Audit of Due Diligence

12/7/2014
Audit of Due Diligence
Home > Audits and Evaluations > Audit of Due Diligence
Audit Report on Due Diligence

Final Report
January 2011
TABLE OF CONTENTS
Executive Summary
Audit Objective
Audit Opinion
Statement of Assurance
Summary of Recommendations
Audit Report
Background
Risk assessment
Objectives, Scope, and Approach
Audit Objectives
Scope
Approach/Methodology
Findings, Recommendations and Management Response
APPENDIX A
Management Action Plan
Executive Summary
Audit Objective
The Audit of Due Diligence, which covers the period April 1st, 2007 to March 31st,
2009, was conducted to provide assurance that the Agency has exercised due
diligence in assessing and approving commercial project applications against the
required criteria described in section 2122 of ACOAs Business Development Program
Policies and Procedure Manual.
Audit Opinion
Based on the procedures performed, the Internal Audit Directorate has obtained
sufficient and appropriate audit evidences to conclude that, in general, the Agency
exercised due diligence in assessing and approving commercial project applications in
accordance with section 2122 of ACOAs Business Development Program Policies and
Procedures Manual. However, improvements have been recommended to strengthen
certain elements of the assessment/approval process.
Statement of Assurance
President, Atlantic Canada Opportunities Agency

We have completed the Audit of Due Diligence, which focused on the procedures
performed by account managers when assessing and approving commercial projects
applications.
The overall objective of the audit was to provide assurance that the Agency exercised
due diligence in assessing and approving commercial projects applications against the
Policies and Procedures Manual.
We concluded with a high level of assurance that, in general, the Agency exercised
http://www.acoa-apeca.gc.ca/eng/Accountability/AuditsAndEvaluations/Pages/AuditofDueDiligence.aspx
1/15
12/7/2014
due diligence in assessing and approving commercial project applications in

accordance with section 2122 of ACOAs Business Development Program Policies and
Procedures Manual. However, improvements have been recommended to strengthen
certain elements of the assessment/approval process.
In my professional judgment as Chief Audit Executive, the audit procedures that have
been followed and the evidence that was collected are sufficient and appropriate to
support the accuracy of the opinion stated in this report. This opinion is based on a
comparison of the circumstances, as they existed at the time, with pre-established
auditing criteria accepted by management. This opinion is only applicable to the
subject examined. The evidence was gathered in compliance with the Treasury
Boards Internal Audit Policy, instructions and procedures, and is sufficient to
corroborate the findings and conclusions of this internal audit report.
Chief Audit Executive, Atlantic Canada Opportunities Agency
Summary of Recommendations
The following is a summary of recommendations made to improve the

evaluation/assessment process of commercial projects under BDP (detailed
recommendations can be found within the report).
The level, extent and quality of documentation as part of the project
assessment process should be reviewed, formalized and monitored. Most
of the findings in this report are the result of inconsistent documentation.
We found that account managers usually completed the appropriate steps
as part of their assessment but, often failed to document it. Complete
and accurate documentation is required and should be maintained at all
time as it is an important mitigation measure to prevent errors and
increase the success chances of our programs.
Improvements are required in the way account managers support,
validate and challenge information. IA noted that the information as
provided by the proponents was often used without having been through
a documented challenge process. Since that information is the foundation
of the project assessment process, it is imperative that the Agency
ensures it can be relied upon.
Internal audit (IA) noted that often, no final conclusion is documented as
part of the assessment process. Assessments cant be considered
complete if no conclusion is being made. Having a conclusion at the end
of each assessment shows that we have analyzed the pros and cons of a
situation, taken a position, and that we can defend that position with
sufficient and appropriate evidence. The project summary form (PSF)
that is being used to document project assessments completed by
account managers, should be modified to include a mandatory
conclusion section for each step/part of the assessment process,
including the review and approval by program managers.
Audit Report
Background
The Business Development Program (BDP), was introduced in 1995 to assist

