Treasury Board tightening grip on internal audits, memo suggests

In a bid to strengthen financial oversight, the government is centralizing control over internal audit processes, something sources say could wind up diluting the power of the public service.

An internal memo from Treasury Board President Peter Bethlenfalvy to cabinet ministers, their chiefs of staff and parliamentary assistants — obtained by Queen’s Park Today — outlines changes to internal audit governance that will follow the new Audit and Accountability Committee’s (AAC) inaugural meeting on February 12.

Bethlenfalvy’s memo says the changes will be led by the Corporate Audit Committee — which supports the work of the AAC he helms — and its newly appointed chair, Charles-Antoine St-Jean, whose role is expanding “to provide oversight for all government-wide internal audit services.”

The government will start shifting from the current ministry-specific audit committees to a sector-based model in 2019-20, according to the document. Those committees will also have external members, and could include audit oversight of related broader public sector agencies in addition to the ministries. Sources with knowledge of internal audit processes say that could dilute the independence and power of deputy ministers.

“It’s a more corporate approach” said one source.

The memo also indicates “additional measures to monitor and limit spending on external audit and investigations services.” It isn’t clear from the memo whether that could potentially bring broader public sector audits in-house through St-Jean’s committee or, for example, require agencies seek approval to hire a third-party auditor.

“A single government-wide risk-based audit plan” would be presented at AAC and CAC meetings in April, and the AAC “may direct other ad hoc specific audits if required.”

To that end, Bethlenfalvy’s memo says internal auditors will be seeking feedback from ministers’ offices “to identify key areas of risk and priority engagements in ministries, agencies and Transfer Payment Recipients.”

“Given the tight timelines on identifying audits, we urge Chiefs of Staff to make themselves available when contacted by the Ontario Internal Audit Division,” he says.
 
The memo also contains a laundry list of “priority audits” already approved by the AAC, including the “Ontario Public Drug Program,” “a school board,” OLG, WSIB, a post-secondary institution, cybersecurity and “cash flows” such as transfer payments. A centralized funding model is being developed with the goal of finalizing in 2019-20.
 
Bethlenfalvy’s office has not yet responded to specific questions from QPT but provided a general statement explaining the AAC “will be responsible for directing internal audit services to priority areas to support accountability, efficiency, transformation and strong fiscal management.”
 
Spokesperson Hayden Kenez pointed to similar internal audit committees in the private sector that “are responsible for ensuring the proper functioning of governance, controllership, internal controls and risk management processes.
 
“That is one way we are doing government differently. Having a dedicated internal audit committee with Cabinet minister members is one way we are achieving that,” Kenez said in an email.
 
However, the connection to cabinet effectively puts a political lens on internal government audit functions, a source said, noting the Ford administration came to power on a cost-cutting platform.
 
“When you’re an internal auditor and you have a line into cabinet, not directly, but clearly it’s a political emphasis,” said the source.
 
Kenez added the centralized funding model would establish “more efficient and strategic allocation of audit services based on OPS-wide risks and priority.”

Appointments to the CAC and ministry/sector committees were “being reviewed to ensure the committee’s continued and strengthened independence,” the memo added. St-Jean’s $2,500-per-diem appointment as chair of a cost-cutting committee had raised eyebrows. (St-Jean’s pay is 67 per cent higher than his predecessor under the Liberals, according to a report from iPolitics. Bethlenfalvy cited St-Jean’s expanded role and expertise as justification.)

Lastly, the memo says internal auditors will beef up responses to the auditor general’s recommendations, including regular reporting on status updates. Bethlenfalvy said ministry reports are due back beginning in June.