Internal Audit Report - Travel Expenses - Staff

May 2004

Table of contents

• Executive Summary
• 1.0 Introduction
  • 1.1 Objectives
  • 1.2 Criteria
  • 1.3 Scope
  • 1.4 Methodology
• 2.0 Policy and Procedures
  • 2.1 Conclusion
  • 2.2 Observations
    • 2.2.1 Completeness and Clarity of Policies and Procedures
    • 2.2.2 Availability and Communications
    • 2.2.3 Lines of Authority
  • 2.3 Recommendations
  • 2.4 Management Response
• 3.0 Compliance and Reasonableness of Claims
  • 3.1 Controls
    • 3.1.1 Conclusion
    • 3.1.2 Observations
    • 3.1.3 Special Situations
    • 3.1.4 Recommendations
    • 3.1.5 Management Response
  • 3.2 Supporting Documentation
    • 3.2.1 Conclusion
    • 3.2.2 Observations
    • 3.2.3 Recommendation
    • 3.2.4 Management Response
  • 3.3 Information Recording
    • 3.3.1 Conclusion
    • 3.3.2 Observations
    • 3.3.3 Recommendations
    • 3.3.4 Management Response
• Appendix 1
• Appendix 2

Executive Summary

The Canadian Institutes of Health Research (CIHR) identified that an internal audit of staff travel expenses was one of the priorities for the fiscal year 2003/2004. The audit was carried-out between November 2003 and March 2004, and included CIHR's staff travel expenses for the period covering April 1, 2002 to September 30, 2003. 

In carrying-out the audit, multiple sources of information were used to support the findings and conclusions. These included an extensive review of the relevant policies and procedures, and interviews and consultations with relevant Corporate Financial Services' staff. Preliminary information was provided to the Manager, Corporate Financial Services, the Director, Finance and Administration, and the Vice-President, Services and Operations for review and adjustments if necessary.

Highlights of the audit are outlined below:

• ongoing reporting of management information is an important part of any control system and CIHR's Services and Operations portfolio provides all managers with comprehensive monthly reports that includes travel expenses;
• CIHR uses the Treasury Board's Travel Directive to govern its travel expenses but it is not consistently applied in the processing of its claims;
• although there was no evidence of serious irregularities occurring through travel claims over the period covered, procedures used to verify and process claims were found to be weak and inconsistently applied;
• supporting documentation for travel claims is not always adequate. Details about the rationale of the travel expenses are sometimes missing and at other times, evidence supporting the expense does not include an original receipt or is missing altogether;
• information on travel expenses is not always accurately recorded in the General Ledger which has an impact on the quality of the information reported in management information reports.

The report recommends the following:

1. A CIHR travel policy supported by detailed procedures in line with the Treasury Board's Travel Directive should be developed and implemented across the organization.
2. CIHR's travel policy and related systems and processes should be developed and implemented to improve efficiency. For example:
   • CIHR's travel policy should address considerations related to the reasonableness of the number of staff attending the same event or meeting;
   • CIHR should explore designing a new travel form to:
     1. reduce paper by combining the pre-approval (GC72) and (GC73) claim forms; and
     2. provide better details on the purpose and itinerary of the trip;
   • to eliminate travel advances, CIHR should explore the possibility of providing relevant staff with a corporate travel credit card; and
   • CIHR should provide corporate calling cards to relevant staff to reduce long-distance fees when business calls are placed from hotels.
3. Training on CIHR's Travel policy and procedures should be provided to relevant staff on a regular basis.
4. Signing authority of the Ottawa-based Institute staff should be clarified with staff and formalized through the Delegation of Financial Signing Authorities that is posted on CIHR's Intranet.
5. The Services and Operations portfolio should strengthen its control for the processing of travel expenses and relevant employees should receive appropriate training on these controls.
6. For teleworkers, a special agreement describing the eligibility of incurred expenses should be developed and approved by Senior Management.
7. The Services and Operations portfolio should ensure that all travel expense claims are submitted with sufficient and appropriate supporting information. Only original receipts should be accepted by Services and Operations.
8. In order to improve the quality of financial information related to travel expenses:
   • CIHR should consider creating sub-accounts under the current travel account (201) for the following:
     1. travel-meals,
     2. travel-lodging, and
     3. travel-transportation.
   • All expenditures related to telework should be separately recorded.
9. Training on the posting of travel expenses should be provided to relevant staff in Services and Operations and regular monitoring performed to minimize risks of financial miscoding.

Management Response

Although management responses for these recommendation are included in the body of this report, management would also like to provide a general response to the observations raised.

