Annex to the statement of management responsibility including internal control over financial reporting - 2015–16 Departmental Performance Report - Treasury Board of Canada Secretariat
Annex to the statement of management responsibility including internal control over financial reporting
Table of Contents
Introduction
This document provides a summary of the measures taken by the Treasury Board of Canada Secretariat (the Secretariat) to maintain an effective system of internal control over financial reporting (ICFR), which includes information on internal control management, assessment results and related action plans.
Detailed information on the Secretariat’s authority, mandate and programs can be found in its Report on Plans and Priorities and Departmental Performance Report.
2. Departmental system of internal control over financial reporting
2.1 Internal control management
The Secretariat 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 department’s Financial Management and Internal Control Framework, approved by the Secretary, and includes the following:
- 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 internal control management;
- A Values and Ethics Office, which provides educational and awareness programs and has developed a departmental code of conduct;
- Ongoing communication and training on the legislative and policy requirements for sound financial management and control;
- A group dedicated to ICFR under the direction of the Chief Financial Officer, with a primary focus on maintaining internal control documentation and conducting assessments to support management and oversight of the system of ICFR; and
- Monitoring of, and regular updates on, internal control management, as well as provision of related assessment results and action plans to the Secretary, departmental senior management and the Secretariat’s Government of Canada Audit Committee (GCAC).
GCAC is an independent and objective advisory committee to the Secretary. Its responsibilities include providing advice to the Secretary on the Secretariat’s systems of internal control, financial reporting and financial disclosures. It also provides advice, as applicable, on risk-based assessment plans and associated results regarding the effectiveness of the departmental system of ICFR.
GCAC comprises the Secretary, the Associate Secretary and three members who are external to the federal public administration. An external member chairs the committee. Given the independent nature of the committee, it plays an essential role in ensuring the integrity of corporate reporting and in providing an objective and broader perspective on risks and controls. The Secretariat’s Chief Financial Officer and the Chief Audit Executive, as well as the Comptroller General of Canada, attend all GCAC meetings. GCAC meets at least four times a year and may convene for additional meetings as required.
2.2 Service arrangements relevant to financial statements
2.2.1 Secretariat reliance on other federal government organizations
As a department, the Secretariat relies on other organizations to process certain transactions that are recorded in its financial statements. There are two types of service arrangements, as detailed below: common arrangements used by most departments and specific arrangements used by the Secretariat.
Common arrangements
- Public Services and Procurement Canada (PSPC) centrally administers the payment of salaries and the procurement of goods and services, as per its delegation of authority, and provides accommodation services.
- The Secretariat, as a government central agency, provides information that is used to calculate various accruals and allowances, such as the accrued severance liability.
- The Department of Justice Canada provides legal services.
- Shared Services Canada provides information technology (IT) infrastructure services to the Secretariat in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and the Secretariat.
Specific arrangements
- PSPC performs the day-to-day administration of the Public Service Pension Plan (PSPP).
- The Office of the Chief Actuary within the Office of the Superintendent of Financial Institutions Canada prepares a triennial actuarial valuation of the PSPP.
- PSPC performs the day-to-day administration of some centrally funded expenses, such as the employer’s share of Canada and Québec Pension Plan (CPP/QPP) contributions, employment insurance premiums and provincial payroll taxes. These types of expenses are recorded on the Secretariat’s financial statements as government-wide funds and reflect the Treasury Board’s role as the employer of the public service.
2.2.2 Secretariat reliance on non-governmental service providers
The Secretariat relies on the internal controls of a number of insurance companies that provide specific services such as health care plan administration, dental plan administration and insurance services.
2.2.3 Secretariat services upon which other departments rely
Other government departments rely on the Secretariat to process certain transactions and to provide information that impacts their financial statements.
Common arrangements
- The Secretariat provides all departments with percentage ratios, derived from the actuarially determined liability for severance benefits for the entire public service population. Departments use these ratios when calculating their severance pay liability for the purposes of their departmental financial statements.
- The Secretariat provides all departments with a percentage amount that allows them to calculate an annual dollar figure for the services they receive without charge for the public service insurance benefit plans funded centrally.
- The Secretariat provides all departments with details regarding the calculation required to determine the employer’s share of employee benefit plans. These plans include costs to the government for the employer’s contributions and payments to the public service superannuation, the CPP/QPP, the death benefit and employment insurance accounts.
Specific arrangements
The Secretariat provides certain corporate services to several departments via individual memoranda of understanding, including the Department of Finance Canada, the Privy Council Office, the Canada School of Public Service, the Canadian Transportation Agency, the Immigration and Refugee Board of Canada, the Office of the Superintendent of Financial Institutions Canada, Administrative Tribunals Support Services of Canada, the Canadian Grain Commission, the Financial Consumer Agency of Canada and the Security Intelligence Review Committee.
3. Assessment results in fiscal year 2015–16
The key findings and significant adjustments required from the current year’s assessment activities are summarized below.
New or significantly amended key controls
In the current year, there were no significant amended key controls in existing processes that required a reassessment.
