ARCHIVED - Audit of the CBSA's Revenue Ledger

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Internal Audit Report
June 2009

Table of Contents

• Executive Summary
• Introduction
  • Background
  • Risk Assessment
  • Audit Objective and Scope
  • Approach and Methodology
  • Audit Criteria
  • Statement of Assurance
• Audit Opinion
• Findings, Recommendations and Management Action Plan
  • Accountability
  • Reliability and Integrity of Data
• Appendix: List of Accronyms

Executive Summary

Background

The Canada Border Services Agency (CBSA) became a separate entity in December 2003 but continued to record and report revenue transactions in a revenue ledger (RL) system shared with the Canada Revenue Agency (CRA). With the assistance of the CRA, the CBSA implemented its own RL system and was required to make adjusting entries to the amount split from the CRA to establish the opening balance of the RL at January 20, 2008.

The Revenue Management Division of the Comptrollership Branch is responsible for the accounting of revenue earned and received in the RL. In 2008, the CRA performed an internal audit on the separation of the two revenue ledgers. No significant issues were found as a result of the CRA internal audit and no recommendations were made.

A post-implementation review (PIR) was undertaken by the Innovation, Science and Technology Branch and the Comptrollership Branch from July to October 2008 to assess the CBSA Revenue Ledger Split Project. The purpose of the review was to assess the results of the split project and to identify issues that needed to be addressed.

An audit of the opening balance of the CBSA's RL was included in the Internal Audit Directorate's three-year risk-based audit plan and approved by the Audit Committee in July 2008. The audit was conducted from March to April 2009.

Objective and Scope

The audit objective was to provide assurance to senior management that the opening balance of the CBSA's RL as at January 20, 2008, was accurate and complete.

The scope of the audit was limited to a review of the accuracy and completeness of the opening balance and any adjusting entries made to the balance received from the CRA as at January 20, 2008. The audit verified whether the opening balance in the CBSA's RL corresponded to the January 20, 2008, trial balance prepared by the CRA after any required adjustments.

Statement of Assurance

This audit engagement was planned and conducted in accordance with the Internal Auditing Standards for the Government of Canada.

Audit Opinion

The opening balance of the CBSA's RL was accurately calculated and complete as at January 20, 2008, and the transfer from the CRA, including adjusting entries, was properly documented.

Main Observations

The opening balance of the CBSA's RL was accurate and complete as at January 20, 2008. The required adjustments for the new RL were completed and documented. Issues identified during the process of the split with the CRA's RL were resolved during the audit. The issues identified in the PIR report were acted on, except for the clarification of roles and responsibilities between CBSA Headquarters (HQ) and the regions.

Management Response

Roles and responsibilities of HQ and the regional CBSA offices are outlined in the Comptrollership Manual (Finance Volume) that is available on the CBSA's intranet site in the Comptrollership Branch section. To communicate these roles and responsibilities, a memo that provides the link to the Comptrollership Manual will be sent to the regions by the end of July 2009. Policy updates and changes will be sent to the regions as they occur. Regional staff will be asked to submit questions to the Revenue Management Division. Responses will be posted online as "frequently asked questions"; this section will be established on the Comptrollership Branch's intranet section by the end of March 2010.

The Comptrollership Branch and the regional directors general have decided to add a financial officer to the regional comptrollership model. In December 2008, approval was obtained from Human Resources Branch for the regions to hire up to three junior-level financial officers. These officers will act as liaisons between HQ and the regional offices and provide training to the regional officers on revenue management issues. This will contribute to enhancing the regions' understanding of revenue policies, including the RL.

Introduction

Background

The Canada Border Services Agency (CBSA) was created in December 2003 from three legacy organizations, which included parts of the Canada Revenue Agency (CRA). Although they are separate agencies, certain business functions, systems and processes continue to be shared between the CBSA and the CRA. The financial system, i.e. the revenue ledger (RL), was still being shared by the two agencies as of January 2008. This system served as the basis for the revenue reporting, revenue reconciliation, trial balance and accrual accounting activities required to support the preparation of financial statements for both agencies.

In October 2005, the Office of the Auditor General of Canada (OAG) identified the CBSA's inability to produce separate, reliable and fully autonomous financial statements for the purpose of public accounts and central agency reporting as a significant reporting weakness. Also highlighted in the OAG report [ 1 ] was the fact that a shared RL system had resulted in significant issues in auditing the CBSA's financial statements in past years, and this was primarily due to the shared control accounts that existed between the two agencies. Specifically, the report noted that until the CBSA implemented its own RL completely separate from the CRA, common accounts between the CBSA and the CRA would continue to require extensive manual intervention, which reduces both agencies' ability to comply with ongoing reductions in central agency year-end timelines.

