2006–2007.

Table 2

Program sub-sub-activity Actual expenditures
2005-2006 2006-2007
A1-1 Earth observation (EO) mission concepts   786,068
A1-3 Atmospheric science programs 1,852,419  
A1-3 EO science programs   1,829,869
A2-1 EO projects 1,703,423 466,331
A3-1 EO mission operations   2,127,340
B1-1 Science and space exploration programs 16,949,757  
B1-1 Science and exploration (S&E) mission concepts   2,074,094
B1-3 Science and exploration (S&E) programs   7,843,355
B1-4 Program management 802,193  
B1-5 Program management - S&E enabling research   850,798
B2-1 S&E projects 86,887 6,291,743
B3-2 S&E mission operations   3,253,927
D2-1 Program for the support of space science, medecine and technology awareness, research and training 550,767  
D2-1 Space education program   135,000
D2-2 International Space University 40,000  
  Other 1,430 49,361
Total 21,986,876 25,707,886

Audit Results

2.0 Operations planning

We expected to find evidence of management initiatives providing assurances that Space Science operations are planned. Specifically, we expected to find

  • A formal and structured planning process;
  • Approvals given by the proper officials;
  • Resource allocation based on expenditure forecasts;
  • Clearly identified responsibilities;
  • A budgetary control framework;
  • A reporting framework.

Operations planning (as distinguished from strategic planning) at the Agency is based on corporate work plans. We therefore tried to determine whether operations planning at Space Science, formulated through the development of work plans, met the above expectations, which flow from sound management principles.

We are of the opinion that Space Science operations are the product of a formal planning process consisting of well-defined responsibilities and standardized instruments. The planning process fits in with the Agency's Program Activity Architecture (PAA) and takes into account performance measurement objectives and strategies associated with the various program elements. Financial needs are established for operational activities that are consistent with the mandate of the audited entity.

2.1 Financial monitoring

Operations planning at Space Science is broad in terms of planning elements. In light of the audited entity's mandate and the PAA structure, we noticed upon review of the work plan summaries that the audited entity contributes to a large number of program sub-sub-activities. In addition, operational plans include the activity elements that support each of the program sub-sub-activities and each of the initiatives associated with the activity elements. On the whole, in the 2005–2006 fiscal year, Space Science approved and allocated resources to 47 different planning elements, while in 2006–2007 the Branch authorized and assigned resources to over 60.

A complementary system

We expected to find control mechanisms that enable managers at each management level to monitor budget appropriations for each approved planning element.

Following our discussions and a review of budget monitoring functions of the corporate financial system (Integrated Financial/Materiel System – IFMS), we found that financial monitoring is based more on complementary systems than on the corporate system. We found that budget appropriations broken down by reporting object (nature of expenditure) in IFMS are not sufficiently detailed to be considered real expenditure plans. Budget appropriations concern only three or four generic expenditure items, such as salary, professional services, travel and transfer payments. Also, IFMS is designed in such a way that managers cannot incorporate their expenditure forecasts.

The purpose of budget data in IFMS and of automatic control mechanisms is essentially to monitor available balances so as to record commitments and ensure that spending authorities are not exceeded. Spending authorities are comprehensively monitored by means of the financial centres and parliamentary votes, without taking approved planning elements into account.

For the routine management of operations, Space Science has developed a management information system that reproduces the actual expenditures and the commitments stored in IFMS. This system is based on a work sheet generated by an electronic spreadsheet that also takes into account expenditure forecasts provided by managers for each planning element in the operational plans. The financial information is updated monthly, except late in the year, when more frequent updates are done to meet the need for more accurate information.

The audited entity designed its financial management information system based on the Financial Management Report (FMR) developed by the Finance Directorate, since they need to transmit the forecast data every month to prepare the corporate report.

When the corporate financial reporting system does not meet the needs or expectations of managers, they rely on their own methods at the risk of inefficiently duplicating resources and reconciling data stored in other systems with data in IFMS. There is also a risk that their information systems do not include all the elements they need for effective management or that decisions are made on the basis of incomplete information.

Recommendation

Finance directorate

  1. Develop a financial management information system in IFMS which incorporates all information relevant to the financial monitoring of the various approved planning elements.
Corporate monitoring system

The Finance Directorate produces the Financial Management Report (FMR) every month. The report provides financial information concerning each Agency sector and consolidated information for the Agency as a whole. The FMR includes budget appropriations, actual expenditures and commitments. This monthly report is different from all other financial reports because it also reports budget surpluses and deficits based on expenditure forecasts provided by managers.