Through its Modern Management Initiative, it has been recognized that CIHR's rapid growth required that a comprehensive review of its control framework in respect to operating expenditures was necessary to address the risks associated with an expanding organization and large influx of new employees. As a result the Services and Operations Portfolio has been systematically reviewing its controls and accounting practices in all of its administrative functions. For example, during the past fiscal year, revised policies and procedures were introduced in the following areas: Contracting, Hospitality, Acquisition Cards, Delegation of Financial Signing Authorities, Security Screening, Collaborative Agreements and the Financial Management Accountability and Attestation Framework.

For some of these functions, such as acquisition cards and Delegation of Authority, staff training was made mandatory. Over the next few months, revised policies, procedures and training will be introduced for: Travel, Sponsorships and Conferences, Parking, and Acceptance of Gifts. In addition to these, the specific Modern Management Initiative project will identify other areas of risk to be reviewed.

1.0 Introduction

1.1 Objectives

The objectives of the internal audit were to provide assurance to Senior Management that:

• current travel policies and guidelines are appropriate; and
• the degree to which travel expenses claimed by CIHR personnel are reasonable given the situation, and made in accordance with the appropriate policies and guidelines.

1.2 Criteria

The criteria used for the first objective were as follows:

• policies and guidelines are complete, specific, clear and properly documented;
• policies and guidelines are available and communicated consistently; and
• CIHR's policies and guidelines are consistent, where appropriate, with Treasury Board directives.

For the second objective, the criteria used where as follows:

• proper authorization exists, is verified and exercised in accordance with prescribed directives with sufficient delegation to maintain efficient operations;
• disbursements are supported by proper documentation and duplicate payments prevented;
• disbursements are accurately recorded on a timely basis;
• disbursements are in line with corresponding policies and procedures. Where policies are silent, disbursements are reasonable based on professional judgment; and
• accountability and monitoring of disbursements ensure that responsibilities are clearly defined, communicated, and interpreted in a consistent manner by management and that information produced is used to assess budgetary performance, reasonableness of expenses, and compliance with policies and procedures.

1.3 Scope

The audit included CIHR's staff travel expenses for the period covering April 1, 2002 to September 30, 2003. 

The audit did not include travel expenses for the 13 Institutes, as their operational funds come from a Support Grant. According to the Treasury Board's policy on Transfer Payments, a grant is a transfer payment made to an individual or organization which is not subject to being accounted for or audited but for which eligibility and entitlement may be verified or for which the recipient may need to meet pre-conditions. However, the travel expenses of Ottawa-based Institute staff were included since their operational expenses are provided by CIHR's operational budget.

The audit also did not include non-staff travel expenses.

1.4 Methodology

The methodology followed in carrying-out the audit included the following:

• reviewing both the Treasury Board's Travel Directive and Special Travel Authorities;
• examining CIHR-specific policies (i.e. Travel Expenses Reimbursement Guidelines);
• conducting interviews with selected staff from the Corporate Financial Services unit in the Services and Operations Portfolio;
• documenting and analyzing procedures followed within the Corporate Financial Services unit in the Services and Operations Portfolio for processing travel expense claims and controlling expenditures;
• examining the CIHR's Delegation of Financial Authorities; and
• reviewing and analyzing a sample of CIHR's travel claims processed between April 2002 and September 2003.

2.0 Policy And Procedures

2.1 Conclusion

CIHR uses the Treasury Board's Travel Directive to govern its travel expenses. Another document titled, Travel Expenses Reimbursement Guidelines is used by CIHR for peer review committee members. Both documents are found on CIHR's Intranet, as well as the Government's Accommodation and Car Rental Directory.

While the Treasury Board's Travel Directive is easily accessible to staff, it is not consistently and systematically communicated to staff. In addition, there are no formal procedures in place to ensure consistent and adequate verification and processing of claims. These factors, combined with the lack of training, increases the risk of inconsistent processing of claims, increased costs because of inefficiencies, potentially inaccurate reimbursement of claims, and reduced quality of reported information.

Both the weaknesses, in terms of the application of the policy, and the lack of procedures represent an important risk to the organization. Most of the findings from the audit of the sample resulted from that risk.

2.2 Observations

2.2.1 Completeness and Clarity of Policies and Procedures

There is some confusion with staff with the appropriate use of the Treasury Board's Travel Directive versus the CIHR's Travel Expenses Reimbursement Guidelines; the latter designed for use by members of CIHR external committees including peer review committees.

Furthermore, the absence of procedures results in inconsistent and potentially inefficient treatment of claims by staff.

