To ensure that accounts for payment and settlement are verified in a
cost-effective and efficient manner while maintaining the required level of
control.
It is government policy to pay on time, neither early nor late, amounts that
represent a legitimate obligation and are correct. Account verification
processes are to be designed and operated in a way that will maintain probity
while taking into consideration the varying degrees of risk associated with each
payment.
This policy applies to all organizations considered to be departments within
the meaning of Section 2 of the Financial Administration Act (FAA).
- All payments and settlements must be verified and certified pursuant to
section 34 of the FAA.
- Primary responsibility for verifying individual accounts rests with
officers who have the authority to confirm and certify entitlement pursuant
to FAA section 34. Persons with this authority are responsible for the
correctness of the payment requested and the account verification procedures
performed.
- Responsibility for the system of account verification and related
financial controls rests ultimately with those officers who are delegated
payment authority pursuant to FAA section 33.
- Financial officers with payment authority pursuant to FAA section 33,
must provide assurance of the adequacy of the section 34 account
verification and be in a position to state that the process is in place and
is being properly and conscientiously followed.
- No person shall exercise signing authority pursuant to both
sections 33 and 34 of the Financial Administration Act with
respect to a particular payment.
- No person shall exercise spending authority (section 34) with respect
to a payment from which he or she personally can benefit, directly or
indirectly.
- The account verification process must provide for auditable evidence of
verification including identifying the various individuals who performed the
verification.
- When assignments of Crown debts or power of attorney that the Receiver General has recognized are in force, the departmental account verification process must
include procedures relating to assigned Crown debts and payments subject to powers of attorney.
- Departments must establish and document internal policies outlining the
extent of verification required, based on risk considerations, to certify
that the following have been complied with:
- the work has been performed, the goods supplied or the services rendered
or in the case of other payments, the payee is entitled to or eligible for
the payment;
- relevant contract or agreement terms and conditions have been met
including price, quantity and quality. If in exceptional circumstances,
the price is not specified by the contract, that it is reasonable;
- where a payment is made before the completion of work, delivery of goods
or rendering of services, as the case may be, that such advance payment is
required by the contractual terms of the contract;
- the transaction is accurate and the financial coding has been provided;
and
- all relevant statutes, regulations, orders in council and Treasury Board
policies have been complied with (e.g. travel policy, etc.).
- Departments must identify the risk level for various types of transactions
processed by the department if they wish to implement variations in the
extent of the verification, as outlined in Appendices A and B.
-
Criteria used to identify the risk level (high, medium or low) of the
various types of transactions could include some or all of the following:
type of transaction, the dollar value, and the supplier or payee. See
Appendix A for definitions of risk. Appendix B provides an example
of a matrix that can be used to clearly identify and document the risk
levels of various types of transactions.
- Although account verification is normally performed prior to payment,
pursuant to Section 34(1)(a)(iii) of the FAA, in the following
circumstances, account verification may be completed after the payment has
been made, providing the claim for payment is considered reasonable.
Criteria for determining reasonableness include:
- the claim for payment is from an established supplier where there is a
continuing business relationship and a consistent record for performance;
- there is an ability to effect adjustments or recovery from the supplier
after payment; and
- it can be determined, by inspection, whether an invoice is "out of
line".
Departments must identify and document the specific payments that will be
paid subject to this provision as well as the post-payment verification
procedures.
- Quality assurance processes used to assess the adequacy of the account
verification system must be tailored to reflect the risk level of the
transactions under review.
- All high risk transactions must be subjected to a review of all relevant
aspects of the transaction. For low and medium risk transactions, it is
normally sufficient to select a sample of the transactions and to review
only the most relevant aspects of each selected transaction.
- Departments must ensure that sampling methodology is consistent with sound
sampling theory and practice.
- The preferred approach to sampling is statistical sampling. Where
statistical sampling is not implemented, departments must implement
alternative processes, that will give adequate assurance as to the
effectiveness of the account verification process performed at FAA
section 34.