The FMR can be used for budget monitoring purposes because it records allocated budgets. However, we found that information in the FMR is not representative of what has been approved in Space Science's work plan summaries. The information is broken down according to scientific fields and their respective operational activities, not according to PAA sub-sub-program activity.

This means that neither the Space Science Director General nor any other level of management or corporate service is able to exercise financial monitoring of planning elements approved at the beginning of the year.

If the FMR is to be used for budget monitoring in terms of approved planning elements and for the identification of related budget surpluses and deficits, the financial information reported in the FMR must be reproduced according to planning elements that were initially approved in keeping with the PAA.

Recommendation

Finance directorate

  1. Since the Financial Management Report (FMR) is a corporate management information system, it must report financial information according to PAA programs that were approved in the work plan summaries.

2.2 Incorporating PAA elements into the work environment

The lack of links with PAA programs was noticed not only in the FMR, but also in the Space Science work environment. For example, we found that no reference is made to PAA programs in employee job descriptions, in the intranet section concerning the audited entity, on the Agency's Web site or even in published opportunity announcements. Instead, Space Science operational activities are described and justified as being in keeping with the Space Science Program, Space Science Research Program and Space Science Development Program, which are not PAA elements.

The PAA is the foundation of the Agency's management framework. It provides the logical links between each program and the strategic outcomes to which they contribute. In addition to the work plans, where these links are shown, the work environment must incorporate PAA elements to strengthen the links between Space Science operational activities and their contribution to achieving the Agency's strategic outcome.

Recommendation

Space science branch

  1. Review the work environment so as to incorporate programs, objectives and expected results defined in the Agency's Program Activity Architecture.

3.0 Program delivery

The purpose of the planning process is to identify and choose programs and related activities that are most likely to meet organizational objectives and to allocate financial and human resources. It is then up to management teams to put the appropriate measures in place to ensure the programs and activities are implemented and to monitor spending authorities. These measures concern

  • The organization of work, sharing of responsibilities and delegation of authorities;
  • Direction, support and measures provided for staff;
  • Controls to ensure compliance with acts, regulations and policies;
  • Management controls to measure achievements against objectives;
  • The protection of our assets.

The workload is organized according to the scientific fields that the audited entity intends to target through its activities, as is evident by the three directorates making up the Branch. We found that the organizational structure, sharing of responsibilities and delegation of financial authorities are consistent with the principles of effectiveness, efficiency and economy.

Table 3

Nature of expenditures Actual expenditures 2005-2006
Office of the DG Life and Physical Sciences Plan. Expl. and Space Astr. Sol., Terr. and Atmo. Sciences Total
Labour costs 398,477 866,419 676,729 622,235 2,563,860
EBP 79,695 173,284 135,346 124,447 512,772
Labour costs (including EBP) 478,172 1,039,703 812,075 746,682 3,076,632
Travel Expenses 132,654 225,069 300,544 154,904 813,171
Relocation 5,814 13,260 18,694 6,180 43,948
Postage, Shipping and Courier Services 3,637 108 14,579 15 18,339
Telecommunications Services 34,808 11,333 22,061 16,293 84,495
Advertising Services 589 10,295 101 84 11,069
Printing and Editing Services     10,456   10,456
Professional Services 79,987 2,759,483 8,025,046 5,650,029 16,514,545
Educational and Training Services 19,266 20,217 4,760 1,938 46,181
Other Services 11,609 8,123 16,409 6,008 42,149
Temporary Help Services 32,268 13,952 26,590 18,694 91,504
Land and Building Leasing 5,061   77,923 12,031 95,015
Building and Structural Repairs         -
Machinery and Equipment Repairs 585   400 32 1,017
Utilities     176 22,408 22,584
Materials and Supplies 20,281 85,434 344,110 7,842 457,667
Machinery, Materiel and Consumable Items 27,029 35,343 96,847 43,702 202,921
Salaries - Students 15,686 25,702 50,102 43,286 134,776
Land, Buildings and Structures (Assets)         -
Stock 590,767       590,767
Inter-sector revenues/expenditures 3,922 1,030 198,440 39,020 242,412
Advances         -
Total - including EBP 1,462,135 4,249,052 10,019,313 6,769,148 22,499,648

We also found that a large part of the audited entity's mandate is carried out by third parties. In 2005–2006, Space Science spent $16.5 million, or 75% of its resources, on the acquisition of professional services (see Table 3). This proportion is similar from one year to the next, which is attributable to the audited entity's operating methods.

