Statement of Management Responsibility Including Internal Control Over Financial Reporting
Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2011, and all information contained in these statements rests with the management of Natural Resources Canada. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector.
Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department's Departmental Performance Report, is consistent with these financial statements.
Management is also responsible for maintaining an effective system of internal control over financial reporting designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.
Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training, and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the department; and through conducting an annual assessment of the effectiveness of the system of internal control over financial reporting.
An assessment for the year ended March 31, 2011 was completed in accordance with the Policy on Internal Control and the results and action plans are summarized in the annex.
The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.
The effectiveness and adequacy of the department's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the department's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the financial statements to the Deputy Minister of Natural Resources Canada.
The financial statements of Natural Resources Canada have not been audited.
|
Serge P. Dupont
Deputy Minister Date signed Ottawa, Canada |
Bill Merklinger, CMA
Chief Financial Officer Date signed Ottawa, Canada |
Natural Resources Canada
Statement of Financial Position (Unaudited)
As at March 31
(In thousands of dollars)
| 2011 |
2010
Restated (Note 19) |
|
|---|---|---|
| ASSETS | ||
| Financial assets | ||
| Due from Consolidated Revenue Fund | $803,966 | $620,648 |
| Accounts receivable and advances (Note 4) | 159,598 | 210,458 |
| Loan receivable (Note 5) | 41,333 | 42,000 |
| Investment | - | - |
| Total financial assets | 1,004,897 | 873,106 |
| Non-financial assets | ||
| Prepayments (Note 6) | 114,136 | 65,809 |
| Inventories (Note 7) | 1,914 | 8,014 |
| Tangible capital assets (Note 8) | 213,456 | 96,496 |
| Total non-financial assets | 329,506 | 170,319 |
| TOTAL | $1,334,403 | $1,043,425 |
| LIABILITIES AND EQUITY OF CANADA | ||
| Liabilities | ||
| Accounts payable and accrued liabilities (Note 9) | $839,832 | $701,717 |
| Vacation pay and compensatory leave | 25,917 | 27,135 |
| Deferred revenue | - | - |
| Employee future benefits (Note 10) | 78,558 | 88,109 |
| Lease obligation for tangible capital assets (Note 11) | 78,190 | - |
| Environmental liabilities (Note 12a) | 1,106,361 | 349,948 |
| Other liabilities (Note 13) | 15,725 | 16,535 |
| Total liabilities | 2,144,583 | 1,183,444 |
| Equity of Canada | (810,180) | (140,019) |
| TOTAL | $1,334,403 | $1,043,425 |
Contingent Liabilities (Note 12b)
Contingent Recoveries (Note 15)
Contingent Obligations (Note 16)
The accompanying notes form an integral part of these financial statements.
|
Serge P. Dupont
Deputy Minister Date signed Ottawa, Canada |
Bill Merklinger, CMA
Chief Financial Officer Date signed Ottawa, Canada |
Natural Resources Canada
Statement of Operations (Unaudited)
For the year ended March 31
(In thousands of dollars)
| 2011 |
2010
Restated (Note 19) |
|
|---|---|---|
| Expenses | ||
| Economic Opportunities for natural resources | $2,326,412 | $2,009,356 |
| Clean energy | 1,319,806 | 776,213 |
| Internal services | 1,058,398 | 254,528 |
| Ecosystem risk management | 202,699 | 160,530 |
| Natural resource and landmass knowledge and systems | 105,068 | 117,811 |
| Adapting to a changing climate and hazard risk management | 66,656 | 71,487 |
| Natural resource-based communities | 11,975 | 11,190 |
| Geomatics Canada Revolving Fund | 4,596 | 3,711 |
| Total Expenses | 5,095,610 | 3,404,826 |
| Revenues | ||
| Economic Opportunities for natural resources | 1,629,766 | 1,458,277 |
| Clean energy | 12,754 | 15,585 |
| Internal services | 13,802 | 4,599 |
| Ecosystem risk management | 3,269 | 3,723 |
| Natural resource and landmass knowledge and systems | 1,768 | 553 |
| Adapting to a changing climate and hazard risk management | 6,700 | 7,698 |
| Natural resource-based communities | 29 | 159 |
| Geomatics Canada Revolving Fund | 4,021 | 2,881 |
| Total Revenues | 1,672,109 | 1,493,475 |
| Net cost of operations | $3,423,501 | $1,911,351 |
Segment information (Note 18)
The accompanying notes form an integral part of these financial statements.