As one step to meet the Government of Canada's legislative requirements to produce auditable financial statements, the CBSA's Comptrollership Branch determined that the Agency had to implement its own RL system by the beginning of 2008. As a result, the CBSA developed the Revenue Ledger Split Project to create a separate RL environment and to move revenue data and related business functions out of the CRA's RL system. The opening balance for the new RL was set up on January 20, 2008. In 2008, the CRA conducted an internal audit, the 2007-2008 Selected Fiscal Year-End Procedures Audit. A component of this audit was to review the removal of CBSA account balances from the CRA's RL. In its audit, the CRA identified minor issues, for example, that the CBSA's RL accounts had not been blocked after January 20, 2008, which ran the risk that amounts could be posted to these accounts that are no longer in use.

A post-implementation review (PIR) was undertaken by the Innovation, Science and Technology Branch and the Comptrollership Branch from July to October 2008 to assess the CBSA Revenue Ledger Split Project. The purpose of the review was to assess the results of the split project and to identify issues that needed to be addressed. The PIR team gathered information, reviewed project and related documentation, attended a demonstration of the RL by a member of the project area, and conducted interviews with 25 representatives of key stakeholder groups including members of the project and sponsoring areas. Three minor issues were identified: the roles and responsibilities between CBSA Headquarters (HQ) and the regions were not always clear, support was not always provided to RL users and data was transferred manually to the RL.

Risk Assessment

A risk assessment of the CBSA's RL that was completed during the planning phase concluded the following:

• There may be no justification to support the opening balance or any required adjustments or reversal entries.
• There is a risk that reconciliation procedures for accounts that were shared between the CBSA and the CRA may not be clear, which could result in an inaccurate balance transfer to the CBSA.
• There may be a risk that the approval of the RL opening balance and adjusting entries from the CRA may not be documented or accepted by CBSA management.

The above risks formed the basis for the audit objective and scope.

Audit Objective and Scope

The audit objective was to provide assurance to senior management that the opening balance of the CBSA's RL as at January 20, 2008, is accurate and complete.

The scope of the audit was limited to a review of the accuracy and completeness of the opening balance and any adjusting entries made to the balance received from the CRA as at January 20, 2008. The audit verified whether the opening balance in the CBSA's RL corresponded to the January 20, 2008, trial balance prepared by the CRA after any required adjustments.

The audit was conducted from March to April 2009 at CBSA Headquarters.

Approach and Methodology

The following methodology was used to perform this audit:

• Interviewing key financial stakeholders in the Comptrollership Branch to test and finalize the audit program.
• Reviewing documentation to confirm that the results of the revenue separation task and any associated issues were quickly identified, resolved and reported.
• Consulting with the CRA audit team to determine the extent of their audit testing and to use their results for the audit.
• Reviewing the CRA's internal audit working papers and trial balance calculations to confirm the accuracy and completeness of the opening balance of the CBSA's RL as at January 20, 2008. This included verifying whether the CBSA balance removed from the CRA's accounts agrees with the balances established in the CBSA's RL after any required adjustments.
• Performing reconciliations and obtaining justifications for any subsequent amendments or reversal entries to confirm that the balance in the CBSA's revenue account matches the amount removed from the CRA's RL.
• Confirming whether the Comptrollership Branch had identified and analyzed any reconciliation differences and established an action plan to resolve identified differences in a timely manner.
• Confirming that results of the recent CRA internal audit had been reviewed by the Comptrollership Branch and that any applicable corrective measures have been taken.
• Confirming that the transition to the CBSA's RL was documented and whether any issues resulting from the separation of the shared revenue accounts were quickly identified, resolved and reported by CBSA management.

Audit Criteria

Criteria for this audit were developed based on (a) recognized management control frameworks, including the core management controls framework, directives and guidelines, and financial systems and controls developed by the Treasury Board of Canada Secretariat; and (b) the COSO Model (Committee of Sponsoring Organizations of the Treadway Commission) of internal control monitoring.

Line of enquiry	Audit criteria
Reliability and integrity of data	The opening balance in the CBSA's RL corresponds to the trial balance as at January 20, 2008, that was prepared by the CRA and validated by the CRA's Internal Audit after any required adjustments.
Accountability	There is a documented audit trail of approved adjustments and reconciliations that took place to set up the CBSA's RL opening balance as at January 20, 2008.

Statement of Assurance

This audit engagement was planned and conducted in accordance with the Internal Auditing Standards for the Government of Canada.

Audit Opinion

The opening balance of the CBSA's RL was accurately calculated and complete as at January 20, 2008, and the transfer from the CRA, including adjusting entries, was properly documented.

