Summary of the assessment of effectiveness of the systems of internal control over financial reporting and the action plan of Canadian Heritage for fiscal year 2011-12 Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting
Note to the reader
The Treasury Board Policy on Internal Control, effective April 1, 2009, requires that departments demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR).
As part of this policy departments are expected to conduct annual assessments of their system of ICFR, establish action plan(s) to address any necessaryadjustments, and to attach to their Statements of Management Responsibility a summary of their assessment results and action plan.
Effective systems of ICFR aim to achieve reliable financial statements and to provide assurances that:
- Transactions are appropriately authorized;
- Financial records are properly maintained;
- Assets are safeguarded from risks such as waste, abuse, loss, fraud and mismanagement; and
- Applicable laws, regulations and policies are followed.
It is important to note that the system of ICFR is not designed to eliminate all risks, rather to mitigate risk to a reasonable level with controls that are balanced with and proportionate to the risks they aim to mitigate.
The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess the effectiveness of associated key controls and adjust as required, as well as to monitor the system in support of continuous improvement. As a result, the scope, pace and status of those departmental assessments of the effectiveness of their system of ICFR will vary from one organization to another based on risks and taking into account their unique circumstances.
Table of Contents
2. Control environment of Canadian Heritage relative to ICFR
3. Assessment of Canadian Heritage's system of ICFR
4. Departmental assessment results during fiscal year 2010-2011
Introduction
This document is attached to the Department of Canadian Heritage Statement of Management Responsibility Including Internal Control over Financial Reporting for the fiscal year 2011-2012. As required by the Treasury Board Policy on Internal Control, effective April 1st 2009, this document provides summary information on the measures taken by Canadian Heritage to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides summary information on the assessments conducted by Canadian Heritage (“the Department”) as at March 31, 2012, including progress, results and related action plans along with some financial highlights pertinent to understanding the control environment unique to the department. This is the third summary document produced by Canadian Heritage.
1.1 Authority, Mandate and Program Activities
The Department of Canadian Heritage was established in 1995 under the Department of Canadian Heritage Act. The Department is responsible for formulating policies and delivering programs that help all Canadians participate in their shared cultural and civic life. The Department’s work is structured around the following three strategic outcomes:
1) Canadian artistic expressions and cultural content are created and accessible at home and abroad;
2) Canadians share, express and appreciate their Canadian identity; and
3) Canadians participate and excel in sport.
The Department of Canadian Heritage is specifically responsible for formulating and implementing cultural policies related to copyright, foreign investment and broadcasting, as well as policies related to arts, heritage, official languages, sports, state ceremonial and protocol, and Canadian symbols. The program activities include:
1) Arts;
2) Cultural Industries;
3) Heritage;
4) Promotion of and Attachment to Canada;
5) Engagement and Community Participation;
6) Official Languages;
7) Sport and;
8) Internal Services.
Further details regarding Canadian Heritage’s mission, priorities, strategic outcomes and program activity architecture are available in the Departmental Performance Report and Report on Plans and Priorities.
1.2 Financial highlights
Canadian Heritage's financial statements (unaudited) for the fiscal year ended March 31, 2012 can be found at http://www.pch.gc.ca/pc-ch/publctn/mindep-eng.cfm. Financial information can also be found in the Public Accounts of Canada at http://www.tpsgc-pwgsc.gc.ca/recgen/txt/72-eng.html.
For the 2011-2012 fiscal year, here are the financial highlights of the Department:
- Canadian Heritage’s expenses were $1,320.3 million. Transfer payments comprised the majority ($1,061.9 million or 80.4%), followed by salaries and employee benefits ($195.0 million or 14.8%).
- Canadian Heritage’s revenues were $75.2 million. Revenues are mainly comprised of revenues from the 1979 Federal-provincial Lottery agreement ($68.3 million or 90.7%). Also some other revenues consisted of revenues from the Canadian Audio-Visual Certification Office and the Canadian Conservation Institute that total $4.7 million.
- Total assets were $408.6 million as at March 31, 2012. Due from the Consolidated Revenue Fund represented the majority ($391.9 million or 95.9%), followed by tangible capital assets ($8.9 million or 2.2%).
- As at March 31, 2012, accounts payable and accrued liabilities in the amount of $395.5 million represented 94.3% of total liabilities ($419.5 million).
