Imports and Exports: A Risky Business An Issue for Executive Management Presentation for: CAUBO Conference June 2007

2 Presenters Phyllis Clark Vice-President (Finance & Administration) & Chief Financial Officer University of Alberta Barry Travers Tax Partner KPMG Edmonton Jody Brookwell Associate Director, Supply Management Services University of Alberta

3 Overview Non-financial risks to our Institutions U of A management of these risks External perspective on the assessment of risk U of A action plan to address risk as it relates to imports and exports.

4 Internal Control Business of Risk Other Risks Faculty / Unit Business Risk Financial Statements Risk ERM

5 Risk Management “Other” Non-Financial risks Embedded in U’s businesses Risks to: –Reputation –Research projects –Programmes

6 Risk Management Environmental influencers of other Risk

7 Sponsored Research Funding ($ Millions)

8 Legislation Access to the Future Act Administration of Estates Act Agricultural and Recreational Land Ownership Act Alberta Bill of Rights Alberta Capital Finance Authority Act Alberta Corporate Tax Act Alberta Energy & Utilities Board Act Alberta Health Care Insurance Act Alberta Heritage Foundation for Medical Research Act Alberta Heritage Foundation for Science & Engineering Act Alberta Heritage Scholarship Act Alberta Science & Research Authority Act Animal Keepers Act Animal Protection Act Cancer Programs Act Charitable Fundraising Act Constitution Act Dangerous Goods Transportation & Handling Act Employment Standards Code Environmental Protection & Enhancement Act Expropriation Act Financial Administration Act Fiscal Responsibility Act Freedom of Information & Protection of Privacy Act Gaming & Liquor Act Health Disciplines Act Health Information Act Health Professions Act Human Rights, Citizenship & Multiculturalism Act Human Tissue Gift Act Income Trusts Liability Act Insurance Act International Trade & Investment Agreements Implementation Act Labour Relations Code Land Titles Act Legal Profession Act Libraries Act Livestock & Livestock Products Act Medical Profession Act Mental Health Act Mines & Minerals Act Motor Vehicle Accident Claims Act Occupational Health and Safety Act Occupational Therapy Profession Act Peace Officer Act Pension Fund Act Personal Information Protection Act Pharmaceutical Profession Act Police Act Post Secondary Learning Act Professional & Occupational Associations Registration Act Public Health Act Public Sector Pension Plan Act Public Utilities Board Act Radiation Protection Act Safety Codes Act Smoke Free Places Act Student Financial Assistance Act Traffic Safety Act Trespass to Premises Act Water Act Wildlife Act Workers’ Compensation Act

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10 Why the Import Review? Pre-emptive Business/ process risk/ medium level risk Import/Export Biggest Surprises

11 VP Level Challenges Recognizing the risk Selling the risk - Getting organization onside People and processes - Shortage of talent Keep it going

12 Assessment of Risk – External Perspective The Sarbanes Oxley Act of 2002 Management required to make representations on the effectiveness of internal controls over financial reporting Audit Committees now bear the overall responsibility of monitoring the completeness and accuracy of disclosures.

13 Assessment of Risk – External Perspective Attestation requirement shifts more responsibility and liability to management and the Audit Committee. External auditors have some limited involvement to discharge their obligations under GAAP.

14 Changed Environment …External Auditors are NOT required to perform ANY procedures to assess the accuracy, reliability or completeness of non-financial information. …so how does Management gather the information required in order to make the representations on the effectiveness of internal controls as these relate to indirect tax commitments of a PSB.

15 Tax/Indirect Tax Attestation Tax – particularly Indirect Tax – is embedded in many aspects of the organizations financial data. In the C-SOx environment, Management is accountable for: Documentation of specific tax risks inherent in the organization; Significant classes of transactions; Account balances; Financial statement disclosures; and Significant non-routine and non-systematic transactions. Management is responsible for identification of tax risk that could be a significant factor influencing management’s estimates.

16 Where do the Issues of Risk Reside ? The areas of risk generally can be found in the following categories: Technical or factual inaccuracies in terms of application of tax; Miscoding of expenditures, or Incorrect recognition of tax liability in regard to classes of transactions; Late submission of returns, elections, or payment of taxes; Communication received by/with Finance Board of Directors or Management involvement with significant tax strategies.

17 Imports/Exports Areas of Risk The following are the key specific risk areas related to Customs Compliance: ImportsExports Valuation Tariff Treatment End-Use Provisions Reporting Requirements OGD Requirements High Value Goods Export Controls Area Controls Subsequent Re-Import High risk of non-reporting

18 Overview of Findings The findings of the import/export review of a University tends to uncover the following: Heavy reliance on broker with perception that – “everything must be OK!” Decentralized environment causes widespread risk potential. Fundamental lack of internal processes to complete a “self-review” of key documents.

19 Overview of Findings Documentary deficiencies in most risk areas which would produce penalties and duty. Significant reputational risk for certain funding programs under OGD requirements. Risk of slower movement of goods across the border. Need for training to increase knowledge level of requirements to staff asked to administer processes.

20 U of A Experience Engaged KPMG to complete a Customs Verification Audit of import transactions. Objective

21 U of A Experience Audit Findings:  Errors in all four risk categories  Non-compliance to OGD requirements

22 U of A Experience Final Report recommendations  Correct errors & pay duties/taxes owing $$$  Review internal processes  Improve communication & training

23 Other Government Departments OGD permits or certifications are required for certain imported goods: Canadian Food Agency (CFIA) Health Canada Industry Canada Transportation Canada Department of Justice Canada Atomic Energy Control Board International Trade Canada

24 U of A Example Import transaction – Human Pathogen Declared Value - $ Canadian Cost to Import - $ Risk to Institution – “Priceless”

25 U of A Action Plan Structure a Customs Division and develop expertise in- house. Build on relationship with Customs Broker. Update internal Import and Export procedures.

26 U of A Action Plan Involve procurement - review distributed purchasing systems Develop a Communication and Training Strategy. Develop plan for ongoing internal compliance reviews.

27 Next Steps Review of Export transactions Ongoing compliance reviews – Imports and Exports Take advantage of future CBSA programs Communication and Training – Keep it Going!

28 Summary Big reputational risks; many external Departments Sleeper Pre-emptive – short term pain for long term gain

29 Your Questions?