THE STANDING COMMITTEE ON AUDIT AND OVERSIGHT
EVIDENCE
OTTAWA, Wednesday, October 30, 2024
The Standing Committee on Audit and Oversight met with videoconference this day at 12:33 p.m. [ET] to supervise and report on the Senate’s internal and external audits and related matters; and Supervise and report on the Senate’s internal and external audits and related matters.
Senator Marty Klyne (Chair) in the chair.
[English]
The Chair: Honourable senators, I’m Marty Klyne, senator from Saskatchewan, Chair of the Standing Senate Committee on Audit and Oversight. Currently participating in today’s meetings in the room are Senator Colin Deacon and Ms. Hélène Fortin, external member from Quebec.
I would ask everyone on Zoom to please use the raise-hand function if you wish to speak and, for those in the room, please signal to the clerk.
Before we begin, I ask all in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents. Please make sure to keep your earpiece away from all microphones at all times. When you’re not using your earpiece, please place it down on the sticker placed on the table for that purpose. I thank you all for your cooperation in that regard.
Today, we will be meeting with the external auditor on the most recent audit of the Senate’s financial statements, an important part of our oversight mandate. We’re authorized by the Senate to do this work for the purposes of independence, transparency and accountability.
Before we get to the first item, I would like to highlight a few other matters. In the second portion of our meeting, the committee and the Chief Audit Executive will receive a presentation from the CFO, the Chief Financial Officer on the Senate’s contracting activity.
Over the past year, the committee, in collaboration with the Chief Audit Executive, has been working on a three-year risk‑based internal audit plan, as well as an internal audit charter. Both documents will help build and provide useful resources to the Senate’s internal audit function.
Finally, I note that we recently received the Senate’s internal quarterly financial report for the first quarter of the current fiscal year ending on March 31, 2025. We received this report for information. In reviewing the report, if members have questions, we can plan another time to meet with the CFO to discuss those items.
To begin our meeting with the external auditors on the financial statements for the fiscal year 2023-24, our first item of business is a presentation from the independent external auditors on the audit results for the fiscal year ended on March 31, 2024.
From Ernst & Young, we welcome Suzanne Gignac, Partner, Assurance Services, and Niguel Givogue, Senior Manager, Assurance Services. From the Senate Finance and Procurement Directorate, we also welcome Pierre Lanctôt, Chief Financial Officer, and Nathalie Charpentier, Deputy Chief Financial Officer and Comptroller. Thank you all for being here.
The committee has reviewed the audit results from Ernst & Young which summarize their audit work and conclusions on the Senate’s financial statements. The committee has also received the Senate’s financial statements for the year ended March 31, 2024.
The Senate’s financial statements are audited each year by an independent external auditor. The committee considers the financial statements to be an important accountability document for the Senate.
I look forward to our discussion with you today in our committee’s oversight of the external audit. The committee will meet in camera with external auditors during the second portion of this meeting.
I invite Ms. Gignac to deliver her opening remarks, and then we will open the floor for questions from committee members.
Suzanne Gignac, Partner, Assurance Services, Ernst & Young LLP: Thank you very much, Mr. Chair. I am happy to be here today. I will kick off, at a high-level, discussing our executive summary, what we did from an audit perspective, the process we went through, and then I will be happy to answer any questions.
We’ll start with a thank you to the Senate team for their help in supporting getting through the audit this year. It’s very important that they’re able to provide us with the information on a timely basis, and it was done so in the current year.
So at a high level, the audit was “substantially complete” on July 31 of this year, after which we presented to both Subcommittee on Senate Estimates and Committee Budgets, known as SEBS, and the Standing Committee on Internal Economy, Budgets and Administration, known as CIBA, on our audit results and issued our audit opinion subsequent to those two meetings on October 10, 2024.
As part of our audit, our scope was in line with what it was during our presentation of the audit plan. We continually reassess our planning materiality. It was based on 2.5% of expected expenditures, which was $2.9 million, and that is in line with what it ended up being at the end of the audit as well.
Our areas of emphasis are described in the audit results, as well as what tests we do in those areas; it’s a substantive audit, so we don’t rely on controls. We do confirmation, substantive analytic procedures and tested details over actual numbers in the financial statements.
At the time when we issued the audit results, we did have some procedures still to be completed. Those were all completed prior to or on October 10, so that we could issue our audit opinion. As part of our audit, we consider fraud. We did not identify any fraud or other items to bring to your attention. We did not identify any corrected or uncorrected misstatements nor any disclosure deficiencies to bring to your attention.
Finally, we included in our audit results an appendix, which includes our required communications, most of which I’ve just covered off, including and adding to that, I guess, that we are also independent of the Senate as your auditor. We also include a draft letter of representation that was signed by management prior to our issuance of the financial statements, which covers off what we asked management to represent in the financial statements that they provided us with all relevant information. Then we included some thought leadership, which was really just for oversight of the committee and other committees we presented to in their role.
