Performance auditing can lead to more efficient, effective, and economical program delivery and stronger internal controls within local governments. Surprisingly, many audit functions within local governments in Canada are still conducting few or no performance audits. To understand why they are lagging behind their U.S. counterparts, researchers surveyed auditors within all the major cities in the United States and Canada. This article provides highlights of the study from a Canadian perspective. The full report is available at http://www.theiia.org/bookstore.
Time Spent on Performance Auditing
Survey results show that auditors in Canadian cities are spending 10% less time than their U.S. counterparts conducting performance audits because barriers to performance auditing are considerably higher in Canada.
1. Lack of Provincial Legislation
In English Canada, respondents indicated that lack of provincial legislation requiring performance audits was the most serious barrier to effective performance auditing.
In Quebec, lack of legislation represented much less of a barrier, probably due to the fact that cities in Quebec with populations of 100,000 are required by provincial legislation to conduct performance audits.
Due to the limited success introducing municipal auditor general functions in Ontario, the researchers suggest that IIA Canada collaborate with professional audit associations to identify model legislation to help ensure audit functions can fulfill their mandates and meet professional audit standards.
2. Inadequate Education Programs
In both English Canada and Quebec, inadequate education programs at the university level were viewed as a significant barrier to effective performance auditing. Most thought it would be more cost effective to provide additional training courses through local chapters of The IIA and the CCAF-FCVI than to attempt to fund improved programming within the universities.
3. Lack of City By-Laws
In both English Canada and Quebec, lack of by-laws setting out the authority and responsibility of the audit function to conduct performance audits was identified as a barrier to performance auditing. Audit leaders suggested that IIA Canada could work together with professional audit associations to identify model legislation at the local level.
4. Immature Governance Processes
In both English Canada and Quebec, immature governance processes were identified as a significant barrier to effective performance auditing. Respondents within many of the small and medium-sized cities suggested that members of council do not fully understand the roles of the auditors or council’s responsibilities for governance. In Quebec, this problem is aggravated by the fact that most of the smaller and medium-sized cities have not established audit committees.
Audit leaders indicated that having clear terms of reference for both the audit function and audit committee would improve governance processes. They also suggested that members of Council needed to receive training in governance processes, such as the role of auditing and audit committees in particular in public sector governance.
5. Immature Performance Reporting Processes
Some audit functions in English Canada are not conducting performance audits because they believe it is pointless to do so until management develops performance measures and targets and is willing to hold managers accountable for results. Others are conducting performance audits regardless of the maturity of performance measurement and reporting processes in place.
In Quebec, immature performance measurement processes are considered to be an obstacle to performance auditing within smaller and medium-sized cities. Interviews indicated that this barrier is seen to be closely related to immature governance processes.
6. Insufficient Funding
Most of the survey respondents in English Canada identified concerns about the funding levels for their functions. Analyses by the research team indicated that some audit functions were funded at much lower levels than others. Large cities such as Markham, Richmond Hill and Regina do not have audit functions.
In Quebec, funding issues were identified as a significant barrier to effective performance auditing. Provincial legislation in Quebec requires all municipalities with populations greater than 100,000 to establish an auditor general function to conduct both internal and external audits. Although funding levels are set out within the legislation, the levels prescribed are generally seen to be insufficient for smaller municipalities.
To address these concerns, the research team identified separate funding formulas for English Canada and Quebec to ensure sufficient funding is available to enable audit functions to fulfill their existing mandates and to perform performance audits if they are not already doing so.
7. Affordable Training Courses Not Available
Lack of affordable training was identified as a barrier to performance auditing by a number of the smaller cities in English Canada. Respondents indicated that few affordable courses in performance auditing are available for staff. Cost-effective training at the intermediate and advanced levels is particularly difficult to find in Canada as significant tailoring is required to adapt courses to the local government environments.
In Quebec, lack of affordable training is one of the most significant barriers to effective performance auditing. Many audit staff are fluent only in French and, due to the lack of courses available in French, they must incur travel costs to receive relevant training in performance auditing. Budgetary restrictions limit the amount of training that can be undertaken annually.
8. Internal Audit Not Sufficiently Understood or Supported
Lack of support and understanding from city councils, city staff, the media, and the public was identified as a significant barrier to performance auditing within most of the small and medium-sized cities in Quebec.
Respondents in English Canada had mixed views on this barrier. Those in smaller and medium-sized cities identified it as a more important barrier than those in larger cities. Orientation sessions with members of council were seen to be critical to ensure the role of internal audit and the auditor general—and the differences between the two roles—were understood.
9. Inadequate Standards and Guidelines
Discussions with survey respondents in Quebec revealed that the value-for-money audit standards of Chartered Professional Accountants (CPA) Canada are used extensively by half the auditors general and to some extent by the others. Unfortunately, no guidelines have been issued to assist practitioners with their implementation. Respondents in Quebec also noted that the best-practice text endorsed by The IIA, Performance Auditing, A Measurement Approach, 2nd Edition, is not available in French.
Inadequate standards and guidelines were not seen to be a significant barrier in English Canada.
10. Effective Training Courses Not Available
In Quebec, lack of effective training is one of the largest barriers to performance auditing. Respondents reported that this is mostly a language issue as it is difficult to obtain relevant training in French. According to respondents, training in all levels (basic, intermediate, and advanced) is needed in Quebec where performance auditing is still a relatively new function.
In English Canada, lack of effective training is not considered to be a significant barrier because participants can access courses from The IIA, CCAF-FCVI, Municipal Internal Auditors Association (MIAA) and Association of Local Government Auditors (ALGA).
The researchers concluded that the major barriers to performance auditing within cities in Canada can be mitigated through the combined efforts of audit leaders in these cities, IIA Canada, local chapters of The IIA, CPA Canada, CCAF-FCVI, MIAA, and ALGA. They suggested that there is a need for:
1. Collaboration to develop common legislation to support audit independence and adherence to audit standards.
2. Coordination to ensure effective, affordable training is available in both English and French to improve proficiency in performance auditing and to provide councilors with training in governance to improve their understanding and support for audit.
3. Commitment to provide guidelines and authoritative guidance on value-for-money auditing and performance auditing in both English and French.
4. Co-operation to address the need for sufficient funding levels within auditing functions in local governments in Canada.
The other purpose of the research study was to identify best practices in performance auditing. The researchers noted that audit functions in Winnipeg, Ottawa, Montreal and Quebec City were following many of these best practices. Auditors in Toronto and Edmonton were following almost all of them.
Ronald C. Foster, CPA, CMA, CIA, CRMA, CISA, PMP, CFE is an audit and risk management professional with over 25 years of experience.