3.1 Professional services

Owing to the nature and relative size of these expenditures, we paid special attention to them to ensure that the management team has put the appropriate controls into place to make sure that spending is in accordance with acts, regulations and policies. We also wanted to ensure that managers provide assurances that the expenditures are authorized, certificates are delivered, spending authorities are monitored and expenditures are properly accounted for.

3.1.1 Expenditure profile

We carried out some analyses to obtain a clearer picture of expenditures. The table below shows the main categories of professional services acquired from the various groups of suppliers. It also includes the volume of contracts administered by Agency personnel. Expenditures are related to the acquisition of technical services (GL 51419), scientific services (GL 51460), scientific consultant services (GL 51470) and satellite operation consultant services (GL 51494).

 
Suppliers Expenditure categories and types of suppliers
GL 51419 GL 51460 GL 51470 GL 51494 Total
$ No. of contracts $ No. of contracts $ No. of contracts $ No. of contracts
Other departments 455,000 3 707,430 3 59,600 1     1,222,030
Canadian universities 606,252 3 4,071,781 45 5,620,616 52 87,117 1 10,385,766
Commercial entreprises 329,844 8 236,357 10 3,131,102 30 562,968 2 4,260,271
Other             400,000 1 400,000
Total 1,391,096   5,015,568   8,811,318   1,050,085   16,268,067

We also observed that a major share of expenditures (about 60%) are accounted for in the last accounting period, whereas usually expenditures are incurred more or less throughout the year.

 
Accounting period Breakdown of expenditures accounting period
GL 51419 GL 51460 GL 51470 GL 51494 Total
$ % $ % $ % $ %
Period 1 to 11 543,883 39% 2,055,807 41% 3,089,129 35% 584,256 56% 6,273,075
Period 12 847,213 61% 2,959,761 59% 5,722,189 65% 465,830 44% 9,994,993
Total 1,391,096 100% 5,015,568 100% 8,811,318 100% 1,050,086 100% 16,268,068
3.1.2 Payables at Year-End (PAYE) accounts

The unusual concentration of expenditures at year-end led us to examine PAYE accounts for fiscal 2005–2006. We wanted to ensure that they were established in accordance with regulatory requirements. PAYE accounts are liabilities that must be recorded and presented in the Agency's financial statements. They represent expenses incurred in a given fiscal year, even if they are paid in the following fiscal year. The following table shows the relative size of PAYE accounts for the main expenditure accounts we examined.

  Accounts payable at fiscal year-end-as at March 31, 2006
GL 51419 GL 51460 GL 51470 GL 51494 Total
$ % $ % $ % $ %
Total expenditures 1,391,096   5,015,568   8,811,318   1,050,086   16,268,068
PAYE as at March 31, 2006 415,952 30% 2,021,912 40% 3,684,990 42% 64,888 6% 6,187,742
Justification for PAYE accounts

We examined a sample of all individual PAYE accounts for fiscal 2005–2006 which were above $100,000. Except for one case where the PAYE account was over-evaluated at more than $91,000, we found that, from an accounting perspective, the PAYE accounts were justified and adequately supported. Year-end procedures imposed by the Finance Directorate definitely contributed to this outcome. We would like to repeat that, to record a PAYE account, goods must have been received, services rendered or work carried out before March 31 and the amount must be payable under a contract or agreement entered into also prior to that date.

PAYE accounts management

Although the PAYE accounts are justified, management of the accounts must be reviewed and improved in keeping with sound management practices.

We found that a large value of PAYE accounts recorded as at March 31, 2006, are related to costs incurred by suppliers several months earlier. In some cases, claims and pro-forma claims in support of the PAYE accounts are for costs incurred in June and July 2005; some are even from April 2005.

We also observed that payments associated with the PAYE accounts are often made late. Usually, an account payable must be paid within 30 days after it is recorded. Our examination shows, however, that the payment of a number of PAYE accounts recorded as at March 31, 2006, were not made until September 2006, and some even until January 2007.