With that, as I mentioned, we have issued an unmodified opinion. We are happy to answer questions on the audit.
The Chair: Thank you for your presentation. Before I open the floor to questions, I would like to remind committee members that we are in public. We will have an opportunity to meet with the auditors in camera and without any staff present after the first portion of the meeting. With that, do we have any questions or observations for the external audit?
Hélène Fortin, external audit member: Thank you all. Great documents, great presentations. Before we go into the questions — and I do have a few questions for Ms. Gignac and her team, and also for Mr. Lanctôt — I’m just looking to get an idea of the process. Are we going to go through the financial statements first, or do we jump right away into the various questions?
The Chair: We should ask questions of the external auditor as it relates to the financial statements they are presenting.
Ms. Fortin: Okay, I’ll stick to the process questions.
My first question is for Ms. Gignac. Have you identified — because you may have identified — or would you communicate any opportunities for improvements to the internal control processes as you may have depicted them?
My sub question — and I ask it readily — can you think of any area or controls that the internal audit function, newly established at the Senate via the Audit Committee, could look into and which would also be useful for your future planning with regards to the external audit of the financial statements? Those are my two questions for the time being. I will have more later.
Ms. Gignac: Thank you. As for the first one on improvements and process, as part of our audit procedures, we do get an understanding of the process, which includes walking through the processes for the significant accounts and, in certain cases, understanding the controls, although we don’t test them. We did not identify anything to bring to your attention specifically over improvements for the processes or controls at this point in time. We don’t anticipate issuing a management letter. If we had identified any control issues as a result of our work, we can issue a management letter, but we don’t anticipate issuing one in the current year.
With respect to the internal audit, I think some items were raised in earlier committee meetings that might be of interest to the internal audit team. From our perspective, because we are primarily a substantive audit, I do not believe it would be the most efficient to turn into a controls-based audit. While the internal auditor may choose to do testing over controls, we are unlikely to change our audit strategy as a result of that. I don’t have anything specific that we would point the internal auditor toward to specifically review, but we certainly do see in a lot of cases that the internal auditor does work over the internal controls to gain an understanding of the efficiency and effectiveness of those controls.
The Chair: Thank you.
Senator C. Deacon: It’s nice to see you all again. Thank you for being with us. I’m going to do a more fine-grained analysis of the question that Ms. Fortin just asked. Do you feel that our current financial management controls are providing an appropriate balance between absolute certainty and process efficiency when you compare it to what is done in other similar organizations?
Ms. Gignac: We gain an understanding of the process. We walk through the process. We don’t do detailed work over the controls. I wouldn’t be in a position to opine or give my thoughts specifically on whether the controls are the best for efficiency or effectiveness, those types of things. That might be something that internal audit could look at if they are interested in that particular topic, but I think that’s outside of the purview considering we’re in a substantive audit world for the Senate.
Senator C. Deacon: So nothing jumped out to you; that’s what I’m hearing.
Ms. Gignac: From our walk through, nothing jumped out that would be a concern or an issue that we felt we needed to bring to your attention.
Senator C. Deacon: The audited financial statements for the House of Commons were released in early June for the same financial period. Do you have insights or observations into the process at the Senate that causes ours, historically, to be delayed and where we could perhaps speed up our process to be more in line? Because timing and transparency are often linked to credibilities. Thank you.
Ms. Gignac: I don’t have details on the House of Commons process and how they are meeting their specific deadline, but I do think, from our perspective, the process is fairly efficient. There are a number of things, from my understanding, that Senate management has to deliver for other deadlines, so we come in when their financial statements are ready to go and we perform the audit. The delay then becomes the timing for when we can present to the various committees to actually get the final approval. The financial statements and the results were ready July 31, not that much later than what you’re suggesting, but then there is the timing issue of presenting them and actually getting the approvals for those financial statements. Management can perhaps respond as well if interested.
Ms. Fortin: Ms. Gignac, I’m referring to note 11 on the financial statements, which pertains to the pending litigation and claims and the comments that the impact of these is not expected to have a material consequence on the Senate’s statements or financial position. I’m wondering if you can briefly speak to the kind of audit work you have carried out to assess the non-materiality of pending litigation and claims and perhaps speak to the nature of those claims as well.
Niguel Givogue, Senior Manager, Assurance Services, Ernst & Young LLP: I’ll go into the process that we follow, the audit procedures, with regard to audit legal games. We send a legal confirm to your internal counsel, and we have discussions with management as to their assessment of likelihood and the measurement of any liabilities that would be recorded. As for the nature, I’m not going to go into those details, because they might be confidential at this time.
The Chair: Thank you.
