Unaudited financial statements for the period ending March 31, 2020, Environment and Climate Change Canada, chapter 7

Annex to the Statement of Management responsibility including internal control over financial reporting 2019-20

1. Introduction

This document provides summary information on the measures taken by Environment and Climate Change Canada (ECCC) to maintain an effective system of Internal Control over Financial Reporting (ICFR), including information on internal control management, assessment results and related action plans.

Detailed information on ECCC’s authority, mandate and program activities can be found in the last Departmental Results Report and the current Departmental Plan.

2. Environment and Climate Change Canada’s system of internal control over financial reporting

2.1 Internal control management

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

• Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers in their areas of responsibility for control management;
• Values and ethics code;
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
• Semi-annual monitoring of, and regular updates on, internal control management, as well as the provision of related assessment results and action plans to the Deputy Head and senior departmental management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee provides advice to the Deputy Head on the adequacy and functioning of the department’s risk management, control, governance and processes.

2.2 Service arrangements relevant to financial statements

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

Common service arrangements

• Public Services and Procurement Canada (PSPC) provides accommodation services and administers the procurement of goods and services, and the payments of salaries in accordance with ECCC’s delegation of authorities. ECCC relies on the effectiveness of the PSPC Phoenix pay system and related activities and practices;
• Shared Services Canada (SSC) provides information technology (IT) infrastructure services to ECCC in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and ECCC;
• The Department of Justice provides legal services to ECCC;
• The Public Prosecution Service of Canada provides prosecution services to ECCC; and
• The Treasury Board of Canada Secretariat provides services related to public sector insurance for ECCC employees and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans on behalf of ECCC.

Specific arrangements

• Agriculture and Agri-Food Canada (AAFC) provides ECCC with a System Applications Products (SAP) financial system platform to capture and report all financial transactions. Under this arrangement, ECCC relies on AAFC for the management of certain IT controls and procedures (e.g. security, configuration, change management, business continuity) and also of various master data functions in SAP.

Readers of this Annex may refer to the Statement of Management Responsibility (SOMR) Annexes of the above-noted organizations for a greater understanding of the systems of ICFR related to these specific services.

3. Departmental assessment results during fiscal year 2019-20

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.

Progress during the 2019-20 fiscal year

Previous year’s rotational ongoing monitoring plan for current year	Status
Expenditure Management - Pay Administration	Completed as planned; remedial actions started
Expenditure Management - Operating and Maintenance Expenditures	Completed as planned; remedial actions started
CFO Attestation for Cabinet Submissions	In progress, on track
Budgeting and Forecasting	In progress, on track
Investment Planning	In progress, on track
Costing	In progress, on track

The key findings and significant adjustments required from the current year’s assessment activities are summarized below.

3.1 New or significantly amended key controls

Significant efforts, including the use of data analytics, continued to be deployed this fiscal year to enhance the control framework for the Expenditure Management (EM). Key changes made to the ECCC Pay Administration process include the implementation of a quality assurance program for monitoring the accuracy of pay transactions. In addition, the Department established enhanced quality assurance reviews on the payment verification process for Operating and Maintenance Expenditures. Finally, ECCC updated its Business Continuity Management Program for Essential Financial Functions that was ready for implementation on time to respond to the COVID-19 pandemic.

3.2 Ongoing monitoring program

In 2019-20, ECCC followed its rotational ongoing monitoring plan of internal controls over financial management as per the Treasury Board Financial Management Policy Suite requirements. This plan is consistent with the SOMR and is reviewed based on emerging priorities.

As such, the Department performed an assessment of the following business processes: EM-Pay Administration, EM-Operating and Maintenance Expenditures, Budgeting and Forecasting, Investment Planning and CFO Attestation for Cabinet Submissions.

Expenditure Management - Pay Administration

The Department reached the ongoing monitoring status for Pay Administration during 2019-20 and continues to be proactive in addressing potential pay-related issues and sharing best practices. ECCC implemented this year a quality assurance program that includes post payment verification of pay transactions and data analytics.

This year, ECCC enhanced its monitoring of Phoenix Time and Labour module and the data transferred between PSPC and ECCC for completeness and accuracy. The Department is also improving its monitoring of Human Resources Management System and Phoenix access rights, of managers’ validation of salary actuals and of authorization of pay transactions.