Recommendation

Space science branch

  1. Exercise more diligence in monitoring and paying accounts payable.
3.1.3 Processing time frames

Because of the unusual distribution of expenditures in the fiscal year and the findings of PAYE account analyses, we had a closer look at contract management.

Payment terms and conditions

First we had to read the contract provisions imposing suppliers' obligations. Contracts with universities, which account for a major share of contracts awarded by Space Science, provide that suppliers are to submit progress claims every quarter.

The following table shows how long it takes for some key steps. These results are based on a review of a sample of 30 payment claims submitted in 2005–2006.

Processing time frame

Claims Days
  Cumulative
Submitted to PWGSC 86 86
Submitted to the Agency 9 95
Submitted to financial services 31 126
Issuance of payment 10 136

At first glance, we can see that some universities are in no rush to submit their claims. Even if they are given 30 days after the prescribed period to submit their claims, we calculated that the universities take an average of almost three months (86 days). Some of the claims are over six months late. As a result, this increases the administrative workload at year-end with regard to the recording of PAYE accounts, management of commitments and management of cash flow, since most of the contract periods are several years.

The second finding is the average time needed (9 + 31 + 10 = 50 days) to issue payments. The cumulative time of 50 days before a payment is issued is divided among the three parties involved (PWGSC, Space Science and Financial Services). In accordance with sound management practices that Treasury Board included in its Policy on Payment Requisitioning and Payment on Due Date, suppliers of goods and services are to be paid by the deadline stipulated by the standard payment terms and conditions in the contract, that is, within 30 days following the date of receipt of an invoice or acceptance of goods and services, whichever is later. According to current contract provisions, interest must be paid on late payments.

Recommendation

Space science branch
Finance directorate

  1. Provide better follow-up with universities to ensure they meet their obligations, particularly with respect to payment terms and conditions.
  2. Put administrative procedures in place that guarantee that payments are issued within the 30-day time frame.
3.1.4 Delivery and funding options

In accordance with the object, functions, duties and powers under its enabling statute, the Agency is responsible for establishing the programs and services required to meet its strategic outcomes.

In light of objectives, management must decide on the most appropriate delivery option. Programs can be delivered by the government itself, third parties or even in partnership.

Funding options and administrative mechanisms, which are dictated by the relevant legislation and policies, vary depending on the delivery options that are chosen.

In Section 3.1.1 we reported that professional services accounted for major expenditures. By examining a representative sample of expenditures, we sought to assess to what extent the funding options and administrative mechanisms that were used are consistent and compliant and determine whether financial transactions are recorded correctly.

Payments to other departments

All payments made to other departments were accounted for as acquisitions of technical services (GL 51419) and scientific consultant services (GL 51470). Upon examination of agreements between the Agency and other departments, we find that the Agency does not acquire these services. In most of the cases that we examined, the Agency contributes to the routine operations of other departments or participates in joint projects.

For instance, the Agency struck an agreement with the Herzberg Institute of Astrophysics of the National Research Council of Canada (NRCC) to update installations and operate the Solar Radio Monitoring Programme service. In an agreement with Natural Resources Canada (NRCan), the Agency is funding additional scientists and administrative staff for a space weather research project led by NRCan. In another case, the Agency has agreed with the Herzberg Institute of Astrophysics to support the Canadian Astronomy Data Centre in its archiving of astronomy data.

Basically, accounting information is wrong and the accounting treatment is inappropriate. When there are operations between federal departments which contribute to the achievement of common objectives, according to standard practices disbursements should be reported against the credits for which they were allocated and financial information should be accurate throughout the government. In these cases, the accounting treatment should use a suspense account in which disbursements are recorded ahead of time. In addition, on receipt of justification of expenditures incurred by other departments, the expenditures should be reported in the appropriate accounts in the Agency's records, according to their nature.

Recommendation

Space science branch
Finance directorate

  1. Ensure that payments made to other federal departments and agencies are subject to the appropriate accounting treatment.
  2. Ensure that expenditures are accounted for in the appropriate accounts, according to their nature.
Payments to universities

Most Space Science activities are carried out with Canadian universities, as is evident by the number and value of university contracts. According to the sample we examined, many contracts awarded to universities are related to research projects that have been proposed and retained as part of announcements of opportunity. The objectives of these research projects include obtaining a better understanding of functions and behaviour and acquiring new knowledge in life and physical sciences. There are also concept and feasibility studies, the purpose of which is to develop scientific instruments and provide support for scientific facilities and scientific and technical teams during the scientific equipment development and operating phases.

