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2004-2005 Year-End Cash Cut-Off Procedures Audit
October 2005
Table of Contents
Executive Summary
Background:
The Government of Canada has changed its basis of accounting from modified cash basis to full accrual basis for the preparation of financial statements as required by the Financial Information Strategy (FIS). The Receiver General Directive for 2004-2005 stipulates that when monies, negotiable on or before March 31, 2005, are received on or before March 31, 2005, but are not credited by the Bank of Canada or any other financial institution to the Receiver General in fiscal year 2004-2005, these are to be classified as cash in transit.
Objective:
The audit objective was to assess the Canada Border Services Agency's (CBSA) compliance with the year-end cut-off procedures as stipulated in the Receiver General Directive, and provide management with assurance as to the accuracy and completeness of the cash in transit amounts as reported at year-end.
The audit focused on the year-end cut-off and cash in transit and was conducted at locations in Toronto, Windsor, Montréal and Calgary, and at the Canada Revenue Agency's (CRA) Finance and Administration Branch and the Comptrollership Branch at CBSA Headquarters.
Conclusion:
The audit concluded that the CBSA has complied with the guidelines and procedures for year-end cut-off and cash in transit as stipulated in the Receiver General Directive and adopted by the CRA and the CBSA.
Introduction
The Government of Canada has changed its basis of accounting from modified cash basis to full accrual basis for the preparation of financial statements as required by the Financial Information Strategy (FIS).
The Receiver General Directive for fiscal year 2004-2005 stipulates that when monies, negotiable on or before March 31, 2005, are received on or before March 31, 2005, but are not credited by the Bank of Canada or any other financial institution to the Receiver General in fiscal year 2004-2005, these are to be classified as cash in transit.
The Directive stipulates that all Canadian deposit information received by the Banking and Cash Management Sector (BCMS) from financial institutions after March 31, 2005, will be processed by the Government Banking System (GBS) in the new 2005-2006 fiscal year.
The Canada Revenue Agency's (CRA) Finance and Administration Branch maintains the Revenue Ledger for the Canada Border Services Agency (CBSA) and has matched CBSA deposits to that confirmed by the Bank of Canada and determined the cash in transit at fiscal year-end. Effective July 2004, the CRA's Financial Administration Directorate instituted system changes to include receipt date of payments being deposited.
In addition, the CRA's Finance and Administration Branch required that all CBSA offices acknowledge receipt of its directive providing instructions to be followed for cash payments received at the end of the fiscal year 2004-2005. This directive was to ensure that the year-end process was fully understood by superintendents, supervisors, cashiers and other personnel as the Government had changed its basis of accounting from the modified cash basis to the full accrual basis for the preparation of financial statements.
The CRA's Finance and Administration Branch reported that the CBSA's revenue for fiscal year 2004-2005 was the following:
| Customs Commercial | $18.2 billion |
| Customs Self Assessment (CSAs) | $4.6 billion |
| 25 Million Cap | $3.8 billion |
| Travellers and Postal | $0.1 billion |
| Total | $26.7 billion |
The Office of the Auditor General also relied on the results of this internal audit in conducting its audit work at the CBSA for the purposes of its audit opinion on the Financial Statements of Canada (Public Accounts).
Focus of the Audit
Objective
The audit objective was to assess the CBSA's compliance with the year-end cut-off procedures as stipulated in the Receiver General Directive, and provide management with assurance as to the accuracy and completeness of the cash in transit amounts as reported at year-end.
Scope
The audit was conducted at the CRA's Finance and Administration Branch and the Comptrollership Branch at CBSA Headquarters. In addition, visits were made to CBSA offices in Toronto, Windsor, Montréal and Calgary.
Methodology
The methodology used in carrying out this audit included:
- Review of related policies, procedures and the Receiver General Directive;
- Interviews with key managers and staff at CBSA Headquarters;
- Reconciliation of cash in transit per the Monitoring Statistics module of the Customs Commercial System (G11) and the General Ledger; and
- Substantive testing of transactions to verify amounts reported.
Audit Observations
Year-end cut-off procedures
The year-end cash cut-off requirements were that monies received up to March 31, 2005, were to be reported in the old fiscal year and monies received on or after April 1, 2005, were to be reported in the new fiscal year. In order to assess the CBSA's compliance with year-end cash cut off requirements, four regional sites were visited. Observations and tests concluded that all the sites visited were complying with the year-end cut-off requirements.