entrepreneurs in the establishment, expansion and modernization of businesses in the
Atlantic Canada region. Focusing on small and medium-sized enterprises, the
program offers access to capital in the form of interest-free, unsecured, repayable
contributions. Non-profit organizations providing support to the business community
are also eligible to receive non-repayable contributions.
2/15
12/7/2014
The BDP is delivered throughout Atlantic Canada through ACOAs regional offices in
each of the four Atlantic Provinces, Head Office and Enterprise Cape Breton
Corporation (ECBC). Applications for contributions are submitted to the Agency by
project proponents, and are subsequently assessed by ACOA, in accordance with
Agency guidelines.
This engagement was included in the 2009-2010 Agencys Audit Plan and was
recommended by the Departmental Audit Committee and approved by the President.
The audit was conducted during the period August 2009 through March 2010, and
covered contributions approved during the period April 1st, 2007 to March 31st, 2009.
The audit consisted of the review and inspection of commercial project files in all four
regional offices and ECBC. Discussions, enquiries and corroborating activities were
also performed over a pre-established sample of approved contributions. Selected
projects were examined in detail to evaluate the extent and the quality of the due
diligence procedures including the assessment of eligibility, incrementality,
commercial viability, net economic benefits, repayability, stacking and amendments.
Risk assessment
Internal audit conducted an assessment, based on Treasury Boards Core Controls

Framework, of the risks relevant to due diligence assessment criteria for commercial
projects approved under BDP.
Risk assessment considerations vary considerably for commercial vs. noncommercial applications. As part of our risk assessment process, we considered each
criterion under which a commercial project submitted for funding is assessed against.
Risks were identified in terms of eligibility, incrementality, net economic benefits,
commercial viability, stacking, repayability and amendments. Finally, ACOAs
strategic business risks were also taken in consideration in the development of the
audit risks, our approach and procedures.
Over the past five years, the Agency approved contributions under the BDP as
follows:
Commercial Projects Approved under BDP
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

$
$
$
$
$
New Brunswick
19,804,355 20,156,040 18,314,388 16,688,279 15,954,999
Prince Edward Island
8,377,537 6,745,356 3,850,334 4,383,064 11,093,622
Nova Scotia
23,345,365 17,716,758 9,495,304 15,740,366 13,672,603
Newfoundland
25,475,701 19,804,711 24,415,564 13,735,350 18,769,433
Enterprise Cap Breton
6,961,391 2,754,595 1,856,919 3,649,192 3,273,061
Head Office
9,000,000
0
0
0
0
Objectives, Scope, and Approach
Audit Objectives
The overall objective of the audit was to provide assurance that the Agency exercised
due diligence in assessing and approving commercial project applications against the
(BDP) Policies and Procedures Manual.
A number of sub-objectives reflecting the content of section 2122 were also
established as part of this audit, specifically to obtain sufficient/appropriate audit
evidence that:
commercial projects approved for funding are eligible under the Business
Development Program (BDP).
3/15
12/7/2014
the incrementality of projects approved for funding was properly