Our analyses and discussions revealed a number of characteristics showing that several contracts are more similar to financial assistance provided for third parties than to actual acquisitions of goods and services. When we ask the question, "Who receives the goods and services?" we conclude that the Agency does not directly receive the goods and services it intends to use to carry out its routine activities.

For example, in most research projects carried out by universities under the direction of a senior researcher, the Agency does not intend to use the results of the work. Instead, these results benefit the scientific community in general by advancing knowledge or leading to practical spinoffs and applications. The research project aimed at reducing the effects of radiation, entitled Developing Dietary Agents to Reduce Risk of Cataracts for Astronauts, Jet Crews and Nuclear Cleaning Workers, is just one example.

The Agency's participation in Canadian initiatives under the GeoSpace Monitoring Program (CGMP) is another example of the Agency receiving nothing in return for payment. In this case, the Agency funds the update of equipment and operation of facilities used by the scientific community and for its own benefit. We also found that, aside from the Agency, the Canadian Foundation for Innovation, the Province of Alberta and universities also fund CGSM programs and projects.

We arrived at similar findings with regard to scientific and technical support provided by some universities. The Agency is well within its rights to buy these services when they are related to one of its missions, such as the SCISAT/ACE science mission. It is an altogether different matter, however, when the Agency funds science teams working on missions in which the Agency is not involved and for which it does not derive a benefit for payment. NASA's Themis mission is an example, where scientific support is under the responsibility of the University of Berkeley with Canadian participation from the University of Calgary, which is funded by the Agency.

Although all the contracts include products to be delivered, deliverables are more often activity reports than goods and services required for Agency activities. In addition, materials and equipment needed for research routinely remain in the possession of universities, in accordance with loan agreements.

These findings do not call into question the participation of Space Science and the relevance of its initiatives. We do want to point out to management, however, that it is the administrative instruments that are used that do not seem to be in compliance with prescribed operating regulations.

Transfer payments and service contracts are subject to different management frameworks. The Policy on Transfer Payments applies to payments made to third parties (individuals or organizations), and the Agency does not receive any goods or services in return. Payments in exchange for goods and services are subject to the Government Contracts Regulations, trade agreements and the Contracting Policy.

Transfer payments are appropriate when

  • The departmental mandate permits;
  • The government does not receive goods or services in return for the payments;
  • The third parties are in a better position than the government to provide specific services or to carry out a particular task;
  • It is the most effective means of achieving departmental program objectives;
  • Promoting economic development is an objective of the departmental program.

Recommendation

Space science branch
Finance directorate

  1. Review how it carries out and funds its activities to ensure that the administrative instruments used correspond to the nature of operations, in that they are subject to an appropriate management framework.
  2. Ensure that activities are funded using the appropriate parliamentary votes.
Accounting for disbursements

Accounting for financial operations is very important because it serves as the foundation of the Agency's management information systems and financial statements. We examined a sample of disbursements, giving us reasonable assurances that delegated authorities are adequately exercised, that the required certifications are provided by the authorized signing authorities and that they are properly documented.

Nevertheless, this review revealed that accounting for disbursements lacked consistency. We found that expenditures, the nature of which is identified by object classification, are not always correctly recorded. In some cases they are accounted for as technical services (GL 51419), sometimes as scientific services (GL 51470) or sometimes as scientific consultant services (GL 51470). This is the case for expenditures for research contracts and scientific and technical support contracts.

Furthermore, descriptions of expenditure items in the Financial Coding Manual need to be revised in order to avoid ambiguity and provide users with more accurate information and explanations. For example, in their current descriptions, the three expenditure items above indicate that they also include research and development services.

To ensure accounting records accurately reflect operations and are a useful management tool, financial transactions must be recorded consistently. Agency staff need to attach greater importance to the accounting treatment of expenditures by recording them in the proper accounts.

Recommendation

Space science branch
Finance directorate

  1. Ensure that disbursements are recorded in the proper accounts, in accordance with the Agency's Chart of Accounts.
  2. Review descriptions of the relevant expenditure items in the Financial Coding Manual.

3.2 Grants and contributions

Some of Space Science's resources are dedicated to grants and contributions programs ($600,000 in 2005–2006 and $2,000,000 in 2006–2007). The administration of grants and contributions programs by the audited entity was not part of the scope of this audit, as other recent audits specifically covered this aspect.

