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Audit of the 2005-2006 Year-End Cash Cut-Off Procedures
Internal Audit Report
Table of Contents
- Executive Summary
- Introduction
- Focus of the Audit
- Findings, Recommendations and Action Plans
- Appendix A - Lines of Enquiry and Audit Criteria
- Appendix B - Examples of Errors in K10 packages
- Appendix C - Variance between the Corporate Finance Directorate’s Calculation and this Audit’s Calculation
Executive Summary
Background
The Canada Border Services Agency (CBSA) collects approximately $28 billion in revenues in a year. The Comptrollership Branch issues instructions to ports of entry at the end of every fiscal year for the processing of cash payments received at year-end. Payments received on or before March 31, which are negotiable on or before March 31, but are not deposited in the Bank of Canada or any other financial institution for the Receiver General until April, are considered cash in transit. At the end of fiscal year 2005-2006, the CBSA reported a total of over $2 billion of cash in transit.
Objective
The objective of this audit is to assess the CBSA’s compliance with CBSA and Receiver General year-end procedures and provide senior management with the assurance that cash in transit reported at year-end was accurate and complete. The audit was conducted from June to August 2006.
Conclusion
This audit concludes that the year-end procedures for fiscal year 2005-2006 were followed and that cash in transit was reported in a satisfactory manner. During the course of our examination, a variance of $7 million was identified with the amount of cash in transit reported by the Corporate Finance Directorate, which is below the materiality threshold of approximately $140 million. Errors were identified in the “Date of Receipt” field in the Customs Performance Data Collecting Software (G11), which were identified by the Corporate Finance Directorate in the calculation of cash in transit. The audit found no documented procedures for the calculation of cash in transit by the Corporate Finance Directorate.
Recommendations
Comptrollership Branch should:
- provide clear and complete instructions to all regional offices and ports of entry on how to complete the G11, with special attention given to the “Date of Receipt” field; and
- develop documented procedures on how to calculate cash in transit in order to provide continuity and establish a standard methodology.
| Management Action Plan | Completion Date |
|---|---|
The Comptrollership Branch will develop a G11 user manual for the ports of entry by December 31, 2006. In addition, the Comptrollership Branch has instituted monthly conference calls with the regional offices and ports of entry to ensure that cashiers and their supervisors understand not only the year-end cash cut-off requirements but also all requirements related to the entry of deposit data in the G11 throughout the year. The first conference call was held in October 2006. |
Underway |
During the course of the 2005-2006 fiscal year, the Comptrollership Branch documented the procedures followed. We have asked the Office of the Auditor General to review the documented procedures. A final approved procedures document will be completed before the end of the 2006-2007 fiscal year. |
Underway March 2007 |
Introduction
The Canada Border Services Agency (CBSA) collects approximately $28 billion in revenues a year. The Comptrollership Branch issues instructions to ports of entry at the end of every fiscal year for the processing of cash payments received at year-end. Payments received on or before March 31, which are negotiable on or before March 31, but are not deposited in the Bank of Canada or any other financial institution for the Receiver General until April, are considered cash in transit. At the end of fiscal year 2005-2006, CBSA reported a total of over $2 billion of cash in transit.
Focus of the Audit
This audit focused on compliance with year-end procedures for fiscal year 2005-2006 and the accuracy of the cash in transit reported by the CBSA.
Objective
The objective of this audit is to assess the CBSA’s compliance with its year-end procedures, as well as with the Receiver General Manual, and give senior management the assurance that cash in transit reported at year-end was accurate and complete.
Scope
The scope of the audit included a review of operations and documentation in the Comptrollership Branch in Headquarters and a sample of customs revenue reports (K10) from the following regional offices:
- Windsor/St. Clair
- Atlantic
- Greater Toronto Area
- Niagara/Fort Erie
- Northern Ontario
- Pacific
- Prairie
- Quebec
Complete details on lines of enquiry and audit criteria are provided in Appendix A.
Methodology
The examination phase of this audit was conducted during the period of June 2006 to August 2006 inclusively. The audit team:
- reviewed the Receiver General Manual on year-end procedures and ensured compliance with it by the CBSA;
- reviewed the Comptrollership Branch’s instructions and methodology for processing year-end payments;
- interviewed key individuals with regard to year-end procedures;
- reviewed Customs Commercial System (CCS) and Receiver General downloads for accuracy of data and investigate any anomalies or discrepancies;
- reviewed a numerically stratified randomly selected sample of customs revenue report (K10) packages, representing a 95-percent confidence level within a 4-percent interval, to assess proper calculations of payments recorded and proper use of cut-off dates; and
- verified and reviewed the reconciliation of cash in transit calculations for accuracy and completeness by the Corporate Finance Directorate.
Findings, Recommendations and Action Plans
This audit focused on ensuring that the Receiver General’s and the CBSA’s year-end procedures for fiscal year 2005-2006 were followed and that cash in transit was calculated correctly, taking possible data-entry errors into account. The audit comprised a series of tests on a sample of K10 packages and on the Receiver General and CCS downloads. Overall, the year-end procedures were followed and the cash in transit was calculated correctly. A total variance of $7 million was identified with the reported amount of cash in transit; this is below the materiality threshold of one-half percent or $140 million—based on the total reported revenues—as suggested by Treasury Board’s Accounting Standard on Materiality. Procedures for the calculation of cash in transit were not documented. The Canada Revenue Agency (CRA) had performed the cut-off previously and had made limited documentation on procedures available to the CBSA when the responsibilities were transferred.
The Accuracy of Cut-Off Date for Cash Data Input
The “Date of Receipt” field in the Customs Performance Data Collecting Software (G11) was not always entered properly.