assessed prior to any assistance being provided.
the commercial viability of projects approved for funding has been
properly assessed prior to any assistance being provided.
the net economic benefits of projects approved for funding has been
properly assessed prior of any assistance being provided.
the repayability of projects approved for funding was properly assessed
prior to any assistance being provided.
the due diligence procedures or assessment criteria were adequately
revisited when amendments were made to a project prior to any
assistance being provided.
guidelines in respect of stacking of government support have been
adhered to prior to any assistance being provided.
(See Appendix A for audit criteria.)
Scope
The scope of this audit was established as all re-payable contributions funded by the
Business Development Program that were approved during the period commencing on
April 1, 2007 and ending on March 31, 2009.
Approach/Methodology
Our approach consisted of a mix of control testing and substantive procedures. A visit
to each regional office was made to:
discuss with management the objectives of the Business Development
Program and the due diligence procedures performed when assessing a
new project;
conduct interviews with management to obtain an understanding of the
program, processes and controls in place; and
complete a detailed examination of project files to ensure compliance
with program guidelines and terms and conditions as per section 2122 of
the BDP Policy and Procedures manual.
Findings, Recommendations and Management Response
Audit Sub-Objective 1
To obtain sufficient/appropriate audit evidence those commercial projects
approved for funding are eligible under the Business Development Program
(BDP).
As is the case for most governmental programs, eligibility of proponents is an
important factor to consider when making an investment decision.
Support under BDP is made available to both commercial and non-commercial
operations, though is primarily directed to small or medium-sized enterprises
(SMEs). Eligibility is also defined in terms of eligible sectors, sensitive sectors and
strategic initiatives.
Criterion 1.0 All information critical to project decisions should be consistently
and accurately documented on the Project Summary Form (PSF), or in the
project file.
Based on the audit procedures performed, we obtained sufficient/appropriate audit
evidence to conclude that in general, the information critical to project decisions in
respect of eligibility was not always fully documented on the Project Summary Form
(PSF), or in the project file. The absence of such documentation could result in
ineligible projects being approved for funding. Specifically, we noted the following:
Client Profile
4/15
12/7/2014
We noted that the client profile section of the PSF was not always fully completed.
More specifically, IA found that the information provided often did not include
sufficient details of corporate structure, financial situation or other valuable
information. We also found that this section was sometimes limited to a copy and
paste of the information from the business plan, as provided by the proponent. Copy
and paste could be acceptable, as long as the information is complete, challenged and
supported.
Small and Medium Enterprises
The BDP is intended to contribute to the economic development of Atlantic Canada,
with particular emphasis on providing support to small- and medium-sized
enterprises (SME). As a result, account managers should provide clear evidence that
this criterion was taken in consideration by documenting whether or not and how the
proponent met the definition of an SME. During our audit, we noted that
improvements in the quality and completeness of the documentation to support the
assessment of this criterion could be made.
Conclusions
In general, account managers do a good job analyzing the eligibility of their projects,
however, they often fail to fully document the procedures performed and to conclude
on their assessment.
Key recommendations requiring management attention:
More attention should be given to the profile section of the PSF. By
definition, a good profile provides a concise overview of key information
containing at a minimum: clients history, ownership structure, highlights
of financial performance, physical and human resources, its reputation as
well as the standing of its goods and services, and other relevant
information.
Although it may appear evident that a client meets the definition of an
SME, the results of assessing whether a proponent meets the SME
definition should be clearly documented in the PSF to support and
demonstrate accordance with BDP 2122 (a). The same is also true when
a contribution is made to a client that does not appear to meet that
definition.
Measures should be taken to encourage account managers to conclude on
each step/part of the assessment process. In addition, minimum level of
analysis/documentation should be established for all key areas of
commercial file assessments.
Criterion 1.1 A complete application form was provided by the applicant and
was used by the account manager to enter complete and accurate information
in the Q Access system in accordance with BDP policy 2131 (a) Processing of
Applications.
BPD policy 2131(a) does not require a complete application form in order for an
account manager to assess a new project but, provides guidance and procedures to
ensure the Agency is following a consistent and standardized process to record
applications in Q Access. These procedures involve the handling and processing of an
application prior to its submission for assessment and dealing with the clients to
collect proper information and monitor the evolution of a file.
Based on the audit procedures performed, we obtained sufficient/appropriate audit
evidence to conclude that a complete application form is not always obtained.
However, missing information is usually available elsewhere in the project files.
Consistency between application form and PSF
We observed several instances where the information obtained in the application
form was different than what was entered in the PSF. For example, we noted changes
in management ownership, different breakdowns of costs associated with projects,
entities legal names, etc. Such differences should be clearly acknowledged and
5/15
12/7/2014
explained in the PSF as it could impact final funding decision.