Robert Plamondon, external audit member: Thank you, chair. My apologies for not being here at 12:30. Not entirely unrelated, I was leading a simulation exercise for senior internal auditors in the Government of Canada and helping to prepare the next generation of leaders that will follow in those footsteps at the University of Ottawa. My apologies.
Ms. Gignac, as I read your report and your audit report, everything is clean. There are no errors, there are no proposed entries, not even below the level of materiality, but there is nothing. You got a set of financial statements from the finance branch that was delivered to you, and you are providing your opinion that they meet general accepted accounting principles, so it’s clean as clean can get.
The fact that there is no management letter is significant in itself, and if there was something that came to your attention in the course of doing a substantive work — recognizing you’re not doing a review of internal controls — but or reviewing working papers, if there was something that seemed odd to you or that warranted further investigation, you would have done that. Since there was nothing that was noteworthy, you were able to rely on the substantive work.
I thank you for the audit and for the work to get it done. Certainly, this year, it was faster than last.
You mentioned that the issues around the timing of the audit relative to the House of Commons — and I’m not asking you about that — and the issues around doing it in July versus an earlier time frame are entirely with management, because of their workload, schedules, priorities and where they can fit it in. Is there anything in your time frame that would be a concern if there were a proposal to accelerate the time frame? Could you meet an earlier time frame than the July date when you signed these financial statements if the working papers and the financial statements were given to you earlier than they are at present?
Ms. Gignac: I believe if we were asked to do it earlier, then we would work through our scheduling to make sure we could do that. We do have limitations from a resource perspective as well, so we have to manage those and make sure they are also resources that can work on Senate type of work.
Can I speak directly to the fact that we could do it absolutely? No. But I believe we would do our best to meet the timelines that are asked for by the Senate and to meet management’s requirements as well, to the extent we can.
Mr. Plamondon: I take it that there is no inherent impediment?
Ms. Gignac: No.
Mr. Plamondon: There may be other challenges that you have to address, but, theoretically, the timeline could be changed, and you could still fulfill your audit responsibilities?
Ms. Gignac: I believe we could still fulfill our audit responsibilities if we were provided with all the information and there was time to actually prepare the financial statements in advance of us coming in to do the audit work.
Mr. Plamondon: Great. Thank you.
Those are my questions, Mr. Chair.
Senator C. Deacon: I think we already covered it, but are there any specific observations as to where the role of internal audit could be used most effectively? I got from you that there was no specific element in that regard earlier.
I’m wondering about the observation that we need to understand and be aware of the risks of artificial intelligence, or AI, in the organization, and also your section where you talk about how boards can sharpen their focus on innovation. I wonder about the extent to which our organization — relative to others with similar risks and, certainly, potentially target organizations like ours — is managing that innovation side of things, relatively speaking?
You’re seeing that we are identifying and managing the risks associated with AI and with the need to innovate in order to bring in cost efficiencies, there is just a percentage of budget that is being invested in these things and the priorities or changes that you’re seeing being implemented.
Given that you have these in your report, I would love to have some fleshing out of that as it relates to our particular organization.
Ms. Gignac: We have them in the document, in your oversight role, to understand what we’re seeing in industry and where we’re seeing risks, what we’re seeing organizations being interested in and what questions that we think audit committees should be asking an organization about how they are leveraging AI and how they are managing the risks around cyber and so forth. It’s really there from that perspective.
We see varying degrees, depending on the size of organizations, as to how far along the AI curve they are, how far along the cyber curve they are and those types of things.
I think at a high level, we wouldn’t do audit work specifically around the costs associated with the Senate doing something that is an innovative project or something to that effect. That’s more of an efficiency effectiveness type of thing.
To your question around internal audit, that’s the type of process or efficiency effectiveness thing that we might expect an internal audit group to consider if the Senate felt that was a relevant area to look at.
From a financial statement audit, it is not an area that we are specifically focused on. We will look at the cyber risk if there is a cyber incident. We do very specific procedures over cyber incidents, and we get an understanding that there is some management and risk process around it, but that’s really the extent of what we do, from our perspective, on a financial statement audit.
Senator C. Deacon: These are just included as a standard item that you include with anybody, written exactly the same way, not in any way pointing to our organization?
It has been in your report two years in a row now, so I’m assuming you’re saying something to us, but you’re not?
Ms. Gignac: We do it as an oversight, as in your oversight role to understand what we see audit committees asking about and what we see audit committees interested in, but it’s really more in your oversight role, and it’s not specific to you.
There are articles and for most of them, you can link into the article and actually see what EY has done around AI around what audit committees should ask about AI and what EY has done from a cyber perspective.
So it’s not specific to the Senate, no. It’s thought leadership written by EY on the topics.
Senator C. Deacon: Thank you.
The Chair: Seeing no further questions, I want to thank you for your presentation and for answering our questions. We appreciate you taking the time to have this discussion with us today on this very important document.
We will now move in camera.
(The committee continued in camera.)