ARCHIVED - 2014-15 Annex A—Assessment of internal control over financial reporting

1. Introduction

This document provides a summary of the measures taken by Public Works and Government Services Canada (PWGSC or the Department) 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 PWGSC's authority, mandate and programs can be found in the 2014-15 Departmental Performance Report and 2015-16 Report on Plans and Priorities.

2. Public Works and Government Services Canada system of internal control over financial reporting

2.1 Internal control management

PWGSC has a well-established governance and accountability structure to support departmental assessment and oversight of its system of internal control. The Department's internal control management framework forms part of its Financial Management Framework (FMF). The application of the FMF is an important responsibility for which all managers are accountable, and as such forms part of all performance management agreements. The FMF has been approved by the Deputy Head and includes:

• Organizational accountability structures for internal control management to support sound financial management;
• Roles and responsibilities of senior managers for internal control management, as well as those of managers and financial officers;
• Values and ethics;
• Ongoing communication and training on statutory requirements, as well as policies and procedures for sound financial management and control;
• Risk-based management practices; and
• Regular monitoring of internal control management, as well as the provision of related assessment results and action plans to the Deputy Head and departmental senior management and, as applicable, the departmental Audit and Evaluation Committee.

The departmental Audit and Evaluation Committee (AEC) provides advice to the Deputy Head on the adequacy and functioning of the Department's risk management, control and governance frameworks and processes. AEC meets approximately six times a year and is comprised of the Deputy Minister (Chair), the Associate Deputy Minister and three members external to the federal public administration, one of whom is the Vice-Chair. AEC meetings are also attended by the Chief Financial Officer.

The Executive Committee (EXCO) is another key committee with responsibilities for overseeing the effectiveness of the departmental system of internal control over financial reporting. As PWGSC's central decision-making body, EXCO reviews, approves and monitors the corporate risk profile and the departmental system of internal control, including monitoring the progress made on the implementation of the system of ICFR. EXCO is a weekly management forum.

2.2 Service arrangements relevant to financial statements

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

• The Treasury Board Secretariat provides the Department with the information it uses to determine amounts owing for employee benefit plans and to calculate various accruals and allowances, such as the accrued severance liability;
• Employment and Social Development Canada provides the Department with workers' compensation coverage;
• The Department of Justice provides legal services to PWGSC; and
• Shared Services Canada provides information technology (IT) infrastructure services to PWGSC in the areas of data centre and network services.

PWGSC administers the following Receiver General Central Systems used by other government departments to process treasury-related and salary-related transactions: Standard Payment System (SPS), Government Banking System (GBS), Regional Pay System (RPS), Payroll System-General Ledger (PS-GL) and Receiver General-General Ledger (RG-GL). Internal controls related to these systems are maintained and monitored by PWGSC's Accounting, Banking and Compensation Branch (ABCB). PWGSC has provided to all departments a letter of assurance attesting to the reliability of the control framework for these central systems.

PWGSC provides payroll and pension administration services to other federal government departments, agencies and public service pensioners.

3. Public Works and Government Services Canada assessment results during fiscal year 2014-15

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

In the current year, there were no significantly amended key controls in existing processes which required a reassessment.

As part of PWGSC's rotational ongoing monitoring plan, the Department completed a reassessment of the financial controls within the Payroll and Procurement, Payables and Payments business processes, as well as a reassessment of the Information Technology General Controls. The assessment of the financial controls within the Sales to Settlement business processes is at an advanced stage. No significant deficiencies were identified for the key controls tested. Opportunities for improvement were generally identified with remediation required as follows:

• Clarify practices for the record keeping and archiving of supporting documentation to evidence the performance of control activities;
• Improve standard practices to assist with the performance of the quality assurance process on payments;
• Strengthen the escalation process of monitoring activities to address outstanding matters;
• Strengthen and properly communicate departmental financial management policies;
• Develop and enforce formalized procedures and guidelines; and
• Enhance standardized approval and/or review processes.

4. Public Works and Government Services Canada's action plan

4.1 Progress during fiscal year 2014-15

During 2014-15, PWGSC continued to conduct its ongoing monitoring activities according to the previous fiscal year's plan as shown in the following table.

4.2 Action plan for the next fiscal year and subsequent years

PWGSC's Real Property Branch (RPB) is the corporate real estate organization that provides office accommodation for the Government of Canada. RPB has just introduced a modernized industry-standard process and systems solution known as NOVUS for the management of real property. Controls will be reassessed and tested. Moreover, PWGSC entered into a new Alternative form of Delivery (AFD) contracts for its real estate projects that affect business processes. PWGSC's rotational ongoing monitoring plan will take those elements into consideration.

Rotational ongoing monitoring plan for internal controls over financial reporting

The Department's rotational ongoing monitoring plan over the next three years is based on an annual validation of the high risk processes and controls; related adjustments to the ongoing monitoring plan are performed as required. The plan is shown in the following table:

An X signifies that key controls for the identified control area will be assessed in the specified fiscal year.