1.3 Service arrangements relevant to financial statements
- Canadian Heritage relies on other organizations for the processing of certain transactions that are recorded in its financial statements:
- As the federal government’s primary service provider, Public Works and Government Services Canada (PWGSC) acts as principal banker, accountant, central purchasing agent, translation authority, real property manager and enabler of access to government services on-line to all government departments. PWGSC provided accommodation without charge to Canadian Heritage throughout the 2011-2012 fiscal year. PWGSC also administered the payment of salaries and the procurement of goods and services on behalf of the Department.
- Canadian Heritage received services without charge from the Treasury Board Secretariat in the 2011-2012 fiscal year for the employer’s contribution to the health and dental insurance plans. Treasury Board Secretariat also provided the Department with information used to calculate various accruals and allowances, such as the accrued severance liability.
- Justice Canada provided legal services to Canadian Heritage totaling $1.2 million in the 2011-2012 fiscal year.
1.4 Material changes in fiscal year 2010-2011
- Shared Services Canada – Shared Services Canada (SSC) was created on August 4, 2011 to consolidate, streamline and improve the government’s information technology (IT) infrastructure services, specifically e-mail, data centre and network services for 43 federal departments and agencies. Effective November 15, 2011, the responsibility for e-mail, data centre and network services, including associated resources, was transferred from the Department to SSC. The administration and delivery of these services were shared during the 2011-12 transition period while SSC was being established.
- New Governance Model – In order to both reinforce and simplify the governance structure to further engage senior executives throughout the organization and provide greater added value to the Executive Committee a new governance model was introduced. This new model realigns the committees’ mandates to reflect departmental priorities. Three levels of committees have been realigned into two levels. Each of the four level 2 committees is chaired and vice-chaired by an Assistant Deputy Minister. In addition a new Office of Values and Ethics headed by the Ombudsman was created.
- Senior Management – There has been a significant change in the Senior Management cadre at PCH this year. A new Associate Deputy Minister and three new Assistant Deputy Ministers were appointed during the year.
- New Minister of State – A new Minister of State for Sport was appointed.
2. Control environment of Canadian Heritage relative to ICFR
Entity level controls set the tone from the top to help ensure that staff at all levels at Canadian Heritage understand the purpose and importance of maintaining risk-based effective internal control systems as well as their roles and responsibilities in support of sound stewardship of public resources and reliable financial reporting.
Key components of entity level controls at Canadian Heritage aim at ensuring solid governance and effective risk management at the corporate level, as well as the maintenance of other entity level controls to provide effective support to staff by raising awareness and providing appropriate knowledge, skills and tools. The ultimate objective is to manage risks while maintaining a responsive control environment for people at all levels that supports innovation and continuous improvement.
Canadian Heritage’s main entity level controls currently in place and relevant to ICFR are set out below.
2.1 Key positions, roles and responsibilities
Deputy Minister - As the Accounting Officer for Canadian Heritage, the Deputy Minister assumes overall responsibility and leadership for the stewardship, management and oversight of departmental resources, as well as for the measures taken to maintain an effective system of internal control.
Chief Financial Officer - Consistent with the Treasury Board Policy on Financial Management Governance and associated Guideline Canadian Heritage has a Chief Financial Officer (CFO) who functionally reports directly to the Deputy Minister. The CFO is the focal point of accountability to ensure rigorous stewardship of financial resources. This includes accounting, financial reporting, internal control, performance measurement, procurement and assets management.
Chief Audit and Evaluation Executive - Consistent with the Treasury Board Policy on Internal Audit, Canadian Heritage has a qualified Chief Audit and Evaluation Executive (CAEE) who establishes plans and performs risk-based internal audits necessary to provide an independent annual overview assurance report to the Deputy Minister on the adequacy and effectiveness of risk management, control and governance processes within the department. The CAEE is also responsible for leading the evaluation function in the department and providing an evidence-based, neutral assessment of the value for money.
Departmental Audit Committee - Consistent with the Treasury Board Policy on Internal Audit Canadian Heritage established its Departmental Audit Committee (DAC) in spring 2008. This committee is comprised of three external members. An external member chairs the DAC. The Chair is responsible for the Annual Plan of DAC activities, calls the meetings of the DAC, sets the meeting agenda and manages the meetings. In 2011-2012, the Audit Committee met 5 times including conference calls, providing advice on governance, risk management and control.
The Departmental Audit Committee provides objective advice and recommendations to the Deputy Minister regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes (including accountability and auditing systems).