Findings, Recommendations and Management Action Plan

Data was migrated as per the CBSA's RL conversion strategy. Issues identified during the process of the split with the CRA's RL were resolved as they appeared. The opening balance of the CBSA's RL was accurate and complete as at January 20, 2008. Verification mechanisms used to confirm that all CBSA accounts were included in the CRA's trial balance were supported by satisfactory documented trails. Adjustments that were converted to the CBSA's RL had been authorized and had the proper justification. The issues identified in the post-implementation review report were acted upon, except for the clarification of roles and responsibilities between HQ and the regions.

Accountability

The audit expected to find a documented audit trail of approved adjustments and reconciliations that took place to set up the CBSA's RL opening balance as at January 20, 2008.

The audit found that data was migrated as per the conversion strategy and all transactions posted to the CBSA's RL were appropriately documented and approved. There were minor issues identified during the CRA's audit that were acted upon by the CBSA, such as the RL accounts that were not blocked after January 20, 2008.

Out of 306 RL accounts listed on the January 20, 2008, CBSA trial balance with zero balances, there were 16 that had not been blocked at the time the CRA conducted its audit (July 2008). There was a risk that amounts could be posted to these accounts that were no longer in use. Corrective actions were taken by the Comptrollership Branch in August 2008 to block these accounts.

Two minor issues were identified during the course of this audit: the use of the correct bank authorization number (BAN) and respendable revenues. [ 2 ]

Upon implementation of the CRA-CBSA RL split, some financial institutions' service providers were not assigning Customs Commercial System (CCS) payments to the correct customs BAN, which resulted in many CCS payments being deposited using a CRA tax BAN. This caused a huge manual workload because interdepartmental settlements had to be prepared to transfer the entries back to the CBSA. This issue was identified in the Audit of the Customs Self Assessment Program (April 2009) and the Comptrollership Branch has developed an action plan; the expected completion date is September 30, 2009.

Respendable revenues were posted to the incorrect spending authority. A correcting entry was made on March 26, 2008, by the Comptrollership Branch.

The Comptrollership Branch and the Innovation, Science and Technology Branch conducted a post-implementation review of the data conversion for the new RL. There were no major issues found; however, the following minor issues were identified:

• The manual transfer of data from revenue systems to the revenue ledger: the set up of the RL involved manipulating a large number of lines of data.
• Roles and responsibilities between HQ and the regions should be clarified: employees in the regions involved with revenue recording do not have sufficient understanding of HQ's role and vice versa.

The audit found that the RL is now linked to revenue systems and there is no longer any manual data entry in the RL. As well, the Comptrollership Branch plans on outlining the roles and responsibilities of HQ and regional CBSA offices in the Comptrollership Manual (Finance Volume). Management has advised that the roles and responsibilities will be communicated within the next fiscal year via memos to the regions and frequently asked questions will be posted on the Comptrollership Branch's intranet section.

The Comptrollership Branch and the regional directors general have decided to add a financial officer to the regional comptrollership model. In December 2008, approval was obtained from the Human Resources Branch for the regions to hire up to three junior-level financial officers. These officers will act as liaisons between HQ and the regional offices and provide training to the regional officers on revenue management issues. This will contribute to enhancing the regions' understanding of revenue policies including the RL.

Reliability and Integrity of Data

The audit expected to find that the opening balance in the CBSA's RL corresponds to the trial balance as at January 20, 2008, that was prepared by the CRA and validated by the CRA's Internal Audit after any required adjustments.

The audit found that the opening balance of the CBSA's RL as of January 20, 2008, was accurate and complete. All adjusting entries were identified and posted accordingly.

In 2008, the CRA conducted an internal audit, the 2007-2008 Selected Fiscal Year-End Procedures Audit. A component of this audit was to look at the removal of CBSA account balances from the CRA's RL. As part of its audit, the CBSA consulted with the CRA audit team to determine the extent of their work and to use their results. CRA working papers were reviewed and it was determined that the CBSA's Internal Audit Directorate could rely on the results of the CRA's audit and the CBSA's trial balance prepared by the CRA. The Comptrollership Branch conducted a reconciliation of the amounts posted to the trial balance from the CRA; the trial balance was found to be accurate with no material error. Immaterial outstanding adjustments were identified, reconciled and posted to the CBSA's RL by the Comptrollership Branch during fiscal years 2007-2008 and 2008-2009.

Appendix: List of Acronyms

BAN

bank authorization number

CBSA

Canada Border Services Agency

CCS

Customs Commercial System

COSO

Committee of Sponsoring Organizations of the Treadway Commission

CRA

Canada Revenue Agency

HQ

CBSA Headquarters

OAG

Office of the Auditor General of Canada

PIR

post-implementation review

RL

revenue ledger

Notes

1. OAG, Public Accounts of Canada, 2005. [Return to text]
2. Respendable revenues are revenues that can be applied against expenditures used in the collection of revenue. [Return to text]