Report on Recipient Audit of Montreal Lake Band
Name: Montreal Lake Band
Population: 2,027 on reserve; 3,678 total registered
Location: Saskatchewan
Default status at time of audit: Recipient Managed (2011-2012)
Current default status: Recipient Managed (2012-2013)
Current Chief: Edward Henderson
Time period covered by audit: April 1, 2010 to March 31, 2012
Amount of AANDC funding audited: $24,511,094.55
BACKGROUND
Aboriginal Affairs and Northern Development Canada (AANDC) selected the Montreal Lake Band in Saskatchewan for a recipient audit in 2012-2013 based on their 2011-2012 risk assessment score and other risk factors.
The objective of the recipient audit was to provide assurance that funding provided to the recipient was spent for its intended purposes and was in compliance with the terms and conditions of the 2010-2011 and 2011-2012 Funding Agreements with AANDC. The objective was achieved through:
- Examination of the effectiveness of the operations of the Financial Management Control Framework in place at the First Nation; and
- Conduct of a compliance review on the eligibility of the expenditures claimed under the terms and conditions of the Funding Agreements.
KPMG, an independent audit firm, was commissioned to undertake the recipient audit. The audit took place in the winter of 2013.
FINDINGS
The audit identified control weaknesses within governance, expenditure oversight and financial management that, if well designed and operating effectively, would help ensure funds were spent for the intended purpose and in compliance with funding agreements.
A sample of 1% of the in-scope funding identified compliance of 20% (based on the dollar amount of samples reviewed) with the intended purpose and terms and conditions of the applicable funding agreements signed with AANDC over the in-scope audit period. The audit identified that expenditures in the amount of $156,756 were not in compliance with the funding agreement and are potentially recoverable.
Governance
Montreal Lake Band consists of two communities: Little Red River Reserve and the Montreal Lake Reserve. There is no central operation to oversee the administrative activities of the two communities. Each community has separate funding streams, financial controls and reporting.
The audit found that the Chief and Council hired a Band Manager at the beginning of fiscal year 2012-13, and band management is in the process of completing and implementing a number of policies related to: financial management regulations, band management and capacity development, conflict of interest, and codes of ethics. However, it was noted that there is a need to improve the Chief and Council's governance of band programs and the administration and support for compliance with the Funding Agreement with AANDC.
Opportunities observed for improvement include:
- Minutes of Chief and Band Council meetings as well as Band Council Resolutions for the period under scope could not be located.
- As per the Management Action Plan (2008-2014), Chief and Council were to establish a Finance Committee responsible for the approval of annual budgets and monthly review of results of operations. The audit found no evidence that such a committee has been established, or that Chief and Council review financial information on a regular basis.
- Audited financial statements were not posted on the band's website for the two fiscal years under scope, although they had been in the past. The audit was not able to obtain any evidence to demonstrate that these statements were either presented or made available to Band members.
- The roles of Chief and Council and Band Management are not clearly documented and communicated.
Strategic and Operational Planning
The audit found that Chief and Council and Band Management do not have a strategic plan that documents and communicates the strategic objectives for the programs and services provided to members, as was a requirement under the Management Action Plan. In addition, although some operational plans have been established, they do not appear to be adequate as they do not provide detail on how programs and services provided to the Members will be delivered.
Band Management
The audit found limited evidence of the existence of key elements of the financial management control framework. The audited financial statements for both fiscal years had previously been reviewed by external financial statement auditors, and each received qualified opinions each time. In both cases, the external auditor had also provided management letters identifying several deficiencies in financial administration and management of First Nation funds.
This current audit identified the following areas of financial administration and management of First Nation funds as requiring improvement:
- Weaknesses in financial controls were noted, such as payments made with little or no supporting documentation, and untimely completion and review of bank reconciliations.
- The audit noted a lack of preparation and presentation of financial information on a regular basis for Chief and Council. As well, a lack of explanation of significant variances provided to explain why expenditures by program, service or activity are either greater or less than budgeted amounts. There are no follow up on variances performed by the Band Manager. A review of budget to actual should be completed on a monthly basis to help ensure programs, services and activities are being delivered as planned and expected.
- Minutes of Chief and Council meetings were not prepared during the audit scope period. As a result, there is no documentation of Chief and Council decisions made.
Review of Program Expenditures
The audit selected a risk-based, judgmental sample of 39 transactions representing approximately 1% of the in-scope funding to audit in detail. The auditors determined that of these transactions, 21 were approved by an authorized individual, and 18 had accurate and appropriate supporting documentation. 20% of the dollar amount sampled was in compliance with the funding agreement.
Examples of audit findings included:
- 18 transactions were concluded to be not authorized. In the majority of cases, no authorized signatures were noted due to lack of supporting documentation such as cheque requisition, contract or invoice.
- 13 transactions were concluded to be not accurate, and eight were deemed may not be accurate. Examples of not accurate transactions included payment for conference attendance without supporting documentation such as registration forms or invoices, and a cheque requisition provided as the sole documentation in support of a payment.
- 80% of the dollar value of AANDC funding sample reviewed was concluded to be not in compliance with the Funding Agreement, based on no or limited documentation to substantiate the nature and amount of the expenditure.
RECOMMENDATIONS
- The audit recommends that Chief and Council improve the governance and oversight of the funding provided by AANDC by:
- Documenting minutes for all Chief and Council meetings and providing minutes for review by Members, AANDC, auditors and other stakeholders as appropriate;
- Establishing a finance committee as required by the Management Action Plan (known formerly under the old Intervention Policy as the Remedial Management Plan). The committee should regularly review financial information (quarterly at a minimum, monthly is optimal) to assess actual program and administration expenditures compared to the budgeted amounts;
- Finalizing and approving the Financial Management Regulations, the Conflict of Interest Policy, the code of ethics for Chief and Council and the code of ethics for Program Directors and staff; and
- Presenting the annual budgets and audited financial statements to Members on a timely basis following their completion.
- The audit recommends that Chief and Council finalize the strategic management plan and communicate the strategic objectives of the Band over the next one to three years.
- The audit recommends that Band Management review the current operational plans for the significant programs managed and administered. Based on the current programs, significant programs may include: education, social, facilities O&M and housing, and Band support.
- The audit recommends that the Band Manager improve the financial administration and management of funding provided by AANDC through:
- Documenting financial policies including the requirements for cash receipts, cash disbursements, accounting and record keeping, and financial reporting. These policies should be communicated and implemented with appropriate training provided as needed;
- Reviewing the bank reconciliations prepared by the Social Program Director;
- Conducting a more thorough and documented review of monthly variance reporting; and,
- Providing Chief and Council with financial information on a regular basis that includes budget and actual results with explanations for significant variances over and under budget.
- The audit recommends that Band Management maintain up-to-date and accurate signing authorities for the bank to help ensure effective financial controls over expenditure authorization and support compliance with the objectives of the respective program and Funding Agreement. Band Council Resolutions must be prepared and approved to reflect the approved signing authorities
CURRENT STATUS
A copy of the final report has been sent to the recipient.