Senior Departmental Managers - Senior departmental managers at Canadian Heritage (i.e. Assistant Deputy Ministers and equivalents) in charge of program delivery and reporting to the Deputy Minister are responsible for the management and oversight of the resources within their mandate, including financial management and internal control.
Governance Committees – Canadian Heritage governance committees are involved in establishing and monitoring the linkages between activity-level and entity-level objectives. The Executive Committee (“EXCOM”) chaired by the Deputy Minister is the decision-making committee for the Department, providing overall governance, strategic direction and decision-making in support of the Deputy Minister. The EXCOM is supported by sub-committees, including one dedicated to financial management and co-chaired by two Assistant Deputy Ministers.
2.2 Key measures taken by Canadian Heritage
Canadian Heritage’s control environment also includes a series of measures to equip its staff to manage risks by raising awareness and providing appropriate knowledge, skills and tools. Canadian Heritage puts a particular focus on the following key control elements:
Corporate Risk Profile – The Canadian Heritage Corporate Risk Profile helps communicate an over-arching strategy for managing risk. It contains a list of the highest priority corporate-level risks for the organization and mitigation strategies to help ensure these risks are well managed. The Department annually identifies activities or threats that may prevent it from achieving its objectives and develops strategies to mitigate those risks. Corporate risk management enables Canadian Heritage to realign its resources or priorities to help ensure its continued success. Since April 1, 2010, the Strategic Policy, Planning and Research Branch acts as the functional risk champion for the Department. The Risk Management Services Office supports program and policy functions by providing tools, processes and other advice.
Internal Audit Plan - Canadian Heritage completes an annual risk-based audit plan which is developed in consultation with senior management across the Department, including the Deputy Minister and Associate Deputy Minister, to address areas of higher risk and significance. This plan is instrumental to the Department’s system of ICFR. It is also shared with the Office of the Comptroller General and the Treasury Board Secretariat. In 2011-2012, Canadian Heritage completed 7 internal audits with emphasis on governance, risk management and controls. Reports on these internal audits were presented to the Departmental Audit Committee and recommended for approval by the Deputy Minister.
HR management - Roles, responsibilities and accountabilities relating to financial management are systematically set out in annual performance agreements where applicable. Consistent with Public Service Renewal, financial management capabilities of managers and financial experts at Canadian Heritage are sustained through an overall HR approach that integrates HR planning with business planning and which includes recruitment, development and retention strategies to attract, equip and retain the talent it needs, including financial management capabilities.
Communication and training – Canadian Heritage has a defined communication strategy in place. A performance and learning plan exercise is performed annually. Canadian Heritage, in partnership with the Canada School of Public Service, offers core training courses in key areas of management, including financial management. Some training courses are mandatory, in particular for managers and the financial community. Canadian Heritage applies an up-to-date training curriculum to strengthen the qualifications of its financial and internal audit communities developed in partnership with the Office of the Comptroller General.
Delegated authorities, legislation, regulations and policies - Canadian Heritage periodically updates and communicates to all staff a matrix of financial delegated authorities approved throughout the Department. Mandatory requirements flowing from legislation, regulations and policies are systematically communicated to new employees as applicable as well as periodically reinforced through various awareness opportunities and learning events.
Values and ethics - Canadian Heritage has a department-wide Code of Conduct. The Department also has an Ombudsman who prepares an annual report to management concerning compliance with the Values and Ethics Code for Canadian Heritage. These elements are foundational to reinforcing the integrity expected to be demonstrated in all activities and at all levels, including in the area of financial management.
Internal Control Systems - Canadian Heritage has a section under the CFO branch dedicated to internal controls. This section is responsible for documenting the department’s key business processes and related key risks and controls to support the management and oversight of its system of ICFR, including the testing of design effectiveness. This documentation is fundamental in raising awareness and understanding of staff at all levels on key risks and controls as well as to support continuous improvements.
3. Assessment of Canadian Heritage's system of ICFR
3.1 Assessment approach
To satisfy the requirements of the Policy on Internal Control, Canadian Heritage must be able to maintain an effective system of ICFR with the objective to provide reasonable assurance that:
- Transactions are appropriately authorized;
- Financial records are properly maintained;
- Assets are safeguarded; and
- Applicable laws, regulations and policies are followed.
Over time, this includes assessment of design and operating effectiveness of the system of ICFR leading to ensuring the ongoing monitoring and continuous improvement of the departmental system of ICFR.
Design effectiveness means ensuring that key control points are identified, documented, in place and that they are aligned with the risks (i.e. controls are balanced with and proportionate to the risks they aim to mitigate) and that any remediation is addressed. This includes the mapping of key processes and IT systems to the main accounts by location as applicable.