Natural Resources Canada
Statement of Equity of Canada (Unaudited)
As at March 31
(In thousands of dollars)
| 2011 |
2010 Restated (Note 19) |
|
|---|---|---|
| Equity of Canada, beginning of year | $(140,019) | $(270,561) |
| Net cost of operations | (3,423,501) | (1,911,351) |
| Net cash provided by Government | 2,517,021 | 2,001,629 |
| Change in due from the Consolidated Revenue Fund | 183,318 | (11,754) |
| Services provided without charge by other government departments (Note 17) | 52,994 | 52,018 |
| Net transfers of tangible capital assets from other government departments (Note 8) | 7 | - |
| Equity of Canada, end of year (Note 14) | $(810,180) | $(140,019) |
The accompanying notes form an integral part of these financial statements.
Natural Resources Canada
Statement of Cash Flows (Unaudited)
For the year ended March 31
(In thousands of dollars)
| 2011 |
2010 Restated (Note 19) |
|
|---|---|---|
| Operating activities | ||
| Net cost of operations | $3,423,501 | $1,911,351 |
| Non-cash items: | ||
| Amortization of tangible capital assets | (24,250) | (13,272) |
| Gain on disposal and write-offs of tangible capital assets | 8,408 | 966 |
| Services provided without charge by other government departments (Note 17) | (52,994) | (52,018) |
| Variations in Statement of financial position: | ||
| (Decrease) incr0ease in accounts receivable and advances | (50,860) | 43,922 |
| Decrease in loans receivable and investments | (667) | (3,327) |
| Increase in prepayments | 48,327 | 62,710 |
| (Decrease) increase in inventory | (6,100) | 1,472 |
| (Increase) decrease in accounts payable and accrued liabilities | (138,115) | 4,951 |
| Decrease (Increase) in vacation pay and compensatory leave | 1,218 | (4,050) |
| Decrease (Increase) in future employee benefits | 9,551 | (7,573) |
| (Increase) decrease in environmental liabilities | (756,413) | 9,468 |
| Decrease in other liabilities | 810 | 10,559 |
| Cash used in operating activities | 2,462,416 | 1,965,159 |
| Capital investing activities | ||
| Acquisitions of tangible capital assets | 133,189 | 37,006 |
| Proceeds from disposal of tangible capital assets | (394) | (536) |
| Cash used in capital investing activities | 132,795 | 36,470 |
| Financing activities | ||
| Lease obligation for tangible capital assets | (80,005) | - |
| Lease payments for tangible capital assets | 1,815 | - |
| Cash used in financing activities | (78,190) | - |
| Net cash provided by Government of Canada | $2,517,021 | $2,001,629 |
The accompanying notes form an integral part of these financial statements.
Natural Resources Canada
Notes to the Financial Statements (Unaudited)
For the year ended March 31
1. Authority and Objectives
The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department's mandate is primarily based on the Department of Natural Resources Act, the Resources and Technical Surveys Act and the Forestry Act.
NRCan's mandate is to ensure the sustainable development and responsible use of Canada's natural resources. Through innovation and partnership, the department plays a pivotal role in helping shape the enormous contributions of the natural resource sectors and related industries to the high quality of life of Canadians. NRCan fulfills its mandate through eight main programs:
-
Economic Opportunities for natural resources contains programs designed to promote innovation, investment, and the enhancement of the competitiveness of Canada's natural resources and related products to industries through the provision of know-how and tools, along with trade promotion and market acceptance, at home and abroad.
-
Clean energy includes the development and delivery of energy science and technology, policies, programs, legislation and regulations to mitigate air emissions and to reduce other environmental impacts associated with energy production and use.
-
Ecosystem risk management includes programs that help to understand the risks to our environment and the protection of critical resources such as groundwater.
-
Natural resources and landmass knowledge and systems carries out the Minister's obligation to provide a property rights infrastructure on all lands for which the department has this responsibility, along with the provision and access to accurate and precise geographic information on the Canadian landmass.
-
Adapting to a changing climate and hazard risk management provides geoscience and geospatial information that contributes to the reduction of risks from natural hazards, such as earthquakes, tsunamis and floods, as well as hazards arising from human activities, and works with front-line responders to provide geographical information in the event of an emergency.
-
Natural resource-based communities is targeted to increasing Canada's knowledge of the impacts of natural resource sector evolution on communities that have a substantial reliance on resource-based industries and to improve the capacity and knowledge for increasing the number of opportunities through value-added products and services.
-
The Geomatics Canada Revolving Fund allows Geomatics Canada to shift the costs from taxpayers at large to specific users who benefit directly from the goods and services provided. These goods and services include aeronautical charts and publications which contribute to the safety and security of the traveling public and Canadians.
-
Internal services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization.
2. Summary of Significant Accounting Policies
These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.
Significant accounting policies are as follows:
-
Parliamentary authorities – The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.
-
Consolidation – These consolidated financial statements include the accounts of the sub-entities that are under the control of the Department. The accounts of the Geomatics Canada Revolving Fund have been consolidated with those of the Department and all inter-organizational balances and transactions have been eliminated.
-
Net Cash Provided by Government – The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF and all cash disbursements made by the Department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.