2.2.2 Availability and Communications

The Treasury Board's Travel Directive is posted on CIHR's Intranet, making it easily available for staff to consult on an as-needed basis. However, over the period examined, no systematic training had been provided to staff even though there was a high proportion of CIHR's staff hired over the last two years.

2.2.3 Lines of Authority

Signatures for the approval of payment claims are verified by staff with the specimen signatures (Form GC136). However, there is no verification done with the Delegation of Financial Signing Authorities, resulting in a number of international trips not pre-approved or approved by the Vice-President responsible as stated in the Delegation.

Lines of accountability are not always clear. For example, most of the claims presented by Ottawa-based Institutes staff (OBIS) were approved by Non-Institute staff.

2.3 Recommendations

R-1 A CIHR's Travel policy supported by detailed procedures in line with the Treasury Board's Travel Directive should be developed and implemented across the organization.

R-2 Training on CIHR's Travel policy and procedures should be provided to relevant staff on a regular basis.

R-3 Signing authority with OBIS staff should be clarified with relevant staff and formalized through the Delegation of Financial Signing Authorities.

2.4 Management Response

R-1 Agreed. A new CIHR Travel Policy has already been developed and will be implemented in May 2004, along with revised and update procedures.

R-2 Agreed. Training sessions for staff on the new travel policy and procedures are scheduled to begin in May, 2004.

R-3 Agreed. Signing authority in respect to travel of OBIS staff will be clarified. However, management does not believe that the Delegation of Signing Authorities needs to be amended in order to clarify these authorities and related procedures.

3.0 Compliance and Reasonableness of Claims

3.1 Controls

3.1.1 Conclusion

While no evidence was found of serious irregularities having occurred through travel claims over the period covered, procedures used to verify and process claims are weak and inconsistently applied.

3.1.2 Observations

The audit revealed a number of instances where travel expense claims indicated a need for better verification regarding the rationale and reasonableness of the claims. Appropriate levels of controls must be strengthened at the time of both the pre-authorization and final authorization of the claim. There were several instances where trips were not pre-approved. Controls should also include verifying the arithmetic and ensuring that sufficient details regarding the purpose of travel be included. This includes verifying the reasonability of the claim and ensuring that the appropriate general ledger accounts are used, while at the same time ensuring compliance with the approved delegation of financial signing authorities.

The weaknesses of controls that are currently in place resulted in finding several claims that were not in compliance with basic rules of the Treasury Board's Travel Directive. For example, the audit revealed the following:

• one claim showed that electronic equipment (1300$) was bought without any explanations;
• several claims included costs for the usage of a rental car without justification;
• some claims included mileage related to the usage of a personal car for long distances without justification;
• two claims included expenses for other individuals; and
• one claim included a cash advance for another person.

There were also several instances where the hotel accommodations were above approved limits without any justification or approval as recommended in the Treasury Board's Travel Directive.

Further, the application of the rule concerning per diems is not consistently applied. As an example, per diems for meals were sometimes used, while at other times, the actual cost of meals was claimed and paid. Sometimes, there was a mix of both. There does not seem to be a common understanding of the Treasury Board's Travel Directive concerning meals. It is often impossible to reconcile meals and incidentals claimed because of the lack of a detailed itinerary.

There is also no policy or system in place within CIHR to ensure that only a reasonable number of employees, assuming that more than one is required, attend the same event or meeting. For example, 15 CIHR employees went to the Biotech conference in Toronto in 2002.

3.1.3 Special Situations

There are some travel situations that might be more related to a telework arrangement rather than travel for business trips. There are also instances where annual blanket pre-authorization forms were found for specific individuals. In these types of situations, controls might be difficult to apply since the individual does not have to justify any of his trips before committing travel expenses. This situation represents a higher risk for the organization and it becomes imperative to have clearly defined managerial accountability that would allow managers to understand the risks of not pre-approving each staff member's trips.

3.1.4 Recommendations

R-4 The Services and Operations portfolio should strengthen its controls for the processing of travel expenditures, and relevant employees should receive appropriate training on these controls.

R-5 For teleworkers, a special agreement describing the eligibility of incurred expenses should be developed and approved by Senior Management.

R-6 A CIHR travel policy, related systems and processes should be developed and implemented to improve efficiency. For example:

• CIHR's travel policy should address considerations related to the reasonableness of the number of staff attending the same event or meeting;
• CIHR should explore designing a new travel form to:
  1. reduce paper by combining the pre-approval form (GC72) and claim form (GC73); and
  2. provide better details on the purpose and itinerary of the trip;
• to eliminate travel advances, CIHR should explore the possibility of providing relevant staff with a Corporate Travel credit card;
• CIHR should ensure the provision of Corporate Calling Cards to reduce long-distance fees when business calls are placed from hotels.