Operating effectiveness means that the application of key controls has been tested over a defined period and that any required remediation is addressed.
Such testing covers all departmental control levels which include entity, IT and business process controls.
3.2 Scope of departmental assessment during fiscal year 2011-201
Since April 2007, as part of the government-wide readiness assessment initiative, Canadian Heritage has taken measures to assess its system of ICFR aimed at sustaining a control-based audit. In doing so, Canadian Heritage focused on its significant processes putting emphasis on its main financial statement accounts, including:
- Grants and contributions (G&C);
- Purchases and Payables;
- Salaries; and
- Tangible Capital Assets.
In 2011-12 the focus was on the departmental assessments of the G&C Sport Canada Athlete Assistance Program and Tangible Capital Assets and Salaries.
Ongoing monitoring program means that all key roles with respect to the ongoing monitoring of the effectiveness of ICFR are defined; that a systematic integrated approach to monitoring is in place, including periodic risk-based assessments; that there is engagement on assessment plans, results and progress with the Departmental Audit Committee and other relevant committees; that timely remediation and related retesting are performed; and, that there is appropriate communication and training of staff.
4. Departmental assessment results during fiscal year 2011-2012
4.1 Design effectiveness of key controls
Although work to assess the design effectiveness of the G&C Sport Canada Athlete Assistance Program, Salaries and Financial Reporting processes begun in 2011-12, the assessment will only be completed in the upcoming fiscal year along with the Tangible Capital Assets process for which testing began in 2011-12.
4.2 Operating effectiveness of key controls
In 2011-12, Canadian Heritage continued to pursue the assessment of operating effectiveness of its key controls. In doing so, it has modified its risk-based testing plans that identifiy key controls to be tested over a defined period of time. When completing operating effectiveness testing, Canadian Heritage ensures that key controls are functioning over a 12 month period. In 2011-12 testing was conducted for the Athlete Assistance Program and Tangible Capital Assets.
4.3 Ongoing Monitoring Program
As described in section 2, Canadian Heritage has a well established governance model, including corporate risk management and an enabling environment to support staff at all levels. In particular, the Departmental Audit Committee, which was established in the spring of 2008, is instrumental in providing independent advice relating to Canadian Heritage's system of internal control, including governance, risk management and control. Looking ahead, the Department will ensure that there is a well-integrated monitoring program in place to raise awareness and understanding of the Department's system of ICFR at all levels, and equip people with the knowledge, skills and tools needed.
In 2011-12, Canadian Heritage developed a three-year plan on internal controls including an ongoing monitoring program of the operating effectiveness of the departmental system of ICFR. This plan was presented to the Departmental Audit Committee in June 2012. The plan sets out a schedule to monitor key processes every two years.
5. Departmental action plan
5.1 Progress during fiscal year 2011-2012
During 2011-2012, Canadian Heritage has continued to make progress in assessing and improving its key controls. This progress has been moderated by a number of factors. The position of Manager of Financial Policy and Internal Control remained vacant for over 9 months this fiscal year. It was filled on an indeterminate basis in mid-January 2012. In addition, improvements to our documentation process resulted in updates to processes i.e. salary, not originally planned for in the 2011-12 plan. The impact of these challenges is noted in our revised 3 year plan attached to this Annex.
Below is a summary of the main activities carried out at Canadian Heritage:
- Continued to strengthen the quality assurance process conducted by the Financial Policies and Internal Control directorate by conducting additional testing to ensure errors are not overlooked in the operating and maintenance expenditure account verification sampling program;
- Completed the streamlining and standardizing of regional offices key controls by centralizing the accounting operations at NHQ;
- Developed and implemented a test plan to assess the effectiveness of key controls for the G&C Sport Canada Athletes Assistance Program, capital assets and depreciation.
5.2 Action plan for the next fiscal year and subsequent years
Building on progress to date, Canadian Heritage is positioned to implement a monitoring program to assess each key business process every two years. Commencing in 2012-13 monitoring activities will be carried out on the key business process of Purchases and Payables. As outlined below other monitoring activities will commence over the next two years for the remaining processes.