-
Amounts due to/from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from without further appropriations to discharge its liabilities.
-
Revenues:
-
Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
-
Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
-
Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
-
-
Expenses – Expenses are recorded on the accrual basis:
-
Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements;
-
Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and reasonable estimate can be made.
-
Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
-
Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.
-
-
Employee future benefits
-
Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi employer plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the department to make contributions for any actuarial deficiencies to the Plan.
-
Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability employee severance benefits for the Government as a whole.
-
-
Accounts receivables are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.
-
Loans with significant concessionary terms are recorded on the Statement of Financial Position at their estimated net present value. A portion of this unamortized discount is brought into income each year to reflect the change in the present value of the loan outstanding. An estimated allowance for un-collectibility is recorded where appropriate. Interest revenue is recognized when earned.
-
Repayable contributions are contributions where the recipient is expected to repay the amount advanced. Depending on their nature, they are classified as either unconditionally repayable or conditionally repayable and are accounted for differently.
-
Unconditionally repayable contributions are contributions that must be repaid without qualification. Normally, these contributions are provided with a low or no interest clause. Due to their concessionary nature, they are recorded on the Statement of Financial Position as loans at their estimated present value. A portion of the unamortized discount is recorded as revenue each year to reflect the change in the present value of the contributions outstanding. An estimated allowance for un-collectability is recorded where appropriate.
-
Conditionally repayable contributions are contributions that, all or part of which become repayable, if conditions specified in the contribution agreement come into effect. Accordingly, they are not recorded on the Statement of Financial Position until such time as the conditions specified in the agreement come into effect at which time, they are recorded as a receivable and a reduction in transfer payment expenses. An estimated allowance for un-collectability is recorded where appropriate.
-
-
Contingent liabilities – Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
-
Environmental liabilities – Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or likely to be obligated to incur such costs. If the likelihood of NRCan's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes of the financial statements.
-
Inventories – Inventories consist of parts, material and supplies held for future program delivery. Inventory is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.
-
Foreign currency transactions - Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect on March 31. Gains and losses resulting from foreign currency transactions are included in the statement of operations and in note 18 under Operating expenses - Other.
-
Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more ($1,000 or more for the Geomatics Canada Revolving Fund) are recorded at their acquisition cost. The department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.
Amortization of capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:
The table below provides the information of the amortization period for each asset class used in Natural Resources Canada. Asset Class Amortization period Buildings 15 to 40 years Machinery and equipment 5 to 15 years Vehicles 3 to 10 years Assets under construction Once in service, in accordance with asset class Leased tangible capital assets Over term of lease/useful life
Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use. -
Measurement uncertainty – The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits, the useful life of tangible capital assets, and the allowance for doubtful accounts. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.
3. Parliamentary authorities
The Department receives most of its funding through annual Parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:
a). Reconciliation of net cost of operations to current year authorities used
| 2011 |
2010
Restated (Note 19) |
|
|---|---|---|
| (in thousands of dollars) | ||
| Net cost of operations | $3,423,501 | $1,911,351 |
|
Adjustments for items affecting net cost of operations
but not affecting authorities: |
||
| Add (Less): | ||
| NRCan's authorities | ||
| Revenue not available for spending | 1,636,581 | 1,459,479 |
| Refunds of prior years' expenditures | 15,913 | 19,403 |
| Services provided without charge by other government departments | (52,994) | (52,018) |
| Adjustment for prepaid expenses | 12,707 | 4,359 |
| Allowance for environmental liabilities | (756,413) | 9,468 |
| Amortization of tangible capital assets | (24,250) | (13,272) |
| Employee severance benefits | 9,551 | (7,573) |
| Adjustments of prior year accounts payable | 8,832 | 8,917 |
| Reductions from prepaid expenses | (56,529) | (713) |
| Amortization of unamortized discount loans | 3,333 | 3,333 |