The implementation of a new payroll system (Phoenix) resulted in important changes to the control activities associated with the payroll and benefits business process, resulting in the deferral of planned operating effectiveness testing for fiscal year 2017–18. Prior to the implementation of Phoenix in February 2016, the Secretariat reviewed and updated its process documentation related to departmental control responsibilities based on the control framework developed by PSPC.
Ongoing monitoring program
As part of its rotational ongoing monitoring plan, the Secretariat in its role as manager of government-wide funds and public service employer payments completed, with the assistance of Ernst & Young, its reassessment of the financial controls related to the Public Service Pension Plan and the Disability Insurance Plan. Key controls that were tested all performed as intended, and there were no remediation actions identified.
In its role as a department, the Secretariat completed operating effectiveness testing of travel expenses. The results indicated opportunities for improvements as follows:
- Enhance the financial verification process and strengthen cost-recovery monitoring activities; and
- Enforce formalized procedures and guidelines.
All activities were completed.
In addition, operating effectiveness testing was completed for the capital assets process. The results indicated opportunity for improvements as follows:
- Maintain appropriate segregation of duties between reception of goods, creation of asset records and assets inventory;
- Maintain evidence of verification for goods received by signing and dating packing slips, and review of asset inventory count by the responsible manager; and
- Establish documentation requirements and maintain appropriate evidence to support the date when internally developed applications are put in service.
All activities were completed.
- Other activities completed during 2015–16 were as follows:
- An external audit of IT general controls of the Secretariat’s SAP financial system was conducted by Deloitte. The scope of this audit included IT general controls common to the clients of the Secretariat’s financial system cluster. IT controls under the purview of Shared Services Canada as well as user controls specific to each of the cluster members were scoped out. The results of this audit indicated that the controls tested were appropriately designed and implemented, and operated effectively throughout the period covered by the audit.
- A review of Secretariat’s risk management process was conducted by the Internal Audit and Evaluation Bureau (IAEB) to assess the maturity level of the Secretariat’s risk management process and practices.
- The Secretariat continued to advance in remediating outstanding issues from prior years’ assessments.
4. Departmental action plan
4.1 Progress in fiscal year 2015–16
The Secretariat has reached the ongoing monitoring stage by having completed its first full assessment of the whole departmental system of ICFR. The Secretariat has been applying its rotational ongoing monitoring activities in accordance with previous years’ approved plans as well as advancing in completing remediation actions that were outstanding from prior years’ assessments. Table 1 provides a summary of this progress.
| Element in previous year’s action plan | Status |
|---|---|
| Secretariat as a department | |
| Payroll and benefits: Operating effectiveness testing | Deferred due to the implementation of the new payroll system (Phoenix) |
| Travel expenses: Operating effectiveness testing and remediation | Completed |
| Capital assets: Operating effectiveness testing and remediation | Completed |
| Secretariat as manager of government-wide funds and public service employer payments | |
| Public Service Pension Plan (PSPP): Operating effectiveness testing | Completed |
| Disability Insurance Plan (DI): Operating effectiveness testing | Completed |
4.2 Action plan for the next fiscal year and subsequent years
The Secretariat’s rotational risk-based ongoing monitoring plan over the next three years is shown in Table 2. The focus for fiscal year 2016–17 is to reassess the operating effectiveness of the controls related to the Public Service Health Care Plan, the Public Service Dental Care Plan, and the Pensioners’ Dental Services Plan.
| Key control areas | Fiscal year 2016–17 |
Fiscal year 2017–18 |
Fiscal year 2018–19 |
|---|---|---|---|
| Secretariat as a department | |||
| Entity level controls | N/A | N/A | Yes |
| IT general controls under departmental managementStatement of management responsibility note 1 | N/A | Yes | N/A |
| Payroll and benefits | N/A | Yes | N/A |
| Financial reporting and closing cycle | N/A | N/A | Yes |
| Revenues and accounts receivable | N/A | N/A | Yes |
| Capital assets | N/A | N/A | Yes |
| Secretariat as manager of government-wide funds and public service employer payments | |||
| Public Service Pension Plan (PSPP) | N/A | N/A | Yes |
| Disability Insurance Plan (DI) | N/A | N/A | Yes |
| Public Service Health Care Plan (PSHCP) | Yes | N/A | N/A |
| Public Service Dental Care Plan (PSDCP) | Yes | N/A | N/A |
| Provincial payroll taxes | N/A | Yes | N/A |
| Employment Insurance (EI) premiums | N/A | Yes | N/A |
| Canada/Québec Pension Plan (CPP/QPP) contributions | N/A | Yes | N/A |
| Pensioners’ Dental Services Plan (PDSP) | Yes | N/A | N/A |
| Public Service Management Insurance Plan (PSMIP)Net cost from continuing operations | N/A | Yes | N/A |
| Provincial health insurance plan premiums | N/A | Yes | N/A |
| Québec Parental Insurance Plan | N/A | Yes | N/A |
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