3.1.5 Management Response:

R-4 Agreed. Appropriate procedures will accompany the Travel Policy, and training for both is scheduled for May 2004.

R-5 Agreed. All telework agreements will specifically address procedures in respect to eligibility of travel expenses.

R-6 The CIHR travel policy will address issues of efficiency and economy. Employees
are currently offered Corporate Travel Cards and management will explore the
feasibility making its use mandatory for all travel advances.

Corporate Calling Cards are currently used by the organization. The new procedures and training will reinforce the requirement that they be used to reduce costs.

3.2 Supporting Documentation

3.2.1 Conclusion

Supporting documentation for travel claims is not always adequate.

3.2.2 Observations

The audit sample included a significant number of instances where information and supporting documentation were missing. This included information on critical details of expenditures such as the purpose of the trip and the itinerary of the trip. In a number of instances, personal credit card statements were submitted and accepted instead of the original receipts. Due to the poor quality of the information, it was at times impossible to determine the reasonableness of the claim.

3.2.3 Recommendation

R-7 The Services and Operations portfolio should ensure that all travel expense claims are submitted with sufficient and appropriate supporting information. Only original receipts should be accepted by Services and Operations.

3.2.4 Management Response

R-7 Agreed. We have taken steps to ensure that all travel claims are properly documented. This will also be reinforced in the new procedures and training.

3.3 Information Recording

3.3.1 Conclusion

Financial information is not always accurately recorded in the General Ledger.

3.3.2 Observations

A significant number of transactions are recorded in the wrong general ledger account. There were several instances where the financial coding was inaccurate. Expenses such as conference fees, professional fees, stationery, cell-phone bills, and telework-related expenses or hospitality were coded under Travel expenses. Furthermore, there is only one account code for travel expenses (201) making it impossible to do further analysis of expenses related to transportation, lodging or meals. Inconsistent and inaccurate financial recording hinder effective monitoring, reporting and analysis of travel expenditures. As the number of transactions is large, retrieving this data for analytical purposes from paper files would be very time consuming and inefficient.

3.3.3 Recommendations

R-8 In order to improve the quality of financial information related to travel expenses:
- CIHR should consider creating sub-accounts under the current travel account (201) for the following: (1) travel-meals, (2) travel-lodging, and (3) travel-transportation; and
- all expenditures related to telework should be separately recorded.

R-9 Training on the posting of travel expenses should be provided to relevant staff in Services and Operations and regular monitoring performed to minimize risks of financial miscoding.

3.3.4 Management Response

R-8 We agree that the quality of financial information could be improved. We will explore ways of improving the recording and reporting of information related to travel expenses. We agree that travel expenses related to telework should be reported separately.

R-9 Agreed. Will be addressed through training.

Appendix 1 - For Information

Observations	Number of claims found with observations	Percentage (%)
Number of staff travel claim transactions - April 2002 to September 2003	1547	100 %
Number of claims in sample used for audit	232	15 %
		Percentage of sample
Missing information (rationale, itinerary, etc.)	71	31 %
Transactions recorded in the wrong general ledger account	40	17 %
Trips not pre-approved	26	11 %
Missing supporting documentation	21	9 %
Inconsistency with per diems rule	20	9 %
Usage of rental car without justification and approval	17	7 %
Hotel accommodations above approved limits without any justification or approval	12	5 %
Usage of personal car on long distance trips without justification and approval	10	4 %

Appendix 2 - General Management Response

It was determined that with CIHR's rapid growth, not only in mandate but also in new staff, that a review of the current control framework was warranted. Over the last year we have been systematically reviewing our controls and accounting practices. Based on our analysis of risk areas a number of policies have been clarified and training provided to CIHR staff.

Areas where policies and procedures have been updated, additional tools developed and training provided to staff are: Contracting, Hospitality, Acquisition Cards, Delegation of Signing Authority, Security Screening, Collaborative Agreements and the Financial Management Accountability and Attestation Framework.

The following policies were presented to the Operations Committee for approval at the April 29th meeting; Travel, Sponsorship and Conferences, Parking and Acceptance of Gifts.

In addition a number of initiatives are currently under development: the review of Direct Payments under the Grants and Awards program, development of an Institute Operational Guide, the review of post-award administration, and Meeting and Events Planning.