Missing information
We noted that some information missing on the application form was not always
obtained by account managers during the evaluation phase of a project and
sometimes, was never requested. Such missing information varied from project to
project, but included such types as business number, potential sources of financing,
number of employees, etc. Although current policy does not require the application
form to be complete before we process it, the importance of properly capturing all
the required information at an early stage of the project evaluation process cannot be
over-emphasized as it is necessary to ensure consistent dealing with clients and an
accurate/complete assessment. Each project file should stand alone in providing full
rationale and documentation of investment decisions.
Signing Authority of the applicant
It was noted that it is not a current practice to ensure an applicant has the proper
signing authority when applying for funding. This could result in invalid contribution
agreements and a risk of fraud and loss for the Agency. Since this signature is at the
foundation of our lending agreement, it is essential that legality of the Agencys
letters of offer be established.
Independence of account managers
There is currently no process in place to ascertain that account managers (and other
level of approval) are involved at strict arms length business relationship with
clients, other than compliance with the current code of ethics. This situation could
result in inappropriate contributions being made to related parties which could impact
the reputation of the Agency.
Independence is potentially affected by self-interest, self review, advocacy,
familiarity and intimidation threats.
The mere existence of a threat to independence does not mean that an account
manager must decline or stop a project. The undertaking or continuation of the
project with a proponent is only precluded where safeguards are not available to
eliminate or reduce the threats to an acceptable level or where a specific prohibition
exists. When threats are identified, other than those that are clearly insignificant,
appropriate safeguards should be identified and applied to eliminate the threats or
reduce them to an acceptable level. The nature of the safeguards to be applied will
vary depending upon the circumstances.
Material differences between the information received on the application
form and the one documented in the PSF should be clearly identified and
explained.
Procedures should be implemented so that signing authority is verified
and confirmed before finalizing an investment decision. If more than one
shareholder exists, signing authorities should be confirmed in writing by
all shareholders and regular monitoring should be performed. Legal
advises should also be obtained in that area.
Recommendations for improvement:
Measures need to be implemented to ensure that incomplete applications
are followed up and that necessary information/data is obtained and
recorded in our database and that any information necessary to the
evaluation process is obtained and on file.
Account managers should be responsible to assess and document their
independence as well as the independence of any other person involved
in the assessment of a project. More specifically, account managers
should document their identification and evaluation of circumstances and
relationships that create threats to independence, as well as the actions
taken to eliminate these threats or to reduce them to an acceptable level
through the application of safeguards. A new section of PSF or a new
6/15
12/7/2014
form could be created for that purpose and included in each project file.
Criterion 1.2 An environmental assessment was completed in sufficient detail
to respond to and meet the requirements of The Canadian Environmental Act,
which establishes legislated responsibilities and procedures for environmental
assessments and the Canadian Environmental Assessment Agency.
Based on the audit procedures performed, we concluded that environmental
assessments were completed in sufficient detail to respond to and meet the
requirements of the Canadian Environmental Act, which establishes legislated
responsibilities and procedures for environmental assessments and the Canadian
Environmental Assessment Agency.
Criterion 1.3 Clients meet the eligibility criteria - BDP 2021(a).
Based on the audit procedures performed, we concluded that clients approved for
funding met the eligibility criteria as per BDP policy 2021 (a) Eligible Applicants.
However, opportunities for improvements were identified in the way account
managers support and document the information used as part of their assessment.
Costs Supporting Documentation
In general, account managers properly assessed and documented the costs
associated with projects that were deemed eligible. However, IA noted instances
where project files did not provide evidence that account managers had challenged
the information provided by the proponents, as part of the eligibility assessment
process. For example, there was not always supporting documentation used to assess
the accuracy or reasonability of costs, other than the business plan provided by the
proponent.
Corporate Registry Search
We noted that corporate registry searches were not always performed when
assessing new applications or were not always up to date. Performing corporate
registry searches is an effective way to validate and support information provided by
the proponent. Also, it provides an opportunity to verify the existence of the company
and the accuracy of its legal structure/name.
Because the accuracy of the information used in evaluating an investment decision is
critical to properly assessing the risk of projects, it is important that the information
provided by proponents be assessed not only in terms of eligibility, but also for its
accuracy.
Although the BDP Policy and Procedures manual suggests obtaining
external documents to support project costing, the final decision is left to
the accounts manager judgment. Current policy should be revised to
clarify minimum requirements in terms of appropriate supporting
information and appropriate third party evidences. For example, the
documentation level of evidences that project costs are challenged for
accuracy and reasonableness should be communicated to account
managers.
Corporate registry searches should be performed with all new
applications and should be closely compared to the information provided
by the proponent. All discrepancies should be investigated in detail
before finalizing the investment decision. Furthermore, those corporate
registry searches should be updated/reviewed on a regular basis. For
projects that are delayed before final funding approval is obtained, a
time limit should be established to determine the duration of which
corporate registry searches can be relied upon without performing a new
search.
To obtain sufficient/appropriate audit evidence that incrementality of projects
7/15
12/7/2014
approved for funding has been properly assessed prior to any assistance being
provided.
Incrementality is defined in terms of an applicants intent and/or ability to proceed
with a project at the proposed location and/or within the proposed time-frame and
scope without government assistance.
Based on the audit procedures performed, IA concluded those commercial projects
approved for funding under Business Development Program (BDP) were incremental,
though opportunities for improvement of the assessment of incrementality were
identified which warrant managements attention.
Criterion 2.0 The project was assessed against criteria relating to
incrementality/need -BDP 2122(a)
Based on the audit procedures performed, we concluded that, in general, projects
were assessed against criteria relating to incrementality/need as referred to in the
Business Development Program section 2122 (a). Though IA was generally able to
conclude that the incrementality criterion was met, we were unable, in many cases to
clearly identify which criteria were used to evaluate the incrementality of the
projects. The impact of ACOAs contribution on the scope and timing of projects as
well as factors such as the existence of other potential lenders, the steps taken by
the proponent to identify other potential sources of financing and/or the existence of
prior commitments, was rarely documented.
As per the policy, assessment of incrementality should be predicated on
the Applicants statement and should be substantiated through review of
the Applicants alternative investment opportunities and options, financial
projections and requirements, availability of financing, and whether
irreversible commitments for significant project costs are in place.
Evidence of this assessment should be documented on project files.
A minimum level of procedures to be completed should be presented in
the policy or in a pre-designed template to ascertain an acceptable level
of analysis and quality. Standardized documentation methodology should
be developed and re-enforced with account managers.
To obtain sufficient/appropriate audit evidence that the commercial viability of
projects approved for funding has been properly assessed prior to any
Commercial viability is to be assessed to provide reasonable assurance of the
Applicants ability to remain as a going concern. The ongoing viability of an applicant
must be clearly demonstrated, taking into consideration such factors as project
definition, financial position, availability of other financing, projected operating
results, management capabilities, availability of markets, market strategy and
implementation plan, and operational requirements.
Based on the audit procedures performed, IA concluded that commercial projects
approved for funding under Business Development Program (BDP) were properly
assessed in terms of commercial viability prior to any assistance provided, though
opportunities for improvement of were identified which warrant managements
attention.
Criterion 3.0 The project was assessed against criteria pertaining to
viability/overall risk assessment BDP 2122 (a).
Based on the audit procedures performed, we concluded that, in general, projects
8/15
12/7/2014
were assessed against criteria pertaining to viability/overall risk assessment as