Transfer payments must be recorded in the appropriate accounts, and the item "Postdoctoral fellowships" (Account GL #53337) was not accounted for properly. This is why expenditures recorded under this item attracted our attention. We found that these expenditures are funded using votes for operating expenses, whereas the name of the account leads us to believe that they are transfer payments, which need to be funded by votes for grants and contributions.

An in-depth analysis of disbursements showed that the Agency takes part in a grants and contributions program administered by the National Sciences and Engineering Research Council (NSERC). NSERC administers Visiting Fellowships in Canadian Government Laboratories (VF), which enables promising new scientists and engineers to work with groups of researchers in Canadian government labs and research institutions. NSERC processes applicants, and successful candidates receive scholarships of up to $43,724 a year. NSERC submits requisitions for inter-departmental settlement for the amounts paid to fellows working at the Agency.

We can therefore conclude that disbursements recorded as postdoctoral fellowships are not funded by the appropriate parliamentary votes and that the financial information is erroneous. Regardless of who in the government administers programs, when federal departments engage in joint operations and these operations contribute to common objectives, according to prescribed practice disbursements must be recorded against the votes for which they were granted and financial information must be accurate throughout the government.

We also noted that other Agency sectors take part in this fellowship program. In 2005–2006, Space Science paid out $180,590 under this program ($232,681 in 2006–2007) and the Agency's sectors paid out $592,537 ($609,339 in 2006–2007).

Recommendation

Space science branch
Finance directorate

  1. Ensure disbursements are funded from the appropriate parliamentary votes.
  2. Ensure expenditures are recorded in the appropriate accounts, according to their nature.

Appendix A Audit Objectives and Criteria

The overall objective of this audit project was to evaluate the adequacy of the key elements of the management framework of the Space Science Branch.

More specifically, the following objectives were set for the audit:

Objective 1: Ensure that operations are well planned.

  • Criterion 1.1: A well-structured planning process is in place.
  • Criterion 1.2: Operations are approved.
  • Criterion 1.3: Financial and human resources are allocated to approved operations.
  • Criterion 1.4: The planning process is designed to contribute to accountability.
  • Criterion 1.5: The planning process forms the basis of budgetary control.

Objective 2: Ensure that operations and resource used are controlled.

  • Criterion 2.1: Organization of work, division of responsibilities and delegated of authority contribute to delivering programs in an effective, efficient and economical manner.
  • Criterion 2.2: Managers provide their staff with the direction and the necessary means for achieving the organization's objectives.
  • Criterion 2.3: Expenditures are approved and carried out in compliance with the applicable acts and regulations, and spending authorities are controlled.
  • Criterion 2.4: There are management controls in place to allow managers to periodically measure accomplishments with respect to objectives (in terms of costs, schedules and performance).
  • Criterion 2.5: Assets are protected.

Objective 3: Ensure that managers account for outcomes and means used.

  • Criterion 3.1: A well-structured accountability framework is in place
  • Criterion 3.2: Each program element is subject to a periodic accounting.
  • Criterion 3.3: The accountability process is carried out in accordance with the requirements on the matter

Appendix B: Management Action Plan

Ref. Recommendation Identified Responsibilities Action Plan Details Deadline
  Organization Function    
2.0 Operation Planning
2.1 Financial Monitoring
  i) Develop a financial management information system in IFMS which incorporates all information relevant to the financial monitoring of the various approved planning elements. Finance Directorate Chief Financial Officer The project aimed at implementing the financial forecasting function in IFMS is still under way. The function will meet the requirements of the new financial forecasting policy and carry out recommendations made by the forecasting working group. The project will be operational on April 1, 2008.

The following steps have been completed:

  • Needs analysis
  • Data entry screen development
  • Approval structure

Under way:

  • Monthly forecast report with data displayed by cost centre or project

Integrity tests are still to be carried out, which will be followed by user training.

The working group is continuing to meet to validate needs and procedures and to keep tabs on developments. The function will initially be implemented with the pilot groups that will use it (Finance, Satellite Operations, Security and Facilities, Project Management, and Mission Assurance). All users will subsequently have access to this tool.

