Annex to the statement of management responsibility including internal control over financial reporting for the fiscal year ended March 31, 2017

Fiscal year 2016-17
Financial Policy and Internal Controls
Financial Management Branch
June 2017

On this page:

• List of acronyms and abbreviations
• Introduction
• Internal control over financial reporting
• Internal control governance
• Service arrangements relevant to financial statements
• Ongoing monitoring of key controls
• Assessment results during fiscal year 2016-17
• Three-year action plan

List of acronyms and abbreviations

PCH

Canadian Heritage

ICFR

Internal Control over Financial Reporting

TB

Treasury Board

SSC

Shared Services Canada

PSPC

Public Services and Procurement Canada

FAA

Financial Administration Act

Introduction

This annex provides information on the measures taken by Canadian Heritage (PCH) to maintain an effective system of Internal Control over Financial Reporting (ICFR), including information on internal control management, assessment results and related action plans.

Information on PCH’s authority, mandate and program activities can be found in the 2016-17 Departmental Results Reportand the 2017-18 Departmental Plan.

Internal control over financial reporting

The Treasury Board (TB) Policy on Internal Control requires that risk relating to the stewardship of public resources are adequately managed through effective internal controls, including internal controls over financial management.

PCH performs the ongoing assessment of the design and operation of its internal controls and remediates identified deficiencies to provide reasonable assurance that public resources are used prudently and that financial legislation, regulations and policies are being complied with.

Internal control governance

PCH has a well-established governance structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Minister and the Chief Financial Officer, is in place and includes:

• An annual risk-based internal audit plan, developed in consultation with senior management across the Department addresses areas of higher risk and significance. This plan is instrumental to PCH’s system of ICFR. Internal audit results reports are presented to the Departmental Audit Committee seeking recommendation for approval by the Deputy Minister. The internal controls division updates the ongoing monitoring plan annually in consultation with the Office of the Chief Audit Executive to ensure a coordination of the planning activities related to internal control assessments and internal audits.
• Organizational accountability structures as they relate to internal control management to support sound financial management including roles and responsibilities for senior managers in their areas of responsibility for control management;
• A department-wide Code of Conduct supported by management and by the Office of Values and Ethics which provides confidential, independent, impartial and informal assistance to employees and groups of employees who are experiencing conflicts affecting their work;
• On-going communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
• Monitoring of and regular updates on internal control management, as well as the provision of assessment results and action plans to the Departmental Audit Committee, in order to provide advice to the Deputy Minister on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes.

Service arrangements relevant to financial statements

PCH relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows.

Common arrangements:

• Public Services and Procurement Canada (PSPC) centrally administers the payment of salaries and the procurement of some goods and services in accordance with the PCH’s Delegation of Authority, and provides accommodation services;
• Treasury Board of Canada Secretariat provides PCH with information used to calculate various accruals and allowances, such as the accrued severance liability;
• The Department of Justice provides legal services to PCH; and
• Shared Services Canada (SSC) provides information technology infrastructure services to PCH in the areas of data centre and network services.

Specific arrangements:

• Parks Canada Agency provides the PeopleSoft system platform to capture and report human resources data.

Ongoing monitoring of key controls

Ongoing monitoring is intended to ensure that Internal Control over Financial (ICFR) continues to operate effectively and as designed and is compliant with the guidance from the Office of the Comptroller General.

Assessment results during fiscal year 2016-17

During fiscal year 2016-17, PCH continued to monitor its key financial management business processes. The following table presents PCH’s progress with regards to its previous year action plan:

PCH's progress with regards to its previous year action plan

Key business process	2016-17
Entity-level controls	Completed
Capital assets	Completed
Purchases to payables	Completed
Financial reporting	Completed

Entity-level controls

An assessment of PCH’s Entity Level Controls was conducted in collaboration with the Office of the Chief Audit Executive. The organization’s internal control framework was reviewed, including the control environment and the monitoring of financial management and financial reporting controls.

Recommendations and Actions taken:

• The role for fraud management within PCH should be clarified, which includes the conduct of regular fraud risk assessments and the promotion of fraud awareness within the Department.
• An update of the ongoing monitoring framework was developed to include the internal controls requirements of the new TB Policy on Financial Management. This includes implementing a follow-up strategy to ensure that recommendations are implemented in accordance with planned actions and timelines.
• An Information Management and Information Technology strategy should be developed to encompass the digital transformation of the department. This includes extending the current data warehousing strategies in place to the department as a whole.

Capital assets

Canadian Heritage performed a redesign of the key controls to better align with Treasury Board’s common financial business process and examined financial transactions to determine their operating effectiveness.

Recommendations and Actions taken:

• A procedure was developed to identify roles and responsibilities with regards to the Capital assets process within PCH. This procedure also summarizes TB requirements for asset capitalization and documents the process for the accounting treatment of assets under construction.
• The implementation of a bi-annual verification process for all assets being amortized is required to confirm the validity of the monthly depreciation process.
• It is recommended to implement monitoring activities around the application of the Delegation of authority for the disposal of materiel. This includes the maintenance of records to control departmental assets and to record the write-off of materiel.
• An integrated risk-based approach needs to be developed for the physical verification of departmental assets to support the Life-cycle management.

Purchases to payables

The objective of this review was to determine the operating effectiveness of the key controls for the purchases to payables process and to ensure that Canadian Heritage is compliant with the Financial Administration Act (FAA) and the key financial policy instruments issued by Treasury Board.

Recommendations and Actions taken:

• Definitions for expenditure initiation and commitment authorities (FAA section 32) were developed and communicated to reduce the risk of non-compliance.
• The account verification process was documented to promote a standardized approach in the department regarding the electronic approval of FAA section 34 by delegated individuals.
• The separation of authorities for section 41 and section 34 of the FAA was documented.
• The quality assurance activities to support section 33 certification should be documented for all payments and interdepartmental settlements.

Financial reporting

This assessment involved the review of ongoing activities and adjustments required throughout the year in preparation of year-end financial reporting. The review also focused on the activities leading to the submission of a timely and accurate trial balance in support of the preparation of financial statements and other period-end requirements. Controls with regards to external and internal reporting activities, such as departmental financial statements and Public Accounts, were documented and tested.

Recommendations and Actions taken:

• Processes for financial reporting activities were developed to:
  • Provide evidence that the Period 9 Certificate of Representations has been reviewed by the appropriate level prior to being submitted to the Deputy Chief Financial Officer for approval and signature.
  • Provide evidence that the Public Accounts have been reviewed by the appropriate level prior to being submitted electronically to the Receiver General.

Three-year action plan

The following three-year ongoing monitoring plan is based on an annual risk-based review of key business processes.

Three-year ongoing monitoring plan

Key Business Processes	2017-18	2018-19	2019-20
Grants and Contributions	x
Salaries	x
IT General Controls	x
Purchases and Payables		x
IT Application Controls		x
Capital Assets			x
Financial Reporting			x
Budgetary Control			x
Entity level Controls			x

X represents year completed

In addition to the three-year ongoing monitoring plan, Canadian Heritage will be conducting a fraud risk assessment in fiscal year 2017-18.