referred to in the Business Development Program section 2122(a). However,
opportunities for improvements were identified in the way account managers support
and document the information used as part of their assessment:
Supporting information
IA noted instances where account managers did not fully document or support their
analysis of the information provided by the proponents, as part of the commercial
viability and risk assessment process. This could result in inappropriate decisions
being made based due to the wrong information being used. Although each project
was usually analyzed at a high level, a detailed analysis would have been more
appropriate.
Credit checks
Credit checks are a good tool in assessing the credit risk related to a proponent,
though they are not always performed and/or updated in a timely manner. This could
result in an increase of the risk exposure faced by the Agency and could provide an
incomplete picture of the commercial risk related to a proponent and its project.
Reasonableness of estimates and information
IA noted that account managers often do not comment and/or conclude on the
reasonableness of estimates/information. It often appeared that reliance was placed
on the information provided by the proponents, without being fully challenged. This
could result in overall risk assessment being inappropriate or unsupported. Also, IA
noted that the analysis prepared by account managers was sometimes a copy/paste
of the information provided by the proponents in their business plans, without
supporting/validating information. As stated in the policy, the ongoing viability of an
applicant must be clearly demonstrated, taking into consideration a variety of factors
including, but not limited to, the financial position of the proponent, availability of
financing, and projected operating results.
Risk levels
Risk levels are not always fully supported and rationale is not always provided. For
example, IA noted instances where factors suggesting a higher risk than the one
rated by the account managers were present in the file but were not commented on.
Such factors could include the existence of market, current economy, product
obsolescence, quality of experience and expertise of management, the
reasonableness of financial projections, etc.
Sensitivity analysis
The PSF module in Q Access currently offers a function that provides the account
manager with the option of completing a sensitivity analysis. In our view, the
usefulness of this tool is diminished due to insufficient variations in activity levels
being considered, the inability to incorporate less favorable cost structures into the
analyses and the lack of specific conclusions in respect of the sensitivity of projected
results.
Minimum levels of analysis/documentation and support should be
established for all key areas of commercial file assessment including:
Financial analysis (assessing reasonability of information
available using supporting documentation.)
Management/ownership (Have we demonstrated/supported
in the PSF that the client has the right people/structure to be
successful with the proposed project?)
Market/completion (Is the current market favorable to such
project? Can we support our analysis with actual facts from
reliable sources such as eMentor?)
Operation/facility (Have we demonstrated/supported in the
PSF that the project and related financial projections make
business sense based on the current operations and facility
of the proponent?)
9/15
12/7/2014
Environmental management (Have we considered any

