2015–16 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 2015–16 Departmental Performance Report and 2016–17 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
• 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 (AEC)

The 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 ICFR. 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:

Common arrangements

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

Specific arrangements

• On April 1, 2015, PWGSC began a new facilities management and services contract with an external service provider responsible for property and facility management, services to establish third-party leases and agreements, lease administration, and project delivery for all PWGSC Crown-owned and leased sites across Canada. As a result, reliance is placed on the control procedures of the external service provider
• PWGSC provides Shared Services Canada with a SAP financial system platform to capture and report all financial transactions

3. Public Works and Government Services Canada assessment results during fiscal year 2015–16

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

New or significantly amended key controls

In the current year, there were amended key controls in existing processes which required a reassessment as a result of the implementation of business transformation initiatives and systems.

Ongoing monitoring program

As part of PWGSC's rotational ongoing monitoring plan, the Department completed a reassessment of the financial controls within Procurement, Payables and Payments, Environmental Liabilities, Capital Assets and Sales to Settlement business processes. As well, planned review work was completed in Entity Level Controls, Information Technology General Controls, Payroll, and Financial Statements Preparation and Year-end Financial Close business processes. One significant deficiency was identified for the key controls tested related to the implementation of the new real property management system; however, compensating controls exist to ensure that the financial information is complete and reliable. Opportunities for improvement, which is the expected result for this type of work, were also identified across many areas and are as follows:

• clarify practices for the record keeping and archiving of supporting documentation to evidence the performance of control activities
• continue to improve standard practices to assist with the performance of the quality assurance process on payments
• streamline business processes for optimization
• integration needed to improve efficiency of controls

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

4.1 Progress during fiscal year 2015–16

During 2015–16, PWGSC continued to conduct its ongoing monitoring activities according to the previous fiscal year's plan as shown in the following table.

Progress during fiscal year 2015–16

4.2 Action plan for the next fiscal year and subsequent years

PWGSC continues to optimize its business processes affected by the implementation of the real property management system, the Alternate form of Delivery (AFD) contracts for real estate project management and Pay modernization. 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 and related adjustments to the ongoing monitoring plan as required. Each of the following key control areas is subject to annual ongoing monitoring with sub-processes being fully assessed over a three-year cycle: Entity Level Controls, Information Technology General Controls, Payroll, Financial Statements Preparation, Procurement, Payables and Payments, Sales to Settlement, Year-end Financial Close, Capital Assets, and Environmental Liabilities.