Audit Report - Report on Financial and Administrative Controls of the Immigration Loans Program

Final Report
Internal Audit and Disclosures Branch
Citizenship and Immigration Canada
October 2005

Table of Contents

• A. Overview of Immigration Loans Program
• B. Review Objectives
• C. Approach
• D. Review Criteria
• E. Our Findings
  • E.1 Immigration Program Accounts Receivable (IPAR) System
  • E.2 Interest Calculations on Pre-2004 Loans
  • E.3 Calculation of Historic Loan Recovery
  • E.4 Interest Rates
• F. Review Conclusions
• G. Action Plan

A. Overview of Immigration Loans Program

Pursuant to section 88 of the Immigration and Refugee Protection Act (IRPA), CIC manages the Immigration Loans Program (ILP). The program was established in 1951 through a loan fund that is sustained by the collection of repayments on existing loans to finance new loans. The current limit on the loan fund is $110 million.

On March 31, 2004, there were 17,482 outstanding loan accounts amounting to $42.5 million. In 2003–2004, 4,473 new loans were established, amounting to $12.5 million. In the same period, the collection of existing accounts amounted to $14.1 million.

The ILP provides financial assistance, in the form of a loan, to eligible applicants to cover costs in the following areas (transportation loans comprise the majority of funds loaned under the ILP):

• Admissibility loan – provides financial assistance to Convention refugees and members of the Humanitarian Protected Persons Abroad Class to cover the costs of medical services required to establish their admissibility to Canada;
• Assistance loan – provides financial assistance to foreign nationals, permanent residents, Convention refugees and members of the Humanitarian Protected Persons Abroad Class to cover the costs associated with the initial settlement of people granted admission to Canada. These costs include the basic necessities of life, basic household needs and labour market access needs;
• Right of Permanent Residence Fee (RPRF) loan – provides financial assistance to foreign nationals to cover the cost of the RPRF when seeking permanent residence for themselves or family dependants. Convention refugees and members of the Humanitarian Protected Persons Abroad Class are exempt;
• Transportation loan – provides financial assistance to foreign nationals, Convention refugees and members of the Humanitarian Protected Persons Abroad Class to cover the costs of transportation for themselves or their family dependants to their place of final destination.

In general, the ILP operates with two governing policy directives: (1) loans are approved only for people who can demonstrate the need for a loan; and (2) loans are approved only for people who can demonstrate the ability, or potential ability, to repay the loan required. Convention refugees selected abroad and members of the Humanitarian Protected Persons Abroad Class are subject to an interest-free grace period on loans, which may vary from one to three years depending on the size of the loan. All other loans bear interest.

B. Review Objectives

A requirement for an advisory engagement to assess the ILP financial and administrative control environment was identified in the current risk-based audit plan of the Internal Audit and Disclosures Branch. The key objective was to determine if controls and procedures were sufficient to ensure that the ILP complied with section 88 of IRPA and the related regulations (Part 18: Loans – 288 to 293). We were to report on any issues or areas for improvement identified.

C. Approach

Our review involved enquiry, analysis and discussion with various staff within the Finance, Resettlement, and Information Management and Technologies branches (IMTB) to obtain an adequate understanding of key controls by area. Our review commenced in late January 2005 and concluded in late March of the same year.

In Addition, we completed tests on a limited number of transactions to confirm the understanding we obtained through enquiry and discussion. The tests were primarily in the areas of new loan creation, interest calculation and application, collection status and payment/receipt. We also reviewed the annual write-off procedures and the calculation of historic loan recovery/net realizable value (NRV) in detail.

D. Review Criteria

Our review focused on determining whether the ILP control environment was adequate to achieve appropriate completeness, accuracy, existence and valuation for transactions in each key control area identified.