Expenditure Management - Operating and Maintenance Expenditures

Operating and Maintenance expenditures process include the following ICFR processes: Interdepartmental Settlement; Procure to Pay; Travel; Administration of Acquisition and Fleet Cards; and Delegation of Financial and Spending Authorities. At ECCC, these types of expenditures are subject to a quarterly account verification. An Account Verification Awareness Program is in place and contributes to communicating the quarterly results to delegated managers.

This year’s assessment concluded that controls on high risk expenditures were effective. In addition, new control measures were implemented to support ECCC delegated managers in reducing error rates in the low and medium-risk category, such as referring to central repositories to confirm the existence of supporting documentation and issuing awareness for delegated managers on the proper claiming of travel expenses.

In the next fiscal year, notably due to the COVID-19 pandemic context, ECCC will further assess the effectiveness of the Operating and Maintenance Expenditures process and implement a quality assurance program for ECCC expenditures for additional interim measures in response to the pandemic.

CFO Attestation for Cabinet Submissions

ECCC completed the design effectiveness testing of the CFO Attestation for Cabinet Submissions process in 2019-20 and enhancement of documentation of roles and responsibilities within the Treasury Board Submissions sub-process is underway.

The operating effectiveness testing was delayed to 2020-21 due to the pandemic context and will allow the Department to reach the ongoing monitoring status.

Budgeting and Forecasting, Investment Planning and Costing

ECCC has already assessed the Budgeting and Forecasting process design and the assessment of the effectiveness of related key controls is underway.

An assessment of ECCC’s Investment Planning and Costing processes is underway.

4. Departmental action plan for the next fiscal year and subsequent years

In 2016 and as validated through MAF assessment results, ECCC reached the ongoing monitoring status on all processes related to ICFR. Since then, ECCC implemented a risk-based ongoing monitoring program and conducted an annual risk-based assessment to monitor the effectiveness of its ICFR. In 2018, the scope of this monitoring was extended to include its internal control over financial management (ICFM) and ECCC is planning to reach ongoing monitoring by 2023, as per Treasury Board Secretariat expectations.

Ongoing monitoring involves:

• using a risk-based approach
• assessing the design and operating effectiveness of internal controls regularly in accordance with the monitoring plan
• determining whether any actions need to be taken to address weaknesses

Ongoing monitoring of internal controls begins after completion of initial control assessment. The control assessment involves:

• documenting the controls
• testing for design effectiveness and operating effectiveness
• developing a management action plan to correct gaps or weaknesses

ECCC’s five-year risk-based ongoing monitoring plan is rotational and is based on the 2019-20 risk assessment results of ICFM processes (including ICFR processes), departmental priorities, available resources and workload, and other considerations, such as the COVID-19 pandemic context, that have an impact on the plan.

Therefore, the Department identified how the pandemic has affected the control environment and performed a top-down risk assessment of the ICFM, including ICFR, key processes, with a focus on controls that are critical. In summary, this assessment resulted in considering most components of the Expenditure Management process in addition to the Inventory process as being at higher risk due to the interim measures and processes implemented during the COVID-19 pandemic. The Department will revisit walkthroughs/design assessments and update control documentation accordingly to reflect recent changes.

Rotational ongoing monitoring plan

Key control areas	2020-21	2021-22	2022-23	2023-24	2024-25
Entity Level Controls (ICFR)	No	No	Yes	Yes	No
IT General Controls (ICFR)	No	No	No	Yes	Yes
Expenditure Management - Pay Administration (ICFM and ICFR)	No	No	No	No	Yes
Expenditure Management - Operating and Maintenance Expenditures (ICFR)	Yes	Yes	No	No	No
Expenditure Management - Capital Expenditures (ICFR)	No	No	Yes	Yes	No
Expenditure Management - Grants & Contributions (ICFR)	No	No	Yes	Yes	No
CFO Attestation (ICFM)	Yes	No	No	No	No
Budgeting and Forecasting (ICFM)	Yes	Yes	No	No	No
Costing (ICFM)	Yes	Yes	Yes	No	No
Investment Planning (ICFM)	Yes	Yes	No	No	No
Quality Assurance on Expenditure Management (ICFM and ICFR)	Yes	Yes	Yes	Yes	Yes
Monitoring of Management Action Plans (ICFM and ICFR)	Yes	Yes	Yes	Yes	Yes

In addition, ECCC will continue to enhance its approach to monitoring of controls through the use of data analytics to support sound financial management practices and decision-making.

Finally, ECCC will also continue to strengthen its control of salary expenditures by participating in Government of Canada horizontal initiatives and sharing best practices.