Accuracy and completeness of the cash in transit
The 2004-2005 cash in transit for the CBSA was prepared by the CRA's Finance and Administration Branch on behalf of the CBSA and comprised the following:
| Customs Commercial | $1.5 billion |
| CSAs | $0.4 billion |
| 25 Million Cap | $0.2 billion |
| Total | $2.1 billion |
CSAs and 25 Million Cap
The Customs Self Assessment (CSA) cash in transit was verified and confirmed to be $0.4 billion. This represents remittances deposited by 16 companies on March 31, 2005, and credited by the Bank of Canada in April 2005. The 25 Million Cap cash in transit was verified and confirmed to be $0.2 billion. This represents monies received from locations at Niagara Falls/Fort Erie, Place d'Youville (Montréal), Pierre Elliott Trudeau Airport (Montréal) and Calgary on March 31, 2005, and credited by the Bank of Canada in April 2005.
Customs Commercial
In the Customs Commercial area, a sample of Customs Revenue Reports (K10s) with amounts over $1 million was selected. The dollar value of the sample was $1.3 billion and represented 93% of the $1.5 billion cash in transit reported. These were checked to verify that the dates and amounts reported on the K10s matched and corresponded to the dates and amounts received by the Bank of Canada. All transactions were in compliance with the Receiver General Directive.
Beyond the Receiver General Directive, some anomalies were identified with K10 usage. Multiple deposits were reported with respect to three of the K10s selected, instead of an individual deposit for each K10 as required by the Financial Administration Manual. A review of the supporting documentation disclosed that one of these K10s for $68.7 million had $27.5 million deposited in the old year and the balance of $41.2 million (cash in transit) was deposited on another date in the new year.
There were also a few instances where the K10 did not reflect when the payments were actually received. For example, a K10 dated March 31, 2005, for $16.6 million deposited on April 4, 2005, was actually received at the CBSA office on April 1, 2005. As the amount was received subsequent to March 31, 2005, it was not cash in transit and had to be deducted from the cash in transit figure. Revenue Accounting, Reporting and Analysis (RARA), part of the CBSA's Comptrollership Branch, verified the cut-off going back to the original K10s and deposits, and adjusted material errors stemming from incorrect posting.
Timeliness of Deposits
Although the timeliness of deposits was not part of the audit objective, certain anomalies identified in the examination phase indicated non-compliance with the Receipt and Deposit of Public Money Regulations that require deposits be made within 24 hours of receipt. A review of the information received from the Prairie and Pacific regions indicated two to five days had elapsed before monies were deposited. It was suggested that the Comptrollership Branch seek explanations for such discrepancies. The Comptrollership Branch indicated that they would review the discrepancies to seek explanations and send a reminder to the regions, and that RARA would institute a monitoring activity at CBSA Headquarters to identify and resolve ongoing non-compliance.
Revenue Ledger
The financial records for monies received and disbursed on behalf of the CBSA in the Revenue Ledger are maintained solely by the CRA and are reflected through Revenue Ledger (RL) Account 55101.
The reconciliation of RL Account 55101 used to determine the cash in transit amounts for fiscal year 2004-2005 disclosed a variance of $1.2 million between the $2,075.2 million reported by the CRA (on behalf of the CBSA) and the $2,076.4 million reported in the RL Account 55101. This reconciliation included an adjustment of $412.3 million, which comprised 20 items with values over $100,000 to correct errors in receipt dates. However, further analysis of the established criteria revealed that an additional adjustment of $1.6 million should have been made for four more items with values over $100,000. This increases the cash in transit variance (items received on or before March 31, 2005, but not credited in fiscal year 2004-2005) to $2.8 million, which is 0.13% of the original accrual.
The CBSA did not issue separate audited financial statements for the 2004-2005 fiscal year and therefore it is subject to reconciliation with the materiality level established by the Auditor General of Canada for all departments comprising the Public Accounts of Canada. The measure of materiality is the impact of the variance in the cash in transit on the Public Accounts of Canada representing $7.7 billion. We conclude that if the materiality of the variance against the accrual itself is not material (0.13%), it can generally be concluded that the impact on the Public Accounts of Canada will also be immaterial. The Auditor General of Canada has accepted internal audit work at the CBSA for the purposes of its audit opinion on the Financial Statements of Canada (Public Accounts).
Conclusion
The audit concluded that the CBSA has complied with the guidelines and procedures for year-end cut-off and cash in transit, as stipulated in the Receiver General Directive and adopted by the CRA and the CBSA.
Audit Team
Marie Daoust, Account Manager
Maurice Fernandes, Project Leader
Carl Blackett, Internal Auditor