potential environmental risks that could require future
investments? Do we need mitigation measures to mitigate
any environmental risk? Was the financial and business
impact considered?)
Credit checks should be performed for all new applications. A defined
timeframe should be established to determine how long credit checks can
be relied upon, and how often they should be updated.
Since risk levels can impact the level of mitigation measures to be added
to the letter of offer and the monitoring frequency of a project, it is
important that the rationale behind our assessment be documented in the
file. In order to facilitate documentation, rationale behind the risk
assessment should be documented and linked to the guidelines available
in section 2121(c) of the BDP. Evidence of review / re-assessment as
appropriate should be easily identifiable.
The sensitivity analysis tool in the PSF module in Q Access should be
modified in order to provide account managers with more flexibility.
Measures should be implemented to ensure account managers properly
document their review of the financial information (including estimates)
and their assessment of the Applicants ability to remain as a going
concern.
An official structure for mounting files should be established and followed
by each region. This approach would ensure consistency across the
regions and also improve monitoring efficiency and quality since it would
facilitate identifying missing information and monitoring. IA has identified
as a best practice the structure used by Enterprise Cape Breton
Corporation (ECBC) where each project is usually associated with 2 to 3
files:
Project File including:
Application & Acknowledgment Letter For the signed
application and the generated letters to the client indicating
receipt of application, assigned project number, etc.
Business Plan Client submitted Business Plan and any
amendments or adjustments to the plan
Environmental Request (CEAA) All CEAA related
correspondence and conclusions including exclusions,
mitigation measures, etc
Statements/Analysis/Projections Analysis of the business
plan or projections and any other statements submitted in
support of the business plan.
Registry of Joint Stocks A print out of the province
Registry of Joint Stocks to ensure client is still active.
Correspondence All correspondence with client regarding
project including, email, letters, fax, and details of pertinent
telephone conversations
Credit Checks Equifax reports performed on the applicant
and related companies and owners, if applicable.
Policies A copy of the policies being used to support the
project, including program guidelines, sectors of interest,
minimum equity, etc.
Financial Statements Historical financial statements
submitted in support of the application and any coapplicants, subsidiaries, or related companys if applicable.
File Review Checklist of required information required to
10/15
12/7/2014
complete the file and assessment

