Public Services and Procurement Canada
Annex A: Assessment of internal controls over financial management for year ended March 31, 2021

1. Introduction

This document provides a summary of measures taken by Public Services and Procurement Canada (PSPC) to maintain an effective system of internal control over financial management (ICFM), assessment results and related action plans.

Detailed information on the department’s authority, mandate and program activities can be found in its most recent Departmental Plan and Departmental Results Report.

2. Departmental system of internal control over financial management

2.1 Internal control management

PSPC has a well–established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. This structure is formalized in the departmental Internal Control Framework, which includes:

• organizational accountability and oversight structures to support sound financial management, including roles and responsibilities of departmental senior managers in their areas of responsibility for internal control management
• semi–annual monitoring of, and regular updates on, internal control management, as well as provision of related control assessment results and action plans to the Departmental Audit Committee (DAC)
• values and ethics, which provide educational and awareness programs and have developed a departmental code of conduct
• leveraging the work of audit and advisory services for internal audits on the effectiveness of risk management, control and governance processes, where appropriate
• risk–based management practices

The DAC provides advice to the deputy head on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes. It meets at least 4 times a year, and is comprised of the deputy minister, the associate deputy minister and 4 members external to the federal public administration, one of whom is the chair. Its meetings are also attended by the chief financial officer and the chief audit executive.

To provide reasonable assurance that financial controls are in place and operating as intended and adequately, PSPC conducts risk–based assessments, leverages ongoing monitoring programs and conducts specific year-end reviews, including:

• information technology general controls (ITGCs) monitoring, for the financial management system, including feeder systems
• financial advisors reviews of program management budgets and forecasts
• performance management assessments based on the Financial Management Framework
• awareness and monitoring of internal financial control audits and assessments performed by program management
• results of control audits and management accountability framework assessments by the Office of the Comptroller General
• documentation and assessment of internal controls by common service provider entities

These activities help ensure that:

• financial arrangements or contracts are entered into only when sufficient funding is available
• payments for goods and services are made only when the goods and services are received or the conditions of contracts or other arrangements have been satisfied
• payments have been properly authorized

In addition, PSPC leverages results and findings from audits performed by external auditors, including annual financial statement audits of the revolving funds, audits performed by the Office of the Auditor General, and the Office of the Chief Audit, Evaluation and Risk Executive, as input in its assessments of the control environment.

2.2 Service arrangements relevant to financial statements

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

Common service arrangements

PSPC provides common services to other organizations for processing certain transactions that are recorded in their financial statements. In addition, PSPC relies on services provided by other organizations:

• the Treasury Board of Canada Secretariat (TBS) provides services related to public sector insurance for employees of PSPC, and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans on behalf of PSPC (in other words, the Public Service Pension Plan, Employment Insurance Plan, Canada Pension Plan, Québec Pension Plan and Public Service Supplementary Death Benefit Plan)
• the Department of Justice Canada provides legal services to PSPC
• Shared Services Canada provides information technology infrastructure services to PSPC in the areas of data centre and network services (the scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and PSPC)
• Employment and Social Development Canada provides services of worker’s compensation coverage for employees of PSPC

Readers of this annex may refer to the annexes of the above–noted organizations for a greater understanding of the systems of internal controls over financial management related to these specific services.

PSPC provides common services in the areas of procurement, federal real property and infrastructure, contract security, and translation, as well as pay and pension administration to other federal government departments, agencies and public service pensioners. In addition, the Receiver General for Canada administers several systems on behalf of the Government of Canada, including the Standard Payment System, Payroll System-General Ledger, and Receiver General-General Ledger.

Specific arrangements

PSPC relies on other external service providers for the processing of certain transactions or information that are recorded in its financial statements, as follows:

• PSPC provides facilities management and services through a contract with an external service provider responsible for property and facility management government-wide, it also establishes third-party leases and agreements, and provides lease administration and project delivery for all PSPC Crown-owned and leased sites across Canada (the external service provider is responsible for their own internal controls to help ensure compliance)
• PSPC provides Shared Services Canada with a System, Applications and Products (SAP) based financial management system platform to capture and report all financial transactions
• an external service provider, pursuant to a contract with the Government of Canada, administers the travel management application used by PSPC to provide shared travel services to various departments
• an external service provider, pursuant to a contract with the Government of Canada, administers the relocation program provided to public service employees across the federal public service

3. Departmental assessment results for the fiscal year ending March 31, 2021

PSPC’s ongoing financial control monitoring program assesses, on a cyclical basis, the state of key financial control processes performed by PSPC’s Finance Branch, and the financial control activities conducted directly by branches delivering programs. This combined approach leads to a more robust and holistic view of the department’s overall financial control environment, and further supports assertions made in the Statement of Management Responsibility.

