Unaudited financial statements for the period ending March 31, 2021, Environment and Climate Change Canada, chapter 7
Annex to the Statement of Management responsibility including internal control over financial reporting 2020-21
1. Introduction
This document provides summary information on the measures taken by Environment and Climate Change Canada (ECCC) 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 ECCC’s authority, mandate and program activities can be found in the last Departmental Results Report and the current Departmental Plan.
2. Environment and Climate Change Canada's System of Internal Control Over Financial Reporting
2.1 Internal Control Management
ECCC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Minister, 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 departmental managers for control management in their areas of responsibility;
- Values and ethics code;
- Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control;
- An internal financial attestation process in support of certification by the Deputy Minister and the Chief Financial Officer, whereby senior departmental managers who report to the Deputy Minister attest that they have implemented and maintained a risk-based system of internal control over financial management in their areas of responsibility;
- A Fraud Risk Management program that is designed to protect the departments’ resources from fraud, waste and abuse through a prevention and detection framework; and
- Semi-annual monitoring of, and regular updates on, internal control management, as well as the provision of related assessment results and action plans to the Deputy Minister and senior departmental management and, as applicable, the Departmental Audit Committee.
The Departmental Audit Committee provides advice to the Deputy Minister on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes.
2.2 Service Arrangements Relevant to Financial Statements
ECCC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:
Common Service Arrangements
- Public Services and Procurement Canada (PSPC) provides accommodation services and administers the procurement of goods and services, and the payments of salaries in accordance with ECCC’s delegation of authorities. PSPC also administers the Receiver General Central Systems used to issue cheques on behalf of the department. ECCC relies on the effectiveness of the PSPC Phoenix pay system and related activities and practices;
- Shared Services Canada (SSC) provides information technology (IT) infrastructure services to ECCC in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and ECCC;
- The Department of Justice provides legal services to ECCC;
- The Public Prosecution Service of Canada provides prosecution services to ECCC; and
- The Treasury Board of Canada Secretariat provides services related to public sector insurance for ECCC employees and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans on behalf of ECCC.
Specific Arrangements
- Agriculture and Agri-Food Canada (AAFC) provides ECCC with a System Applications Products (SAP) financial system platform to capture and report all financial transactions. Under this arrangement, ECCC relies on AAFC for the management of certain IT controls and procedures (e.g. security, configuration, change management, business continuity) and also of various master data functions in SAP.
Readers of this Annex may refer to the Statement of Management Responsibility (SOMR) Annexes of the above-noted organizations for a greater understanding of the systems of ICFR related to these specific services.
3. Departmental assessment results during fiscal year 2020-21
The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.
| Previous year’s rotational ongoing monitoring plan for current year | Status |
|---|---|
| Expenditure Management (EM) - Operating and Maintenance Expenditures (ICFR and ICFM) | In progress, on track |
| CFO Attestation for Cabinet Submissions (ICFM) | Completed as planned; remedial actions started |
| Investment Planning (ICFM) | Completed as planned; remedial actions started |
| Planning, Budgeting and Forecasting (ICFM) | In progress, on track |
| Costing (ICFM) | In progress, on track |
ECCC continued to evolve its main ICFM business processes in order to reach the “ongoing monitoring” stage by 2023-24, as per Management Accountability Framework (MAF) expectations. The key findings and significant adjustments required from the current year’s assessment activities are summarized below.
3.1 New or significantly amended key controls
Since the pandemic was declared, ECCC made key decisions and implemented significant strategies in the area of Financial Management with a focus on modernizing and strengthening as quickly as possible the delivery and effectiveness of financial services. There was risk inherent in this approach and ECCC accepted a measure of risk in order to use immediately some methods that will continue after the pandemic.
As part of its risk mitigation strategy and as a best practice, ECCC continued assessing its risks and adjusted its key controls, as the impacts of the COVID-19 pandemic on the control environment continued to evolve, by:
- Reviewing disaster recovery plans and recording the lessons learned to assist the Department in transitioning from crisis response to business resumption;
- Evaluating changes in governance, risk management, and internal controls, including those related to resource allocation and financial management in times of budgetary uncertainty, to delegation of authority and to reporting structure;
- Reviewing the adequacy of oversight procedures established over the impacted areas for enhanced monitoring. As such, ECCC established its ICFM Framework including an update to the ICFR framework, in alignment with recently updated ECCC Integrated Risk Management Framework and the Treasury Board Policy on Financial Management;
- Remaining vigilant of the potential financial fraud vulnerabilities during the pandemic, including relaxation of monetary limits and remote access to financial systems; and
- Documenting and communicating the results of the assessment of processes and controls and supporting business process owners and senior management in addressing them.
