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LAC's documented procedures were aligned with relevant legislations and designed to document key controls.
The Canada Revenue Agency (CRA) requires that the FMV of a gift in kind be determined as of the date of the donation before an amount can be recorded on an official donation receipt. The CRA further recommends that donations with a value greater than $1,000 be appraised by a competent and qualified independent third party.
The Appraisals and Acquisition Branch had documented policies and procedures2 for the appraisal of acquisitions as well as the issuance of tax receipts. These policies specified the requirements for the appraisals of the FMV of donations and required donations in kind to be appraised. The policy further specified that donations with a monetary value greater than $1,000 be appraised by an external party. The review of these policies and procedures demonstrated that they were effectively designed to be in compliance with the Canadian Income Tax Act and the Cultural Property Export and Import Act.
In addition, key controls in the acquisition process were effectively designed to ensure that appraisals were performed in accordance with relevant legislation. These key controls are discussed later in this audit report.
We also noted that LAC was in the process of establishing a common framework, the Whole of Society Model (WoSM), for the assessment and acquisition of documentary heritage. Management should ensure that the key controls identified through this audit are considered in the design of the WoSM and associated policy and operational instruments.
Acquisition procedures were well understood by LAC personnel; however improvements are required in the application of key appraisal controls.
Based on the results of the interviews, walkthroughs, and testing of a sample of acquisition files, the audit confirmed that LAC representatives have a solid understanding of the acquisition procedures in regards to monetary appraisals and issuance of tax receipts. In addition, acquisition procedures were available and easily accessible on LAC's intranet.
LAC also implemented a number of controls to ensure that monetary appraisals were performed in accordance with relevant legislation. Key controls identified through the audit included the following:
Based on the results of the review of the acquisition files, the audit team noted the following observations:
Management should address the weaknesses noted above regarding the unsigned Acquisition Proposal forms and lack of evidence supporting MAC's decision to ensure that these key controls are consistently applied and documented. These controls ensure that acquisitions are aligned with LAC's mandate.
Furthermore, to maintain a qualified donee status under the Income Tax Act, public bodies must keep adequate books and records. On the basis of these observations, the CRA could determine that LAC does not comply with the Income Tax Act requirements in relation to its qualified donee status.
Management should reinforce the rigour associated with the governance related to the acquisition process to support management decisions.
Management should reinforce the rigour associated with the application of the controls and define the expected documentation requirements that must be retained in each donation file to support key controls. In addition, management should establish a quality control process to ensure that all required documentation has been properly completed.
LAC does not have a formal and regular reporting mechanism to monitor the status of donation receipts issued or in process.
LAC implemented a monitoring process for donations currently in the process of being appraised (active donations). Specifically, management implemented a report, known as the pipeline, which provided a summary of the status of the active donation files. However, in the course of the audit, we noted that the pipeline had not been updated on a consistent or timely basis, and that information on the overall status of donation receipts issued was not readily available. Furthermore, the information from the MIKAN system could not be reconciled to the pipeline, and therefore, we were not able to confirm the completeness of the donations.
Although LAC maintained a summary table of donation receipts issued, LAC was not able to provide the audit team with a detailed report to substantiate the donation receipts issued during the period under review. Representatives of the Appraisal and Acquisition Branch confirmed that these reports were not readily available and would require substantial manual intervention to prepare.
By not having the capacity to produce a detailed list of donations, LAC cannot efficiently monitor the issuance of donation receipts and ensure compliance with the Income Tax Act.
Management should ensure that monitoring reports are regularly prepared and reviewed. These reports should provide sufficient information to ensure donations are aligned with LAC's mandate.
2 Tax Appraisals and the Certification of Cultural Property - Policies and Procedures