For the fiscal year ending March 31, 2021, we have assessed the impact of the COVID-19 pandemic on the department’s internal control over financial reporting (ICFR) and amounts recognized and/or disclosed in the consolidated departmental financial statements. We have not identified deficiencies in the operation of the department’s ICFR as a result of the COVID-19 pandemic which could have a material impact on PSPC’s consolidated departmental financial statements.

For the mature processes and sub–processes, testing is conducted on a 5 year cycle. Annually, a risk assessment of the business processes for key financial reporting controls is performed, which indicates if there is a residual risk of material misstatement. This risk–based approach supports PSPC’s decisions as to the scope and extent of operational effectiveness testing that is required. In the current fiscal year, efforts were concentrated on sub–processes for which a medium or high risk of material misstatement was assessed, prior to controls or mitigation strategies. In addition, we are reporting herewith the total amount of sub–processes based on a department–wide survey, which lead to an increased number of sub–processes by each process category.

As part of ongoing monitoring, sub–processes documentation is reviewed, and design effectiveness and operations effectiveness testing is conducted on selected key controls. In addition to the ongoing monitoring of the financial controls processes, and operating effectiveness testing, corroborative procedures are performed in all of the control environments to obtain sufficient reliable evidence to support PSPC’s assertion that the financial control environment in place is sound.

3.1 Mature business processes

The following table summarizes the progress of the ongoing monitoring activities performed as part of the internal control review of mature business processes, for the fiscal year ending March 31, 2021. This review is consistent with the previous year’s rotational plan.

Table 1: Ongoing monitoring activities of mature business processes

Key control areas	Number of sub–processes	Number of sub–processes tested
Internal control over financial reporting (ICFR)
Entity level controls	5	2
Information technology general controls (ITGC)	17	5
Sales to settlement	19	2
Procurement to payment	18	4
Departmental payroll	17	2
Capital assets and capital leases	10	3
Public Accounts of Canada, Receiver General of Canada	11	1
Other significant financial statements items	9	1
Departmental year–end financial close and Financial Statement Presentation	7	2
Internal control over common services (ICCS)
Pension Servicestable 1 note 1, Receiver General of Canada	14	1
Treasury and other services, Receiver General of Canada	13	1
Translation Services	1	0
Pay Administration Services	20	4
Contract Security Services	1	0
Federal Real Property and Infrastructure Services	11	2
Procurement Services	10	3
Table 1 Note Table 1 Note 1 The Pension Services include 3 distinct plans as follows: the Public Service Pension Plan, Canadian Armed Forces Pension Plan and Royal Canadian Mounted Police Pension Plan. Return to table 1 note 1 referrer

Summary of recommended improvements 1

As a result of design and operating effectiveness testing of key controls for mature business processes reviewed, no significant control deficiencies, which would expose the department to an elevated risk of material misstatement of its financial statements, have been identified. There are, however, areas that could be strengthened, for which additional actions will be taken and monitored over the next fiscal year for improvement:

• roles and responsibilities, as they need to be clearly defined, documented and communicated to ensure accountability, and adherence to the established processes and procedures
• training and communication of standardized tools/procedures are needed to support responsibility center managers, and staff, in performing their work more effectively and efficiently
• documentation and evidence of the performance of certain key controls need to be improved to strengthen the audit trail
• access, security and change management information technology general controls need to be strengthened to ensure safeguarding of government information
• controls related to large or complex data sets need to be enhanced to ensure accuracy, completeness and integrity of data
• monitoring controls could be improved to better support management

3.2 New business processes

Consistent with the requirements of the April 1, 2017 Treasury Board Policy on Financial Management, PSPC adds several business processes due to their significance on its financial management or that of other departments for which PSPC provides common services.