March, 31 2008

  ii) Since the Financial Management Report (FMR) is a corporate management information system, it must report financial information according to PAA programs that were approved in the work plan summaries. Finance Directorate Chief Financial Officer As agreed on October 12, 2007, the information in the FMR will be presented as part of the fourth level of the PAA, that is, functional areas that seem to correspond with the approval level of the work plan summaries. Feedback on the October FMR will enable us to make any required adjustments to automate such a report using SAP.
  • EXCEL (template shared with Internal Auditing on October 18, 2007);
  • SAP (Crystal or other).

The FMR now presents information on the basis of PAA programs approved in the work plan summaries.

Note: The electronic version of the FMR in SAP is being developed in a similar fashion.

Completed

2.2 Incorporating PAA Elements into the Work Environment
  i) Develop a Review the work environment so as to incorporate programs, objectives and expected results defined in the Agency's Program Activity Architecture. Space Science Branch Director general In its update of the Agency's intranet and Web sites, Space Science will refer to the Program Activity Architecture (PAA). Ongoing
We will work with other Agency sectors to harmonize and incorporate programs, objectives and results in future ITTs, RFPs and contracts. Sept. 2008
We will revise our work plans and adjust them to the Agency's PAA. March 2008
3.0 Program Delivery
3.1 Professional Services
3.1.2 Payables at Year-End (PAYE) Accounts
  i) Exercise more diligence in monitoring and paying accounts payable. Space Science Branch Director general Space Science will continue to diligently monitor and pay accounts payable.

The addition of three new program officer positions will improve the monitoring and payment of accounts payable.

In co-operation with the Finance team, we will conduct a study/assessment to review how we carry out and fund our activities (see items 3.1.4 iii and iv).

We will continue to educate our suppliers on methods of paying accounts.

The entire Finance team of the sector will help Space Science to effectively monitor and pay accounts payable and supervise PAYEs.

Manager, Accounting

Although Space Science is responsible for carrying out this action plan, the Finance team of the sector should also co-operate and monitor PAYEs to ensure invoices are paid within a reasonable time frame after year-end. Carrying out recommendation 3.1.3 i. should also reduce the number of PAYEs and the related administrative workload.

Ongoing
3.1.3 Processing Time Frames
  i) Provide better follow-up with universities to ensure they meet their obligations, particularly with respect to payment terms and conditions. Space Science Branch Director general The Space Science DG, directors and program managers will continue to educate our suppliers and follow up with universities to make sure they comply with their obligations, particularly with respect to payment terms and conditions. Ongoing
The Finance team of the Space Science sector will study suppliers' payment statistics. Based on these results, we will put more effort into raising awareness among certain suppliers.

Same comments as for 3.1.2 i

.
March 2008
  ii) Put administrative procedures in place that guarantees that payments are issued within the 30-day time frame. Space Science Branch Director general The addition of three program officer positions willimprove monitoring of account payments.

With a full Finance team of the Space Science sector, payment time frames will be shorter.

Ongoing
Finance Directorate Chief Financial Officer Manager, Accounting

As part of the accounts payable interest project, Finance staff held a meeting on September 20, 2007, to explain new procedures that would enable us to meet the 30-day time frame and avoid having to pay interest. The new procedures will be implemented by December 2007, and we will monitor them in the first two months to determine whether suppliers adhere to the time frames and to take any required corrective measures.

March 31, 2008
3.1.4 Delivery and Funding Options
  Payments to other departments
i) Ensure that payments made to other federal departments and agencies are subject to the appropriate accounting treatment. Space Science Branch Director general Space Science will co-operate with the Finance team of the Space Science sector to ensure that payments made to other federal departments and agencies are subject to the appropriate accounting treatment. Ongoing
Finance Directorate Chief Financial Officer Manager, Accounting

We met with the financial officers of the sector to clarify the accounting treatment to be used. We have agreed that, when payments are made to other departments, we will use an advance payment account, and when we receive advance payments, a suspense account will be used.

Completed
ii) Ensure that expenditures are accounted for in the appropriate accounts, according to their nature. Space Science Branch Director general Space Science will co-operate with the Finance team of the Space Science sector to ensure that expenditures are accounted for in the appropriate accounts, according to their nature. Ongoing
Finance Directorate Chief Financial Officer Manager, Accounting

We reminded the sectors’ financial officers of the appropriate use of GL accounts.

