ARCHIVED - Report on Recipient Audit of Kinonjeoshtegon First Nation
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Name: Kinonjeoshtegon First Nation Location: Manitoba Population: 351 on reserve; 736 total registered Default status at time of audit: Not in default (2012-2013) Current default status: Recipient Managed (2015-2016) Current Chief: David Traverse Time period covered by audit: April, 1 2011 to March 31, 2013 Amount of AANDC funding audited: $6,786,989
Aboriginal Affairs and Northern Development Canada (AANDC) selected the Kinonjeoshtegon First Nation for a recipient audit in 2013-14 based on their 2012-2013 risk assessment score and other risk factors.
This recipient audit was undertaken to:
Ensure compliance with the Terms and Conditions of the AANDC Funding Agreement;
Ensure compliance with Treasury Board and AANDC policies and directives;
Evaluate efficiency and effectiveness of the financial management framework in place to manage the programs, as well as the recipient's organizational capacity; and
Assess the adequacy of the financial control measures and mechanisms in place the manage risks effectively.
Spearhead Canada Management Ltd, an independent audit firm was commissioned to undertake the recipient audit, which took place in March 2014.
The Recipient has a weak financial framework in place to administer the Programs. The decentralization of the financial function reduces the effectiveness of the Recipient to support amounts claimed. While the personnel assigned to the Programs are knowledgeable in program delivery, they were not involved in budget implementation and monitoring, thereby reducing accountability at that level. A Management Action Plan (MAP) was adopted on July 29, 2013 to improve governance, financial controls and reporting issues.
The audit used of a sample of transactions resulted in 41% of items sampled for 2011-2012 and 33% of items sampled for 2012-2013 being disallowed for lack of proper support documentation. The auditors cannot therefore provide assurance that overall, funds were expended for their intended purposes.
The audit identified that expenditures in the amount of $124,682 were not in compliance with the funding arrangement and are potentially recoverable.
Governance by Chief and Council
The Kinonjeoshtegon First Nation is governed by a Chief and four Councillors elected for a two year term until the March 27, 2015. The Council holds meetings to discuss the operations of the Band but there are no formal minutes of discussions held or decisions adopted by Council. The Controller who attends the meetings takes personal notes to document the decisions taken by Council but even these notes are not transferred to a formal document and reviewed and signed by Council to provide an official record of the decisions adopted.
The Finance Department is solely managed by the Controller of Finance who works out of his home in Winnipeg. With 47 employees and the decentralization of supporting documentation, the Finance Department is understaffed and poorly structured.
Band Management and Operational Planning
Kinonjeoshtegon First Nation is currently under a Recipient managed Management Action Plan (MAP) and was previously under a Remedial Management Plan for many years. The main areas of concerns include: deteriorating financial positions, lack of liquidity and working capital, significant outstanding vendor payments and tuition arrears, lack of comprehensive budgeting and financial controls, especially at the program level, as well as late reporting issues. With the introduction of the MAP, efforts are being made to prepare Work Plans and to link them to budgets and activities.
Review of Program Expenditures
In addition to the review of the internal controls in place to support delivery of the Funding Arrangement, the audit selected a risk-based judgmental sample of transactions to audit. From the sample selection, the auditors found 67 transactions that were not compliant with the eligibility criteria of the various programs, resulting in a compliance rate of 63.4%.
The following recommendations are formulated to address the issues identified in the report and to help strengthen the existing internal controls in place to deliver the programs:
It is recommended that the Chief and Council document the Council meetings through the preparation and approval of minutes and Band Resolutions that will be retained as official records of their meetings.
It is recommended that the Recipient review the finance function within the organization to ensure that it operates efficiently and introduces the controls that will support the delivery of the Programs.
It is recommended that the Recipient invest the resources necessary to implement the Management Action Plan as quickly as possible to improve the overall management framework and financial viability of the Band.
It is recommended that the Recipient continue with the development and implementation of work plans to support the delivery of Programs.
It is recommended that the Recipient develop and implement policies and procedures necessary to support the delivery of the Programs and that they be reviewed annually to ensure their relevance.
It is recommended that Program Managers participate in the budgeting process and be made accountable by monitoring the financial results of their Programs on a monthly basis.
It is recommended that the Recipient ensure that the chart of accounts in the accounting system is set up to match funding arrangement to support the monitoring of budgets and identify surplus at year end.
It is recommended that the Recipient ensure that funds received are used to deliver the Programs that the funds were secured for to guarantee timely delivery of the Programs.
It is recommended that the Chief or one of the Councillors review and approve all bank reconciliations on a monthly basis.
It is recommended that Kinonjeoshtegon First Nation immediately cease the practice of borrowing money from the Controller and family members.
It is recommended that the Recipient develop a purchasing process supported by an appropriate level of approval authority.
It is recommended that the Controller ensure that proper documentation and approval support the demands for payment of supplier invoices.
It is recommended that the Recipient establish a formal basis to support the administration costs charged to the Programs.
It is recommended that the Recipient ensure that teachers' attendance register is retained for seven years as required by the Contribution Agreement.
It is recommended that the Recipient develop a central filing system that will ensure that support documentation for all transactions is retained and available on a timely basis.
It is recommended that the Recipient pursue its efforts to produce required reports on time and resolve long outstanding reports with AANDC.
A copy of the final report was sent to the Recipient. A potentially recoverable amount of $124,682 has been identified. The Department is working with the Recipient to examine the factors that may result in an adjustment to the final recoverable amount, and to develop a repayment schedule and an action plan to address the recommendations.