PSF Completed PSF with signed recommendation of proper
signing authorities
Letter of Offer Letter of Offer sent to the client
Client File including:
Financial statements
Insurance documents
Subordination agreement
Copies of memos
Monitoring reports
Legal File (when appropriate) including:
Postponement agreements
Intercreditor agreements
To obtain sufficient/appropriate audit evidence that the net economic benefits
of projects approved for funding has been properly assessed prior of any
Net economic benefits of a project are to be assessed in terms of the contribution to
the net economic benefit to a region, Atlantic Canada and, in the case of large
projects, to Canada. Benefits are to be assessed in terms of success indicators which
best reflect the intended results of the project in support of the Agencys Strategic
Priorities.
Criterion 4.0 The project was assessed against criteria relating to net
economic benefits to the Atlantic Region - BDP 2122 (a).
Based on the audit procedures performed, IA concluded that projects are properly
assessed against criteria relating to net economic benefits to the Atlantic Region as
referred to in the Business Development Program section 2122 (a).
To obtain sufficient/appropriate audit evidence that the repayability of projects
approved for funding was properly assessed prior to any assistance being
provided.
The Agency expects that each individual repayable contribution will be approved on
the basis of a stringent due-diligence process which concludes that there is a
reasonable assurance of long-term success of the business and repayment of the
contribution. The ability of the Applicant to repay the Agencys contribution is based
on assessing potential profitability, cash-flows and debt servicing ability.
Criterion 5.0 The analysis prepared by the account manager is sufficient and
appropriate to conclude that repayability of the contribution can be/should be
expected.
Based on the audit procedures performed, we concluded ACOA debt servicing
obligations are embedded in cash flow analysis, therefore indicating that repayment
can be expected; however account managers often fail to document or support their
analysis of projected cash flows or to conclude on their reasonableness.
Any analysis should be complemented with an appropriate conclusion. No
further action is required since this criterion will be met once the areas
for improvement noted in each section of this report have been
11/15
12/7/2014
addressed.
Criterion 5.1 Appropriate measures are taken by the account manager to
significantly decrease the risk of delinquent payments.
Based on the audit procedures performed, we concluded that account managers do,
based on their analysis and the information available, take appropriate measures to
significantly reduce the risk of delinquent payments. This was evident in the
conditions added to and the quality of each letter of offer.
To obtain sufficient/appropriate audit evidence that due diligence procedures
or assessments criteria were adequately revisited when amendments were
made to a project prior to any assistance being provided.
Amendments are created on a regular basis as part of the BDP management process.
In fact, the majority of the files reviewed as part of this audit had several
amendments. Amendments can be considered either substantive (major changes such
as contribution amount, completion period, funding sources, etc) or non-substantive
(change in names, addition of consultant, minor changes in the statement of work,
etc).
Criterion 6.0 Account managers perform sufficient and appropriate due
diligence procedures to support project amendments.
Based on the audit procedures performed, we concluded that in general, appropriate
due diligence procedures are performed by account managers in order to support
project amendments.
However, opportunities for improvement were noted. More specifically, IA noted
some instances where account managers did not properly support or challenge the
information provided by a proponent, as part of an amendment. We also noted that
the degree and the extent of the documentation level related to amendments varies
considerably from one engagement to the next, and between account managers.
Although amendments are appropriate based on the information received by the
account manager, the same level of due diligence should be applied to proposed
changes as was applied initially to the original assessment.
Measures should be taken to clearly establish and state the minimum
level of due diligence procedures to be performed, based on the type of
amendments. (Third party verifications to be completed, standards for
credit checks and registry check, third party confirmations, etc.)
Although the policy clearly states that project evaluation should be
tailored to the nature, size and scope of the project, using professional
judgment, the appropriateness/reasonableness of that professional
judgment was not always consistent. As a result, BDP policy requiring
accounts managers to validate/support the information used as part of
their due diligence procedures should be reviewed reinforced and
followed more closely.
Files should be organized in such a way that amendments and
documentation supporting the decision can easily be referenced and the
approach should be consistent across all regions.
To obtain sufficient/appropriate audit evidence that guidelines in respect of the
stacking of government support have been adhered to prior to any assistance
being provided.
The Treasury Board guideline on the Directive on Transfer Payments which addresses
stacking limits applies to industrial development, regional assistance and research
12/15
12/7/2014
programs operated by the federal government. The policy is based on the principle
that the total amount of government support towards projects undertaken by the
private sector will not exceed certain specified limits, unless the Minister responsible