The account verification process should be audited by the departmental
internal audit group. Of particular interest is the implementation of the
departmental criteria established for each category of risk and the types of
payments identified for payment before completion of the detailed verification.
This policy which is issued under the authority of the Financial
Administration Act supersedes T.B. Circular 1989-15, the Use of Statistical
Sampling in Account Verification at the Payment Requisitioning Stage,
August 1989 and should be read in conjunction with the following:
- Financial Administration Act (R.S.C., 1985, Chapter F-11)
sections 2, 26, 32, 33, and 34; paragraphs 76(1)(c) and 80(d);
- Payment Requisitioning Regulations, SOR/85-999, as amended by SOR/86-68
and 93-258;
- FMS Handbook: Expenditure Management Module, Financial Management and
Information Systems, OCG, 1990.
- Statistical Sampling Software, Financial Management and Information
Systems, OCG, June 1991
- This chapter cancels chapter 3-6 of the "Financial
Management" volume dated December 1, 1991; and
- This policy also supersedes Chapter 9.1 and 9.3, related to account
verification, sections 9.3.2.1 and 9.3.2.4 and Appendix 9G of the
Treasury Board "Guide on Financial Administration" consolidated
revision, April 1991.
Inquiries concerning this policy should be directed to your departmental
headquarters. For interpretation of this policy, departmental headquarters
should contact:
Financial Management Policy Sector
Financial Management Standards Division
Treasury Board Secretariat
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
Departments should develop and publish specific policies and procedures for
staff to follow for the verification of accounts pursuant to section 34 and
for the quality assurance review of the adequacy of section 34 account
verification. These departmental policies and procedures should take into
consideration the departmental environment, including factors such as level of
decentralization and use of automated expenditure management systems.
Departments should ensure that the responsibilities of each officer related
to the account verification and quality assurance processes are clearly
documented and understood.
As part of the account verification process, transactions should be reviewed
for accuracy such as ensuring that the payment is not a duplicate, that
discounts have been deducted, that any charges not payable have been removed and
that the amount has been calculated correctly.
Payments that may be made in advance of the completion of the verification
process may include for example the following:
- regular utility invoices such as telephone, heat and hydro where the
invoice amount may vary from month to month;
- invoices covering numerous small value items, with regular suppliers
where the individual transaction amounts are considered low risk such as
taxis, enRoute billing, SSC printing invoices; and
- periodic invoices with established suppliers for services such as
maintenance, computer rental, equipment rental, where the periodic invoice
is normally the same amount each month.
Documentation may include information relating to: contracts, leases,
purchase orders/requisitions, staffing requests, program terms and conditions
and the like. Any other documentation that provides evidence of the extent of
the commitments involved, the agreed prices for the services and supplies, the
precise specifications and requirements, and the agreed payment terms should be
maintained as required.
Each department should determine the appropriate documentation or information
required to support the verification process for each type of payment in order
to ensure an adequate audit trail is maintained.
Departments and agencies are required to prepare T4-A Supplementary slips
reporting the amounts paid for service contracts and mixed goods and services
contracts. All service and mixed goods and services contracts are covered by
this requirement, however the following categories of payments are excepted:
- acquisition card purchases;
- local purchase orders;
- grants and contributions; and
- rentals, which includes utility payments and the rental or leasing of
office space and equipment and other goods.
T4-A supplementary slips must be prepared for all annual contract payments
exceeding $500. The amount of the payment to be reported on each information
slip is the total of payments made to the contractor in the calendar year,
including any goods portion, expenses, indirect costs, etc. but excluding
GST/HST or provincial sales taxes.
For more information, departments may consult the Information Letter of
April 30, 1998, on the implementation of the T4-A Supplementary
reporting requirement.
The quality assurance review performed by payment officers is in addition to
requirements related to payment requisitioning as outlined in Chapter 2-6
and can be achieved by using sound sampling techniques.