E. Our Findings

E.1 Immigration Program Accounts Receivable (IPAR) System

The IPAR system was designed and created in the mid-1970s and comprises some 110 COBOL programs running on a mainframe system. Many key functions operate in weekly or monthly batch update mode. (Section removed)

Consulting and Audit Canada completed the “Review of Immigration Program Accounts Receivable (IPAR) System” in 1998. The review was conducted from January to June 1998, with a final report issued in November of the same year. The report was critical of the IPAR system and strongly recommended its replacement with SAP or another commercial off-the-shelf system or custom-developed system.

(Section removed) The compensating controls and processes currently in place are sufficient to achieve an adequate control environment over the Immigration Loans Program.

Management has informed us that they have analysed and developed system requirement specifications in anticipation of the need to replace the IPAR system.

Recommendation 1

The IPAR system should be replaced. Management should continue to seek funding for a new system.

Management Response

DG, Finance Branch: Agreed. Finance has been in consultation with IMTB and has examined, and continues to examine, replacement options for the IPAR system. At the present time, there are no off-the-shelf products that meet our requirements. (Section removed)

E.2 Interest Calculations on Pre-2004 Loans

Neither IRPA nor the Regulations specify how interest is to be compounded. IRPA only notes that interest should be charged at the annual rate set each year by the Minister of Finance for Crown corporation loans. Interest calculations on pre-2004 loans are based on a rate factor that incorporates biannual (twice a year) compounding of interest. This rate is factored into the IPAR system, which then calculates interest, applying monthly compounding. Therefore, monthly compounding is charged in addition to biannual compounding.

In early 2004, Finance staff questioned the use of the biannual compounding factor in setting the system interest rate. As a result, in 2004, the rate was altered for new loans to ensure that interest is only compounded monthly. Pre-2004 loans have always been charged interest with biannual and monthly compounding and no change has been instituted for these loans.

The overall effect of additional compounding of interest is not significant for any given loan account balance. However, the practice of applying interest should be consistent.

Recommendation 2

Management should confirm the method of compounding interest on loan accounts and apply it consistently across all loan balances.

Management Response

DG, Finance Branch: Agreed. To remove any uncertainty as to how the interest is compounded, a clarification in the Regulations will be sought.

DG, Refugees Branch: Agreed. The Refugees Branch would like to ensure that the rate of interest charged to refugees is the lowest rate of interest charged to Crown corporations. The Refugees Branch will support the Finance Branch.

E.3 Calculation of Historic Loan Recovery

The overall repayment rate of 91 percent for the ILP is published in the CIC Departmental Performance Report and is quoted internally for various purposes. It is a key statistic on the performance of the ILP. The loan recovery percentage rate of 91 percent is calculated by Finance based upon an historic analysis of pre-1995 loans only. This analysis tracks loans initiated prior to 1995 to show what percentage of these loans has been collected to date. The analysis includes the effect of interest charged and collected on the loans. Additionally, an analysis of more recent loans for 1995 to 1999 was completed that generally supports the overall recovery rate noted above.

E.4 Interest Rates

Section 293 of the Immigration and Refugee Protection Regulations stipulates that “a loan made under this Part bears interest at a rate equal to the rate that is established by the Minister of Finance for loans made by that Minister to Crown corporations and that is in effect on the first day of January in the year in which the loan is made.” Once set, the rate of interest applied to the loan is not changed regardless of how long it takes the client to repay the loan. Interest rates applied to loans do not fluctuate with any market movements in interest rates. Rather, the rate is fixed for the entire duration of a given loan.

There are a small number of examples of outstanding loans still on the books that originated in the early 1980s through to the mid-1990s and that continue to carry interest rates considerably in excess of prevailing market rates.

We asked management whether they had evaluated their practice with respect to the application of fixed interest rates. They indicated that they were aware of the issue and that while no evaluation had been undertaken to date, management was committed to undertaking such an evaluation when a new system is adopted.

F. Review Conclusions

Based on the work conducted in our review, we have concluded that the ILP control environment is sufficient to ensure effective control in each key area, and that it complied with section 88 of IRPA and the related regulations (Part 18: Loans – 288 to 293). However, a number of recommendations have been made that would improve the efficiency and consistency of the program.

G. Action Plan