authorizes a higher limit. Also, the objective of this policy is to ensure that the
private sector bears part of the financial risk.
Criterion 7.0 The project follows the policy and guidelines for the stacking of
government support and the minimum level of equity - BDP 2031(b) and 2121
(b).
Based on the audit procedures performed, we concluded that account managers
perform an accurate analysis of stacking. However, a conclusion is often missing. As
a result, opportunities for improvement exist in respect of the quality and extent of
documentation.
Account managers should be reminded that conclusions must be made,
documented and supported for each assessment criteria as part of BDP
project assessment.
To obtain sufficient/appropriate audit evidence that the quality of the project
assessment process is controlled by an overall review completed by Program
Managers.
Program managers review of the PSFs and project assessments prepared by account
managers is an essential quality control that protects both the interest of the Agency
and the proponents.
Criterion 8.0 Program managers review of account managers assessment of
commercial projects submitted for funding is sufficient to ensure minimum
quality standards are met and an accurate/fair evaluation of each project was
completed.
Based on the audit procedures performed, we concluded that the review process of
program managers to review account managers assessment of commercial projects
submitted for funding does not operate effectively as it does not prevent adequately
minimum quality standards from not being met and inaccuracies during the
evaluation of each project.
More specifically, we were unable to determine the extent to which account manager
analysis and conclusions are reviewed and challenged by program managers prior to
approval.
We have noted, throughout this report numerous instances where we believe that the
documentation of account managers due diligence procedures could be improved in
respect of required project assessment criteria. We believe that it is equally
important that program managers review be similarly documented.
Based on the previous observations made in this report, we recommend
that the review process for program managers be reviewed and clarified.
More specifically, more guidelines should be developed and minimum
steps and documentation level should be established as part of program
managers review and approval process.
APPENDIX A
OVERALL OBJECTIVE:
13/15
12/7/2014
To provide assurance that the Agency exercised due diligence in assessing and
approving commercial project applications against the required criteria described in
section 2122 of ACOAs Business Development Program Policies and Procedures
Manual.
Sub-objective 1
Obtain sufficient/appropriate audit evidence those commercial projects approved for
funding are eligible under the Business Development Program (BDP).
Criterion 1.0
All information critical to project decisions should be consistently and accurately
documented on the Project Summary Form (PSF), or in the project file.
Criterion 1.1
A complete application form was provided by the applicant and was used by the
account manager to enter complete and accurate information in the Q Access system
in accordance with BDP policy 2131 (a) Processing of Applications.
Criterion 1.2
An environmental assessment was completed in sufficient detail to respond to and
meet the requirements of The Canadian Environmental Act, which establishes
legislated responsibilities and procedures for environmental assessments and the
Canadian Environmental Assessment Agency.
Criterion 1.3
Clients meet the eligibility criteria -BDP 2021(a)
Sub-objective 2
Obtain sufficient/appropriate audit evidence that the incrementality of projects
approved for funding was properly assessed prior to any assistance being provided.
Criterion 2.0
The project was assessed against criteria relating to incrementality/need BDP 2122
(a).
Sub-objective 3
Obtain sufficient/appropriate audit evidence that the commercial viability of projects
approved for funding has been properly assessed prior to any assistance provided.
Criterion 3.0
The project was assessed against criteria pertaining to viability/overall risk
assessment BDP 2122 (a).
Sub-objective 4
Obtain sufficient/appropriate audit evidence that the net economic benefits of projects
approved for funding has been properly assessed prior of any assistance being
provided.
Criterion 4.0 The project was assessed against criteria relating to net economic
benefit to the Atlantic Region - BDP 2122 (a).
Sub-objective 5
Obtain sufficient/appropriate audit evidence and provide assurance that the
repayability of projects approved for funding was properly assessed prior to any
Criterion 5.0
The analysis prepared by the account manager is sufficient and appropriate to
conclude that re-playability of the contribution can be/should be expected.
Criterion 5.1
Appropriate measures are taken by the account manager to significantly decrease the
14/15
12/7/2014
risk of delinquent payments.

Sub-objective 6
Obtain sufficient/appropriate audit evidence and provide assurance that the due
diligence procedures or assessment criteria were adequately revisited when
amendments were made to a project prior to any assistance being provided.
Criterion 6.0
The account manager in charge of a project will perform sufficient and appropriate
due diligence procedures in order to support a project amendment.
Sub-objective 7
To obtain sufficient/appropriate audit evidence that guidelines in respect of the
stacking of government support have been adhered to prior to any assistance being
provided.
Criterion 7.0
The project follows the policy and guidelines for the stacking of government support
and the minimum level of equity - BDP 2031(b) and 2121 (b)).
Date Modified: 2012-03-28
15/15

Audit of Due Diligence

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Audit of Due Diligence

Enviado por

Direitos autorais:

Formatos disponíveis

12/7/2014