Mandatory Audit & Audit Clause for Agreements Over $350,000

Mandatory Audit & Audit Clause for Agreements over $350,000

To strengthen program integrity and public accountability, HRSD will require sponsors to complete an audit of their books. This requirement will be included in the agreement and will be an approved, refundable expense item. The audits could look at all conditions associated with the Agreement, both financial and non-financial. The new requirements concerning audits are being implemented in order to ensure transparency and probity in the administration of large contribution agreements.

The new requirement is that all contribution agreements with a dollar value at $350,000 or more will require a clause in the contribution agreement requiring an external audit. The funds for these audits must be included in the cash flow and contribution agreement.

The contribution recipient shall engage the services of a public accountant licensed under appropriate provincial/territorial law approved by Canada to express an opinion on whether the amounts claimed by the recipient under this agreement were eligible for reimbursement. Each audit report shall certify:

a)  the total actual expenditures of the Eligible Costs to date;

b)  the total amount received in respect of the Contribution to date, including the amount of interest that has accrued on any advances of the Contribution;

c)  that all expenditures, except as noted in the report, were in accordance with this agreement, related to the objectives of the agreement and reasonable;

d)  that all amounts claimed were expended prior to being claimed; and,

e)  that the recipient has reasonable financial control procedures in place.

The following is the minimum number of audits to be performed depending on the duration of the agreement:

- agreements that are 9 months or less will require a final audit

-  agreements that are greater than 9 months and less than two years will require at least one interim audit (i.e., at the mid-way point of the agreement and contribution recipients will have 30 days to submit the audit to HRSD) and a final audit

-  multi-year agreements must have an audit completed for each 12 month period.

Agreements shall state that the Commission may withhold payment of any claim pending the completion of an audit. Insofar as the claim for final payment is concerned, based on program guidelines, agreements shall state that the commission shall withhold a percentage of its total contribution for the funding period until HRSD has:

1.  received and verified the final claim,

2.  received other reports that may be required to be submitted to Canada under the Terms of the agreement, and

3.  received the auditor’s report.

This applies to agreements whether payments are based on advances or reimbursement of expenses.

The purpose of audits is to reduce the risks associated with the implementation of contribution agreements. The requirement for third party audits does not however remove the need for project monitoring on the part of HRSD officials.

The following activities are to be completed by auditors. Depending on the contribution agreement, additional activities may be required.

·  Travel to location of books and records to perform on site examination of documents;

·  Preliminary interview with officials responsible for the project(s);

·  Review of the Terms and Conditions of the contribution agreement(s);

·  Review of the project file(s).

·  Assure that summary claims comply with agreement terms;

·  Assure that expenses claimed are eligible for reimbursement under the terms and conditions of the contribution agreement;

·  Assure that expenses are supported by appropriate documentation;

·  Analyze and verify the supporting documents to ensure that revenues and expenses are properly recorded, are justified and are reasonable;

·  Verify that only eligible costs are charged to the correct categories. If there are adjustments needed, ensure that any ceilings in the contribution agreement(s) has (have) not been exceeded;

·  Verify that Goods and Services Tax (GST) is treated correctly;

·  Verify that purchases of capital assets are in accordance with the agreement(s).

·  Verify that the assets purchased are on hand or that they have been properly disposed of in accordance with the agreement(s);

·  Verify that contracts with a value in excess of $25,000 have been completed in accordance with the terms of the agreement(s);

·  Verify that other partners have paid their agreed share of the project costs; and

·  Where advances have been provided, identify any unexpended balances and report the amount due to the Crown.

·  Prepare draft report (to be submitted to the Recipient).

·  Prepare and submit final report (to the Recipient).

In order ensure fair market price for the audit costs, please provide three quotes for the independent audit along with the proposal.