Table 2: Ongoing monitoring activities of new business processes

Key control areas	Number of sub–processes	Number of sub–processes tested
Other significant financial management control areas
Financial planning and budgetingtable 2 note 1	13	1
Forecasting	2	2
Financial reporting	3	0
Cabinet submissions and chief financial officer attestation	3	1
Costing	5	2
Table 2 Note Table 2 Note 1 Financial Planning and Budgeting includes the sub–processes for the Integrated Investment Plan. Return to table 2 note 1 referrer

Summary of recommended improvements 2

As a result of the assessment of the new business processes, the following remedial action has been identified, for which additional actions will be taken and monitored over the next fiscal year for improvement:

Strengthen automated costing controls relating to financial data sets gathered to ensure accuracy, completeness and integrity of information.

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

4.1 Ongoing internal control monitoring for mature business processes

For the fiscal year ending March 31, 2022, cyclical reviews of mature internal control processes will continue, along with ongoing improvement of internal controls assessment methodology for enhanced effectiveness. The approach leverages risk–based assessments to identify best mitigation strategies, and internal control testing techniques for greater cost efficiency and assurance.

Furthermore, remediation strategies identified in management action plans for the fiscal years ending March 31, 2019, March 31, 2020 and March 31, 2021 will continue to be monitored.

4.2 Other significant financial management processes

The plan for the assessment of the other significant financial management processes will be determined after a risk–based assessment is completed. The current 5 year plan is as follows:

Table 3: Other significant financial management processes planning

Key control areas	Planning and documentation Fiscal year ending March 31	Design effectiveness testing and remediation Fiscal year ending March 31	Operational effectiveness testing and remediation Fiscal year ending March 31	Ongoing monitoring rotationtable 3 note 1 Future years
Financial planning and budgeting	2022 and 2023	2022 and 2023	2023, 2024 and 2025	2026
Forecasting	No planned assessment	No planned assessment	2022 and 2023	2024
Investment planning	2022	2022	2023 and 2024	2025
Costing	2022	2022	2023 and 2024	2025
Cabinet submissions and Chief Financial Officer attestation	No planned assessment	No planned assessment	2022 and 2023	To be determined
Financial reporting	2022 and 2023	2022 and 2023	2024 and 2025	To be determined
Table 3 Note Table 3 Note 1 The frequency of the ongoing monitoring of key control areas is risk–based and may occur over a multi–year cycle. Return to table 3 note 1 referrer

4.3 Common service processes

As a common service provider of pay, pension, treasury, banking, procurement, translation and interpretation, federal real property and infrastructure and security in contracting, PSPC completes annually a risk–based assessment of the internal controls related to some of these services. The results of the assessment of certain sub–processes within the Pay Administration service are provided in sections 3.1 Mature business processes and 3.2 New business processes.

The action plan for this annual assessment for the next and subsequent years is detailed in the table below, and could be modified once we assess the risk impact related to the coronavirus pandemic.

Table 4: Common service processes planning

Key control areastable 4 note 1	Planning and documentation Fiscal year ending March 31	Design effectiveness testing and remediation Fiscal year ending March 31	Operational effectiveness testing and remediation Fiscal year ending March 31	Ongoing monitoring rotationtable 4 note 2 Future years
Pay Administration Servicestable 4 note 3	2022, 2023 and 2024	2022, 2023 and 2024	2024	To be determined
Pension Services, Receiver General of Canada	2022, 2023 and 2024	2022, 2023 and 2024	2024	To be determined
Treasury and other services, Receiver General of Canada	2022, 2023 and 2024	2022, 2023 and 2024	To be determined	To be determined
Procurement	2022, 2023 and 2024	2022, 2023 and 2024	To be determined	To be determined
Contract security	No planned assessment	No planned assessment	No planned assessment	2026
Federal Real Property and Infrastructure	2022, 2023 and 2024	2022, 2023 and 2024	To be determined	To be determined
Translation	2022 and 2023	2022 and 2023	2024	2025
Table 4 Notes Table 4 Note 1 All key control areas will include a review of ITGCs when applicable. Return to table 4 note 1 referrer Table 4 Note 2 The frequency of the ongoing monitoring of key control areas is risk–based and may occur over a multi–year cycle. Return to table 4 note 2 referrer Table 4 Note 3 Each year, as new pay administration processes become stabilized, they will be added to the review process. Return to table 4 note 3 referrer