Why we performed this audit
The Income Replacement Benefit (IRB) recognizes and compensates Veterans for the economic impact that health problem(s) resulting primarily from service have on their ability to earn income and save for retirement. The IRB is calculated by taking 90 per cent of a Veteran’s salary at the time they were released from the military (indexed annually to the present day to account for inflation), less offsets. In 2021-22, there were over 26,000 IRB clients, and total expenditures of almost $963MFootnote1, which represents approximately 22 per cent of Veterans Affairs Canada (VAC’s) annual grants and contributions expenditures. IRB clients and expenditures have been growing on an annual basis.
This audit assessed the internal controls for calculations of IRB monthly payments, as well as the risk management of the income offset piece of the IRB calculation. Some areas were excluded from the scope of the audit, as described in Section 2.
Key findings
The complexity of the IRB program means VAC employees may be continuously involved with each IRB recipient’s file. This is because each time a recipient’s circumstances change, such as a change in employment income, VAC employees need to obtain supporting documentation and recalculate the monthly IRB amount. Internal controls for the calculation of benefits are key to ensuring accurate, consistent benefits. The audit found that there are policies and business processes in place, however, various documents that guide decision making (known as “functional direction”) are not approved or kept in a standardized format or central location. Training provided to employees also does not follow a set training plan and consists mainly of peer-to-peer job shadowing. There are minimal quality control processes in place. The information technology (IT) tools provided to employees are not adequate, as they are working in three separate IT systems to process the IRB.
With respect to risk management, the audit team could not find evidence regarding who was accountable for risk management at the program level, which should include risk management of income offsets. Risks related to income offsets have been identified, however there is no risk management process in place. The internal controls to mitigate risks around income offsets require improvement.
Highlights of our recommendations
The audit identified recommendations which include:
- updating, approving and centralizing storage of functional direction documents
- implementing a formal training plan and a quality control process
- implementing system enhancements to eliminate the need to work in multiple systems for the processing of IRB decisions
- defining and implementing responsibilities for program risk management
- implementing a more defined and complete process to verify income offsets.
Chief Audit Executive’s signature
Lindy McQuillan, CPA, CMA
Chief Audit Executive
Veterans Affairs Canada