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The LAC 2011-14 Risk-Based Audit Plan identified the need for an audit to be conducted to assess the adequacy of the control environment over the monetary appraisal of acquisitions and the issuance of tax receipts following a donation of collection items.
LAC is an organization within the Canadian Heritage portfolio whose mandate includes the acquisition of documentary heritage that best presents an accurate and representative portrait of Canadian society.
In order to achieve this mandate, LAC acquires archival items from three primary sources:
As stated in the Income Tax Act, donors of documentary heritage are eligible for tax credits for the fair market value (FMV) of the donation. Tax receipts allow the donors (for individuals) to claim a federal tax credit equal to 15% for donations of less than $200 and 29% for donations of that amount and over. The receipts also allow donors to claim provincial tax credits which vary depending on the province of residence of the donor.
In addition to the above tax credits, the Cultural Property Export and Import Act, allows additional tax incentives for donations of movable cultural property. The Act, which is administered by the Canadian Cultural Property Export Review Board (CCPERB), was established to regulate the import and export of cultural property and provide special tax incentives to encourage Canadians to donate or sell such objects to Canadian public institutions. The tax incentive exempts the donor of any assessment of related capital gains based on the attestation of cultural property by the CCPERB.
LAC's policies require that donations estimated up to a FMV of $1,000 be appraised internally. Donations with an estimated FMV above $1,000 must be evaluated by a third party. The National Archival Appraisal Board (NAAB), an independent appraisal society, has been selected as LAC's primary appraiser based on a competitive selection process. In instances where the NAAB does not have the competencies or resources to appraise the donation, LAC may call upon an independent appraiser to perform the appraisal. In addition, all donations above $5,000 are also presented to the CCPERB for attestation of cultural goods.
The table below provides a summary of the volume of monetary appraisals completed for donations during the fiscal years 2005-06 to 2010-11.
|MONETARY APPRAISALS OF DONATIONS|
|Fiscal Year||Total Number of Appraisals and Tax Receipts Issued||Source of Appraisal||Application for Cultural Certification (CCPERB)||Value in $ Millions|
|Internally by LAC ($ 1,000 or less)||NAAB||Other Private Source|
* Note – Appraisal activities ceased during fiscal 2010-11. No tax receipt was issued for this item.
A risk assessment was conducted during the planning phase of the audit to ensure the audit focused on the areas of most significance. The following main risks were identified:
The objective of this audit was to determine if LAC had policies, systems, and controls in place that were communicated and followed in practice to enable transparent and effective monetary appraisals of acquisitions and subsequent issuance of tax receipts for donations, as per the requirements identified in the Income Tax Act.
The audit criteria for this audit were:
The audit field work was carried out from January to March 2012. The audit focused on the assessment of LAC's policies, procedures, processes and controls over the monetary appraisal of acquisitions and subsequent issuance of tax receipts as per the Canadian Income Tax Act and the Cultural Property Export and Import Act. The audit covered acquisition transactions (donations and purchases) for fiscal years 2005-2006 through 2010-2011.
The audit field work was conducted in accordance with the Government of Canada's Policy on Internal Audit and with the auditing standards established by the Institute of Internal Auditors. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that the audit objective is achieved.
The audit included various audit procedures as considered necessary to provide such assurance. These included but were not limited to the following:
1 LAC's collection management system