The department's Senior Financial Officer should approve the sampling plan
and periodic updates of the plan. Appendix D provides additional
information regarding the implementation of sampling.
Where sound statistical sampling is implemented in compliance with an
approved sampling plan, officers exercising payment authority under
section 33 will not be held accountable for account verification errors,
before payment requisitioning, in those transactions not included in the sample
about which they have no personal knowledge.
Sampling techniques chosen should be sufficiently precise to allow
conclusions to be drawn about the overall adequacy and reliability of the
account verification process.
Criteria to identify risk level of transactions should include consideration
of the type of transaction, the dollar value, and where appropriate, the current
error rate from particular organizations. That is, if the payment officer is not
confident about the adequacy of verification, transactions may be classified at
a higher level of risk for a period of time.
If the errors discovered through the quality assurance review of the
section 34 account verification are frequent and serious, a complete review
of the particular organization's account processing practices should be carried
out and the findings reported to the responsibility centre manager for
corrective action.
When the account verification and certification pursuant to FAA
section 34 are continually inadequate or otherwise unsatisfactory,
withdrawing section 34 authority is preferable to duplicate checking
because the latter leaves no one ultimately responsible.
High Risk: Transactions with the following criteria would be considered high
risk: highly sensitive transactions, for example where an error in payment is
non-recoverable, or payments which are largely judgemental or subject to
interpretation. This category could also include payments of very large dollar
amounts or payments that are considered highly error prone.
Low Risk: Transactions with the following characteristics would be considered
low risk: transactions that are not sensitive in nature, have little or no
potential financial loss associated with them, or a low error rate with a low
dollar value impact of error (typically low to medium dollar value and
recoverable).
Medium Risk: Transactions not considered either high risk or low risk will be
considered medium risk.
Type of Transaction
|
Low Risk
|
Medium Risk
|
High Risk
|
General accounts payable |
< $$$
|
$$$ - $$$
|
> $$$
|
Grants and contributions |
< $$$
|
$$$ - $$$
|
> $$$
|
Social assistance payments |
< $$$
|
$$$ - $$$
|
> $$$
|
Travel expense claims |
< $$$
|
$$$ - $$$
|
> $$$
|
Hospitality |
< $$$
|
$$$ - $$$
|
> $$$
|
Conferences/training |
< $$$
|
$$$ - $$$
|
> $$$
|
Relocation claims |
< $$$
|
$$$ - $$$
|
> $$$
|
Payments to employees |
< $$$
|
$$$ - $$$
|
> $$$
|
Interdepartmental settlements |
< $$$
|
$$$ - $$$
|
> $$$
|
This is AN EXAMPLE of the type of matrix that should be developed in
order to identify risk levels for transactions.
This policy supports the use of sound statistical sampling which determines
the sample size objectively according to the desired degree of confidence.
Samples are selected in an unbiased and representative fashion. Sampling which
is intentionally biased toward certain sources of transactions, those suspected
of being error prone, for example, is judgemental sampling. Sound statistical
sampling is recommended over judgemental sampling because it ensures that the
conclusion to be drawn from the sample results will be reliable and
statistically supportable.
The first step in implementing sampling is the completion of a feasibility
study to determine the current state of the account verification process. Once
it has been determined that sampling is feasible, the key to successful
implementation of sampling within a department is the development of a sampling
plan. A sampling plan sets out departmental policy and procedure statements and
related data gathering and reporting requirements.
The sampling plan should be approved by the Senior Financial Officer who will
ensure the sampling plan is documented in the departmental financial manual and
understood by all staff involved in its implementation. The plan should be
updated and approved on a regular basis.
The sampling plan should include information such as the following: sampling
populations and transaction streams, sampling review period, point of testing
(pre or post payment), the sampling approach (statistical or other), the
critical errors, the maximum tolerable error rate, and the method of sample
selection (manual or computerized), methodology assumptions to determine sample
sizes for transaction streams. The sampling plan should also identify the
evaluation and reporting that will follow the sample period as well as the
approaches to corrective action.
|