Once a transaction is paid, it is recorded on a K10 worksheet and in a cashbook. At the end of the day, it is deposited at the bank. The following day, when the stamped deposit slip is returned by the bank, the transaction is entered into the G11, where two dates must be entered: the date of receipt—the date payment was received by a CBSA office—and the deposit date. In a significant number of cases in our sampling, analysis of the K10 package indicated that the “Date of Receipt” entered in the G11 was, in fact, the deposit date. For instance, even though payment was made on March 31, the date of receipt entered was April 3—the date it was deposited at the bank, thus making the transaction appear as if it were in the new year. This was due to the fact that some employees in regional offices did not fully understand how to fill the “Date of Receipt” field in the G11. See Appendix B for details. In its reconciliation with the Receiver General download, the Corporate Finance Directorate was able to identify such date-entry errors in a satisfactory manner and make the appropriate adjustments.
Recommendation 1
The Comptrollership Branch should provide clear and complete instructions to all regional offices and ports of entry on how to complete the G11, with special attention given to the “Date of Receipt” field.
| Management Action Plan | Completion Date |
|---|---|
The Comptrollership Branch will develop a G11 user manual for use by the ports of entry by December 31, 2006. In addition, the Comptrollership Branch has instituted monthly conference calls with the regional offices and ports of entry to ensure that cashiers and their supervisors understand not only the year-end cash cut-off requirements but also all requirements related to the entry of deposit data in the G11 throughout the year. The first conference call was held in October 2006. |
Underway |
The Accuracy and Completeness of Cash in Transit
There were no documented procedures on how to calculate cash in transit at year-end.
The Comptrollership Branch used procedures designed by the CRA. These procedures were not fully documented by the CRA. Due to limited experience with cash in transit, the Comptrollership Branch requested help from the CRA to complete the work. Written procedures specific to the CBSA would provide continuity and establish a standard methodology on how to calculate cash in transit.
The Comptrollership Branch reports a different amount of cash in transit from this audit.
The lack of accuracy in the "Date of Receipt" field in the G11 resulted in transactions that were inadequately reported and required additional adjustments for the calculation of cash in transit. To address this situation, the Comptrollership Branch used three different methods to calculate cash in transit and was able to identify required adjustments. This audit concluded that the total cash in transit for fiscal 2005-2006 year-end was $2,064,111,766; this represents a difference of approximately $7 million from the amount reported by the Corporate Finance Directorate. This variance is below the materiality threshold, as established by Treasury Board’s Accounting Standard. See Appendix C for details.
Recommendation 2
Comptrollership Branch should have written and documented procedures on how to calculate cash in transit in order to provide continuity and establish a standard methodology.
| Management Action Plan | Completion Date |
|---|---|
During the course of the 2005-2006 fiscal year, the Comptrollership Branch documented the procedures followed. We have asked the Office of the Auditor General to review the documented procedures. A final approved procedures document will be completed before the end of the 2006-2007 fiscal year. |
Underway |
Appendix A - Lines of Enquiry and Audit Criteria
The following lines of enquiry have been identified:
- the accuracy of cash cut-off data input; and
- the accuracy and completeness of 2005-2006 cash in transit.
The following audit criteria were assessed during the fieldwork:
| Control Objectives | Audit Criteria |
|---|---|
The date of receipt is entered properly in the G11. |
|
The fiscal year identifier is entered properly in the G11. |
|
All payments are recorded in the proper fiscal year. |
|
Bank deposits are recorded in the proper fiscal year. |
|
Cash in transit is calculated based on accurate data. |
|
Cash in transit is reported in an accurate and complete manner by the Corporate Finance Directorate. |
|
Appendix B - Examples of Errors in K10 packages
| K10 # | WLOC | FY | Date of Receipt | Date of Deposit | Amount |
|---|---|---|---|---|---|
| 2083 | 4102 | 2005-2006 | 3-Apr-06 | 3-Apr-06 | 69,174,512.25 |
| 2084 | 4102 | 2005-2006 | 3-Apr-06 | 3-Apr-06 | 45,884,513.60 |
| 685 | 4660 | 2005-2006 | 4-Apr-06 | 4-Apr-06 | 24,147,878.43 |
| 684 | 4230 | 2005-2006 | 3-Apr-06 | 3-Apr-06 | 8,372,864.52 |
| 651 | 7012 | 2005-2006 | 3-Apr-06 | 4-Apr-06 | 3,398,527.91 |
| 406 | 3121 | 2005-2006 | 3-Apr-06 | 3-Apr-06 | 2,167,562.95 |
| 455 | 2121 | 2005-2006 | 4-Apr-06 | 4-Apr-06 | 458,080.45 |
| 84 | 3030 | 2005-2006 | 3-Apr-06 | 3-Apr-06 | 435,558.96 |
| TOTAL | 154,039,499.07 |
Comments: Date of Receipt should be March 31, 2006
Appendix C - Variance between the Corporate Finance Directorate’s Calculation and this Audit’s Calculation
Total Cash in Transit
| Corporate Finance | Internal Audit | Variance | |
|---|---|---|---|
| Cash in transit (including adjustments) |
$1,392,570,061.93 | $1,385,675,108.37 | $6,894,953.56 |
| Additional amounts that make up cash in transit: | |||
| CAP adjustments | $302,872,222.49 | $302,872,222.49 | -- |
| CSA transactions | $375,564,435.00 | $375,564,435.00 | -- |
| Total cash in transit | $2,071,006,719.42 | $2,064,111,765.86 | $6,894,953.56 |
