ARCHIVED - Audit of Fiscal 2009-2010 Year-End Cash Cut-Off Procedures

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Internal Audit Report
October 2010

Table of Contents

• 1.0 Introduction
  • 1.1 Background
  • 1.2 Objective and Scope
  • 1.3 Statement of Assurance
• 2.0 Audit Opinion
• 3.0 Observations

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1.0 Introduction

1.1 Background

The Government of Canada has reported on a full accrual basis for the preparation of its financial statements since 2001. To support accrual accounting, the 2009–2010 Receiver General Manual stipulates that monies negotiated on or before March 31, 2010, but not credited by the Bank of Canada or any other financial institution, are classified as cash in transit (CIT). For fiscal year 2009–10, the Canada Border Services Agency (CBSA) reported $1.4 billion of CIT.

The CBSA collects approximately $23 billion in revenue in a year. To ensure that receipts are recorded in the proper fiscal year, the Comptrollership Branch issues instructions towards the end of every fiscal year to ports of entry and regional offices for the processing of cash payments received at year-end.

For its annual audit of the Public Accounts of the CBSA, the Office of the Auditor General (OAG) relies on the audit work conducted by the CBSA's Internal Audit pertaining to the year-end cash receipts cut-off procedures and recording of amounts in the proper fiscal year. The Internal Audit and Program Evaluation Directorate performs the financial attestation relating to the year-end cash receipts cut-off, and provides an independent verification of the CIT calculation, to provide assurance to the OAG on the CIT amount reported by the CBSA.

1.2 Objective and Scope

The objective of the audit was to provide assurance that year-end cash cut-off procedures were appropriate and in place to record CIT in the proper fiscal year.

The audit was conducted between April and May 2010 and consisted of a review of current fiscal year-end procedures and processes in the Comptrollership Branch, relating to tracking, monitoring and recording of CIT at the year-end. The scope focused on reviewing the Customs Revenue Reports (K10 revenue reports)[ 1 ] that are entered into the Customs Commercial System (CCS) G11 subsystem to test the completeness of the CIT calculation. K10 revenue reports with values greater than $1 million from April 1 to April 8, 2010 were selected from all CBSA ports of entry and regional offices. The $1 million materiality threshold was set in consultation with the OAG to meet their requirements for the Public Accounts Audit. The sample period was considered to represent the transactions at high risk; this means the "Date of Receipt"[ 2 ] field for cash receipts may have been recorded in the "new year" when they were in fact received in the "old year", and could be incorrectly identified as non-CIT. The audit criteria included an analysis of the accuracy of the receipt date field to supporting documentation, as well as a review of the sampling and CIT calculation procedures performed within the Comptrollership Branch.

K10 revenue reports with receipt dates for old fiscal year transactions (March 29 to March 31, 2010) were not selected as this period was considered to be low risk in preceding years' audits, and no errors were previously noted in this area.

The audit also included interviews with new Revenue Management Division (RMD) employees to determine whether they were aware of their documented roles and responsibilities related to year-end cash cut-off procedures and whether their responses were consistent with policy requirements.

1.3 Statement of Assurance

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

2.0 Audit Opinion

The audit found that year-end cash cut-off procedures were appropriate and in place to record cash in transit for the fiscal year ended March 31, 2010.

3.0 Observations

The CIT amount for fiscal year 2009–10 should include all K10 revenue reports received on or before March 31, 2010 that have not yet been deposited to the Bank of Canada or any other financial institution. Adequate monitoring and a sampling methodology should be in place to ensure the accuracy and completeness of the CIT amount, and employees should be aware and exercising their roles and responsibilities pertaining to year-end cash cut-off procedures.

To assess the adequacy of the monitoring and sampling methodology used by the Comptrollership Branch, interviews and a review of the methodology were conducted with the RMD employees responsible for monitoring and sampling activities. The monitoring and sampling methodology was found to be consistent with the previous year's methodology and adequate to identify CIT discrepancies prior to the accrual cut-off date. The Branch monitored all transactions over $150,000 from March 31 to April 21, 2010. The sample represented 174 K10 revenue reports and over $1.5 billion in revenues. The error rate found for the sample was 7% and the Branch corrected all of these errors. A review of these errors noted that they were attributed to the receipt year and the CCS G11 system fiscal year not matching or the receipt date being incorrectly entered into the system.

The audit reviewed the CIT calculation performed by the Comptrollership Branch and reconciled the CIT transactions with the information contained in the CCS G11 system. The audit found that the CIT calculation was performed in accordance with the Branch's documented methodology and that all CIT transactions were correctly recorded in the proper fiscal year. During the manual review of the final CIT amount calculated by the Accrual Accounting Engine[ 3 ], the Comptrollership Branch identified three K10 revenue reports for which manual adjustments were required. Two adjustments were for a chargeback from the Government Banking System Interface in the new fiscal year for two non-sufficient funds cheques. The third adjustment was for an amount that was recorded as being deposited in the new year (causing it to appear as CIT), but was actually deposited in the old year, overstating the CIT calculation. These amounts were adjusted in the CIT calculation. No further issues were identified.

Based on the audit interviews conducted with new RMD employees having less than two years experience with the division, employees were found to be knowledgeable of their roles and responsibilities and trained in year-end cash cut-off procedures. Interview responses were consistent with documented roles and responsibilities in Chapter 10 of the CBSA Finance Volume and the Comptrollership Branch desk procedures.

To verify the completeness of the CIT amount, all K10 revenue reports that had amounts greater than $1 million for the period of April 1 to 8, 2010 were selected and reviewed. Three items amounting to $6,796,266.39, representing 50.24% of the total population over the sampling period, fell into this category, and were limited to three of the CBSA regions. The K10 revenue reports and supporting documentation were requested from those regions for further analysis, and the audit found that the amounts were identified in the proper fiscal year with the exception of one K10 revenue report. The cash was identified as being received on March 31, 2010 (old year); however, the receipt date on the K10 revenue report and in the CCS G11 subsystem indicated April 1, 2010 (new year). The exception amount was $1,873,923.36 and accounted for 28% of the total sample value or 99.8% of the total regional population of transactions for the sampling period. This exception was also identified within the sample selected by the Comptrollership Branch, as part of their monitoring work. The required correction to the old year was processed in the Revenue ledger through a journal voucher on April 13, 2010.

Due to the exception identified within the initial sample, the audit sample size was further expanded for the regional office where the error had occurred. There were no other transactions that occurred on the same day as the transaction error; therefore, the decision was made to include the five highest dollar value transactions that fell within the period of April 1 to April 8, 2010, as an additional sample. Five additional K10 revenue reports totalling $3,010.60 and supporting documentation were requested and examined. The audit found that these transactions were recorded in the correct fiscal year for that regional office.

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Notes

1. K10 revenue reports provide information on all deposits, losses, and adjustments relating to revenue. This information is entered into the Customs Commercial System (CCS) G11 subsystem. [Return to text]
2. Actual date when cash is received at the Agency. [Return to text]
3. The Accrual Accounting Engine was implemented in the revenue ledger to calculate the adjustments required to current revenue amounts to obtain the appropriate accrual balances.[Return to text]