Annex: Summary of the assessment of effectiveness of the system of internal control over financial reporting and the action plan of the Canada Revenue Agency

Fiscal year 2021 to 2022

1. Introduction

This document provides summary information on the measures taken by the Canada Revenue Agency (CRA) 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 the CRA’s authority, mandate, and core responsibilities can be found in the Departmental Results Report and the Departmental Plan.

2. Canada Revenue Agency system of internal control over financial reporting

2.1 Internal control management

The CRA has a well-established governance and accountability structure to support the assessment efforts and oversight of its system of internal control. A CRA internal control management framework, approved by the Commissioner and the Board of Management, 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;
• a code of values and ethics;
• ongoing communication and training on statutory requirements and policies and procedures for sound financial management and control; and
• regular updates on internal control management as well as the provision of related assessment results and action plans to the Commissioner, senior management and the Audit Committee of the Board of Management.

The CRA Management Audit and Evaluation Committee endorses the annual plan and reviews significant findings noted as a result of the control assessments. The committee is chaired by the Deputy Commissioner and comprised of CRA executives.

In addition, the Audit Committee of the Board of Management provides advice on the adequacy and functioning of the CRA's risk management, and control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

The CRA 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 centrally administers the payments of salaries and the procurement of certain goods and services in accordance with the CRA’s Delegation of Authority and provides accommodation services.
• Treasury Board of Canada Secretariat provides the CRA with information used to calculate various accruals and allowances.
• Department of Justice provides legal services to the CRA.
• Shared Services Canada provides Information Technology infrastructure services to the CRA in the areas of data centres and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and the CRA.

Readers of this annex may refer to the annexes of the above-noted departments for greater understanding of the systems of internal control over financial reporting related to these specific services.

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

Specific Arrangements

• Revenue Quebec is responsible for the joint administration of the goods and services tax and Quebec sales tax for businesses in the Province of Quebec.
• Department of Finance Canada provides the CRA with the federal and provincial shares of Goods and Services Tax/Harmonized Sales Tax revenues that are used to determine provincial payments for the Harmonized Sales Tax.
• Canada Border Services Agency provides the CRA with the amount of Goods and Services Tax revenues collected from importers, which is used in the calculation of the provincial portion of the Harmonized Sales Tax revenues.
• The Departments of Finance Canada and Employment and Social Development Canada provide estimates of Canada Pension Plan and Employment Insurance revenues respectively for the months of January to March.

Other government departments rely on the CRA for the processing of certain transactions or information that affect its financial statements as follows:

• Canada Border Services Agency for information technology services which includes testing for general computer controls, as well as collection services on their behalf for duties, taxes, fees, penalties, or other amounts owing under the Customs Act, Customs Tariff, Excise Tax Act, Excise Act 2001, and/or related regulations;
• Department of Finance Canada for the determination of tax receivables and payables under Tax Collection Agreements with provincial and territorial governments and First Nations;
• Employment and Social Development Canada for the collection of its accounts receivable and the administration of a number of activities related to the Canada Pension Plan and Employment Insurance Operating Account; and
• Employment and Social Development Canada for the administration of COVID-19 benefit programs, including the Canada Emergency Response Benefit, Canada Emergency Student Benefit, Canada Recovery Benefit, Canada Recovery Sickness Benefit, the Canada Recovery Caregiving Benefit and the Canada Worker Lockdown Benefit.

3. Agency assessment results during the 2021 to 2022 fiscal year

3.1 Design effectiveness testing of key controls

During the 2021 to 2022 fiscal year, design effectiveness testing was performed for the Canada Worker Lockdown Benefit program. As a result of the work on this program, no issue has been noted.

3.2 Operating effectiveness testing of key controls

During the 2021 to 2022 fiscal year, the CRA completed operating effectiveness testing of the Benefits program and the Individual Income Tax program, including the Unapplied Tax program, under the Administered Activities programs. In addition, operating effectiveness testing was performed for the general computer controls related to the business suite of programs.

As a result of the work performed, it was noted that the new Individual Credit Determination system was not functioning as expected, which resulted in immaterial errors. The system issues are in the process of being corrected and management is taking action to adjust the impacted accounts.

3.3 Ongoing monitoring of key controls

During the 2021 to 2022 fiscal year, the CRA completed planned ongoing monitoring of the following areas:

1. Common Tax Program Controls, which includes:
   1. Legislation management
   2. Reporting management
   3. Segregation of duties
2. General Computer Controls, which includes:
   1. Information security
   2. Managing Outsourced Service Providers
3. Entity level controls
4. Information technology general computer controls for corporate financial systems
5. Financial reporting for Agency Activities, which includes
   1. Payroll
   2. Procurement to pay
   3. Capital assets
   4. Financial close and reporting
6. Financial management for Agency Activities, which includes:
   1. Investment planning
   2. Costing
   3. Budgeting
   4. Projections

As a result of the work performed, it was noted that continuous system improvements have been made to accurately calculate the due date for payroll actions to be processed. However, additional improvements are required to ensure that payroll and overpayment related issues are consistently processed in a timely manner.

The issues are known to management and actions are being taken to address them.

4. Canada Revenue Agency Action Plan

4.1 Progress during the 2021 to 2022 fiscal year

During the 2021 to 2022 fiscal year, the CRA continued to make significant progress in assessing and improving its key controls. The following table summarizes the CRA’s progress based on the plans identified in the previous fiscal year’s annex.

4.2 Status and action plan for the next fiscal year and subsequent years

The CRA has continued to make progress on assessing its internal controls over financial reporting throughout the numerous programs that the CRA administers. It is recognized that implementation for all its processes requires multi-year initiatives. Once testing of design and operating effectiveness is complete, the CRA will apply its rotational continuous monitoring plan to reassess risk-based control performance in all control areas.