3.2 Ongoing Monitoring Program
In 2020-21, ECCC followed its rotational ongoing monitoring plan of ICFM and performed an assessment of the following business processes: EM - Operating and Maintenance Expenditures; Investment Planning; CFO Attestation for Cabinet Submissions; Planning, Budgeting and Forecasting and Costing.
EM - Operating and Maintenance Expenditures
Operating and Maintenance expenditures process include the following ICFR processes: Interdepartmental Settlement; Procure to Payment; Travel; Administration of Acquisition and Fleet Cards and Delegation of Financial and Spending Authorities. At ECCC, these types of expenditures are subject to a quarterly account verification. An Account Verification Awareness Program is in place and contributes to communicating the quarterly results to delegated managers.
This year, in-depth assessments of key processes were performed to enhance controls around the Operating and Maintenance Expenditures, particularly in the context of COVID-19 pandemic. As such, ECCC updated its approach related to the:
- Effectiveness of segregation of duties related to spending and financial authorities;
- Use of the Delegation of Financial and Spending Authorities;
- Remote work purchases to ensure ECCC’s employees are properly equipped while working remotely; and
- Approval of payments on governmental acquisition cards.
Investment Planning
The Department reached the ongoing monitoring status for Investment Planning, following design and operating effectiveness testing performed during 2020-21.
A plan was developed to strengthen the governance of the Investment planning process and ensure compliance with the Treasury Board Policy on the Planning and Management of Investments in order to develop a strategy, provide oversight and recommend capital budget allocations to the proper ECCC's governance structure.
CFO Attestation for Cabinet Submissions
The Department reached the ongoing monitoring status for CFO Attestation for Cabinet Submissions, following operating effectiveness testing performed in 2020-21.
Enhancement to documentation and communication of roles and responsibilities within the Treasury Board Submissions and Memorandum to Cabinet sub-processes is underway.
Planning, Budgeting and Forecasting and Costing
Assessments of the Planning, Budgeting and Forecasting and of the Costing processes are underway in order to reach the ongoing monitoring stage by 2023-24, as per MAF expectations.
4. Departmental action plan for the next fiscal year and subsequent years
In 2016 and as validated through MAF assessment results, ECCC reached the ongoing monitoring status on all processes related to ICFR. Since then, ECCC implemented a risk-based ongoing monitoring program and conducted an annual risk-based assessment to monitor the effectiveness of its ICFR. In 2018, the scope of this monitoring was extended to include its ICFM and ECCC is planning to reach ongoing monitoring by 2024, as per Treasury Board Secretariat expectations.
Ongoing monitoring involves:
- Using a risk-based approach;
- Assessing the design and operating effectiveness of internal controls regularly in accordance with the monitoring plan; and
- Determining whether any actions need to be taken to address weaknesses.
Ongoing monitoring of internal controls begins after completion of initial control assessment. The control assessment involves:
- Documenting the controls;
- Testing for design effectiveness and operating effectiveness; and
- Developing a management action plan to correct gaps or weaknesses.
ECCC’s five-year risk-based ongoing monitoring plan is rotational and is based on the 2020-21 risk assessment results of ICFM processes (including ICFR processes), departmental priorities, available resources and workload, and other considerations, such as the COVID-19 pandemic context, that have an impact on the plan.
Therefore, as started at the end of last year, the Department identified how the pandemic has affected the control environment and performed a top-down risk assessment of the ICFM, including ICFR, key processes, with a focus on controls that are critical. This fiscal year’s risk-based assessment resulted in continuing to consider most components of the EM process as being at higher risk due to the interim measures and processes implemented during the COVID-19 pandemic.
| Key control areas | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 |
|---|---|---|---|---|---|
| Entity Level Controls (ICFR) | No | Yes | Yes | No | No |
| IT General Controls (ICFR) | Yes | Yes | Yes | Yes | Yes |
| EM - Pay Administration (ICFM and ICFR) | No | No | No | No | Yes |
| EM - Operating and Maintenance Expenditures (ICFR) | Yes | No | No | No | No |
| EM - Capital Expenditures (ICFR) | No | No | Yes | Yes | No |
| EM - Grants & Contributions (ICFR) | No | No | Yes | Yes | No |
| Revenue, Receivables and Receipts (ICFR) | No | No | No | Yes | Yes |
| Planning, Budgeting and Forecasting (ICFM) | Yes | Yes | No | No | No |
| Costing (ICFM) | No | Yes | Yes | No | No |
| Investment Planning (ICFM) | No | No | No | No | Yes |
| ICFM Assessment on EM (ICFM and ICFR) | Yes | Yes | Yes | Yes | Yes |
| Monitoring of MAP on ICFM, including ICFR | Yes | Yes | Yes | Yes | Yes |
The Department will continue to prioritize and realign its ICFM assessments in order to assist the organization in effectively navigating through the next normal.
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