By end of 2012-13, the Department plans to have:
- Completed the testing and remediation as needed of design and operating effectiveness of the business processes for Salaries;
- Completed testing and remediation as needed of design and operating effectiveness of the business process for Tangible Capital Assets;
- Completed testing and remediation as needed of operating effectiveness of the business process for Financial Reporting;
By end of 2013-2014, the Department plans to have:
- As part of the ongoing monitoring program, continued testing of the operating effectiveness of key controls at all levels as well as having addressed any related required remediation. Focus in this particular year will be on the Grants and Contribution process including the Athlete Assistance Program, Tangible Capital Assets and Entity Level Controls.
By end of 2014-2015, the Department plans to have:
- As part of the ongoing monitoring program, continued advancement of the testing of the operating effectiveness of key controls at all levels as well as addressed any related required remediation. Focus in this particular year will be Purchases and Payables, Salaries and IT Controls.
D – Documentation W – Design Effectiveness Testing T – Operating Effectiveness Testing M – Ongoing Monitoring
| Key Business Processes | Sub-Processes | Completed Previous Years | 2011-2012 | Three-Year Plan | ||
|---|---|---|---|---|---|---|
| 2012-2013 | 2013-2014 | 2014-2015 | ||||
|
1) Grants and 1.1) Generic Process |
Process |
D,W,T |
|
|
M |
|
|
1.2) Sport Canada – |
1.2.1 Carding, Living and Training Allowance Process |
|
D,W,T |
|
M |
|
|
1.2.2 De-carding Process |
|
D,W,T |
|
|
||
|
1.2.3 Tuition Support Process |
|
D,W,T |
|
|
||
|
1.2.4 Deferred Tuition Support Process |
|
D,W,T |
|
|
||
|
1.2.5 Special Needs – Relocation Process |
|
D,W,T |
|
|
||
|
1.2.6 Special Needs – Retirement Process |
|
D,W,T |
|
|
||
|
2) Purchases and Payables |
2.1 Purchases of Goods and Services more than $10K |
D,W,T |
|
M |
|
M |
|
2.2 Purchases of Goods and Services under $10K, acquisition cards, printing and temporary help |
|
|
|
|||
|
2.3 Procurement and Finance Procedures, |
|
|
|
|||
|
3) Salaries |
3.1 Staffing process and Casual employment |
|
D,W |
T: Finalize |
|
M |
|
3.2 Payroll modifications |
|
D,W |
T: Finalize |
|
||
|
3.3 Removing employees from Payroll |
|
D,W |
T: Finalize |
|
||
|
3.4 Payroll Processing |
|
D,W |
T: Finalize |
|
||
|
3.5 Payroll Accounting |
|
D,W |
T: Finalize |
|
||
|
4) Tangible |
4.1 Capital asset acquisitions |
D |
W |
T: Finalize |
M |
|
|
4.2 Capital asset disposals |
|
D,W,T |
|
|
||
|
4.3 Capital asset depreciation |
|
D,W,T |
|
|
||
|
5) Financial Reporting |
5.1 Manual Journal Entries |
|
D |
W:Finalize |
|
M |
|
5.2.1 Financial Statement Preparation |
|
|
D: Finalize |
|
||
|
5.2.2 Note on Authority and Objectives |
|
D |
W:Finalize |
|
||
|
5.2.3 Note on Summary of Significant Accounting Policies |
|
D |
W:Finalize |
|
||
|
5.2.4 Note on Parliamentary Authorities |
|
|
D: Finalize |
|
||
|
5.2.5 Note on Accounts Receivable and Advances |
|
D |
W:Finalize |
|
||
|
5.2.6 Note on Tangible Capital Assets |
|
D |
W:Finalize |
|
||
|
5.2.7 Note on Accounts Payable and Accrued Liabilities |
|
D |
W:Finalize |
|
||
|
5.2.8 Note on Employee Future Benefits |
|
D |
W:Finalize |
|
||
|
5.2.9 Note on Contingent Liabilities |
|
|
D: Finalize |
|
||
|
5.2.10 Note on Contractual Obligations |
|
|
D: Finalize |
|
||
|
5.2.11 Note on Related Party Transactions |
|
D |
W:Finalize |
|
||
|
5.2.12 Note on Segmented Information |
|
|
D: Finalize |
|
||
|
5.2.13 Note on Comparative Information |
|
D |
W:Finalize |
|
||
|
6) Entity level |
|
D,W,T |
|
|
M |
|
|
7) IT Controls |
ITGC (General controls) |
|
D,W,T |
|
|
M |
|
ITAC (Application controls) |
|
D,W,T |
|
|
M |
|
Note: Monitoring will be done every second year on an ongoing basis.