Completed
  Payments to universities
iii) Review how it carries out and funds its activities to ensure that the administrative instruments used correspond to the nature of operations, in that they are subject to an appropriate management framework. Space Science Branch Director general Space Science will conduct a study/assessment to review how it carries out and funds its activities to ensure that the administrative instruments used correspond to the nature of operations. Mars 2008
Finance Directorate Chief Financial Officer Manager, Financial Planning

With the help of available documentation and applicable policies, and in co-operation with the accounting, reporting and contracting teams, we will prepare a list of cut-off criteria which we will submit to the FMAs to help them in their roles as advisors to program managers.

A guide on how to choose the appropriate funding mechanism (contract vs transfer payment) has been drafted. It was shared with some officials to obtain their comments and ensure that the guide helps determine whether the administrative instruments used correspond to the nature of operations.

March 31, 2008
Manager, Accounting

Provide information needed to help sector managers determine the appropriate funding source to be used. Inform managers that the Finance team is available to help them determine the appropriate funding source when an agreement is negotiated. The contracting team could also be informed to validate data when contracts are awarded.

March 31, 2008
iv) Ensure that activities are funded using the appropriate parliamentary votes. Space Science Branch Director general Same comments as for 3.1.4 iii.

Based on the results of the study/assessment, Space Science will work with the Finance team of the Space Science sector to ensure that activities are funded using the appropriate parliamentary votes.

March 2009
Finance Directorate Chief Financial Officer Manager, Financial Planning

With the help of available documentation and applicable policies, and in co-operation with the accounting, reporting and contracting teams, we will prepare a list of cut-off criteria which we will submit to the FMAs to help them in their roles as advisors to program managers.

A guide on how to choose the appropriate funding mechanism (contract vs transfer payment) has been drafted. It was shared with some officials to obtain their comments and ensure that the guide helps determine whether the administrative instruments used correspond to the nature of operations.

March 31, 2008
Manager, Accounting

Provide information needed to help sector managers determine the appropriate funding source to be used. Inform managers that the Finance team is available to help them determine the appropriate funding source when an agreement is negotiated. The contracting team could also be informed to validate data when contracts are awarded.

If the accounting treatment requires a funding source that is different from what is being used now, the CSA will have to review budget allocations in compliance with requirements related to the movement of parliamentary votes before we can correct the accounting treatment.

March 31, 2008
  Accounting for disbursements
v) Review Ensure that disbursements are recorded in the proper accounts, in accordance with the Agency's Chart of Accounts. Space Science Branch Director general Space Science will work with the Finance team of the Space Science sector to ensure that disbursements are recorded in the proper accounts, in accordance with the Agency's Chart of Accounts. Ongoing
Finance Directorate Chief Financial Officer Manager, Accounting

Clarify the GL definition, provide examples, amend the coding manual, analyse expenditures and commitments for 2007–2008, and transfer expenditures by journal voucher and transfer commitments.

March 31, 2008
vi) Re Review descriptions of the relevant expenditure items in the Financial Coding Manual Finance Directorate Chief Financial Officer Manager, Accounting

Clarify the GL definition, provide examples, amend the coding manual, analyse expenditures and commitments for 2007–2008, and transfer expenditures by journal voucher and transfer commitments.

March 31, 2008
3.2 Grants and Contributions
  i) Ensure disbursements are funded from the appropriate parliamentary votes. Space Science Branch Director general Space Science will work with the Finance team of the Space Science sector to ensure that activities are funded from the appropriate parliamentary votes. March 2008
Finance Directorate Chief Financial Officer Manager, Financial Planning

A guide on how to choose the appropriate funding mechanism (contract vs transfer payment) has been drafted. It was shared with some officials to obtain their comments and ensure that the guide helps determine whether the administrative instruments used correspond to the nature of operations. PWGSC is to finalize the guide dealing with the appropriate use of parliamentary votes.

March 31, 2008
Manager, Accounting

If the accounting treatment requires a funding source that is different from what is being used now, the CSA will have to review budget allocations in compliance with requirements related to the movement of parliamentary votes before we can correct the accounting treatment. Inform financial personnel of the changes.

March 31, 2008
ii) Ensure expenditures are recorded in the appropriate accounts, according to their nature. Space Science Branch Director general Same comments as for 3.2 i. March 2008
Finance Directorate Chief Financial Officer Manager, Accounting

If the accounting treatment requires a funding source that is different from what is being used now, the CSA will have to review budget allocations in compliance with requirements related to the movement of parliamentary votes before we can correct the accounting treatment. Inform financial personnel of the changes.

March 31, 2008