| Adjustments of previous years' inventory | (6,100) | 1,473 |
| Vacation pay and compensatory leave | 1,218 | (4,050) |
| Adjustment for expenses related to claims | (2,850) | 56,500 |
| Reductions to work in progress | (15,140) | - |
| Other adjustments | 5,463 | (1,189) |
| 779,322 | 1,484,117 | |
|
Adjustments for items not affecting net cost of operations
but affecting authorities: |
||
| Add (Less): | ||
| Receivables, advances, and prepayments | 99,207 | 58,791 |
| Acquisitions of tangible capital assets | 133,189 | 37,006 |
| Increase in lease obligations for tangible capital assets | (78,190) | - |
| 154,206 | 95,797 | |
| Current year authorities used | $4,357,029 | $3,491,265 |
b). Authorities provided and used
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Authorities Provided: | ||
| Vote 1 - Operating expenditures | $860,176 | $927,603 |
| Vote 5 - Capital expenditures | 26,476 | 8,934 |
| Vote 10 - Transfer payments | 1,898,728 | 806,565 |
| Statutory amounts | 2,177,541 | 1,839,866 |
| Less: | ||
| Authorities available for future years | (7,862) | (7,701) |
| Lapsed - Operating | (40,576) | (57,924) |
| Lapsed - Capital | (5,256) | (14) |
| Lapsed - Transfer payment | (552,178) | (26,064) |
| Lapsed – Statutory amounts | (20) | - |
| Current year authorities used | $4,357,029 | $3,491,265 |
4. Accounts receivable and advances
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Receivables from external parties | $149,205 | $206,282 |
| Receivables from other federal government departments and agencies | 11,344 | 5,688 |
| Employee advances | 102 | 76 |
| 160,651 | 212,046 | |
| Less: Allowance for doubtful accounts on external receivables | (1,053) | (1,588) |
| Total | $159,598 | $210,458 |
5. Loan receivable
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Loan to Nordion International Inc. | $58,000 | $62,000 |
| Unamortized discounts | (16,667) | (20,000) |
| Loan balance - Nordion | $41,333 | $42,000 |
Nordion International Inc. (loan)
Interest Free Loan Agreement; to be repaid over 30 semi-annual payments commencing October 1, 2000; fully secured by a financial instrument in Canada's name which guarantees that the loan will be repaid. Balance remaining as of March 31, 2011 is $58,000,000. Due to the concessionary terms of this loan, the estimated present value is $41,333,000 as at March 31, 2011.
6. Prepayments
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Prepaid expenses | $12,707 | $7,019 |
| Prepaid transfer payments | 101,429 | 58,790 |
| Total | $114,136 | $65,809 |
7. Inventory
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Inventories held for consumption | $1,875 | $7,594 |
| Inventories for re-sale | 39 | 420 |
| Total | $1,914 | $8,014 |
The cost of consumed inventory recognized as an expense in the Statement of Operations is $6,038,999 in 2010-11 ($1,472,291 in 2009-10).
8. Tangible capital assets
| Cost | Accumulated amortization | 2011 | 2010 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Capital asset class | Opening balance |
Acqui- sitions |
Disposals, write-offs and other |
Closing balance | Opening balance |
Amorti- zation |
Disposals, write-offs and other |
Closing balance | Net book value | Net book value |
| Land | $7,923 | $ - | $ - | $7,923 | $ - | $ - | $ - | $ - | $7,923 | $7,923 |
| Buildings | 148,439 | 27,083 | (18,393) | 193,915 | 123,554 | 11,488 | 2,060 | 132,982 | 60,933 | 24,885 |
| Machinery and equipment | 245,240 | 14,150 | (1,136) | 260,526 | 201,241 | 10,275 | 1,649 | 209,867 | 50,659 | 43,999 |
| Vehicles | 11,520 | 1,003 | 1,178 | 11,345 | 6,971 | 1,087 | 1,101 | 6,957 | 4,388 | 4,549 |
| Leased tangible capital assets | - | 90,953 | - | 90,953 | - | 1,400 | - | 1,400 | 89,553 | - |
| Assets under construction | 15,140 | - | 15,140 | - | - | - | - | - | - | 15,140 |
| Total | $428,262 | $133,189 | $(3,211) | $564,662 | $331,766 | $24,250 | $4,810 | $351,206 | $213,456 | $96,496 |
View larger tangible capital assets table
Disposals of assets under construction represent assets that were put to use in the year and have been transferred to the other capital asset classes as applicable.
Effective October 12, 2010, the Department transferred assets with Privy Council Office with a net effect of $7,000 on the equity.
9. Accounts payable and accrued Liabilities
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| Accounts payable to other government departments and agencies | $22,921 | $29,866 |
| Accounts payable to external parties | 815,546 | 671,845 |
| 838,467 | 701,711 | |
| Accrued liabilities | 1,365 | 6 |
| Total | $839,832 | $701,717 |
10. Employee future benefits
(a) Pension benefits
The Department's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.
Both the employees and the department contribute to the cost of the plan. The 2010-11 expense amounts to $66,220,000 ($67,242,000 in 2009-10), which represents approximately 1.9 times (1.9 in 2009-10) the contributions by employees.
The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
(b) Severance benefits
The Department provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, is as follows:
| 2011 |
2010 Restated (Note 19) |
|
|---|---|---|
| ( in thousands of dollars) | ||
| Accrued benefit obligation, beginning of year | $88,109 | $80,536 |
| Expense for the year | (9,574) | 18,473 |
| Restatement of expense | - | (11,159) |
| Benefits paid during the year | 23 | 259 |
| Accrued benefit obligation, end of year | $78,558 | $88,109 |
11. Lease obligation for tangible capital assets
The Department has entered into agreements to lease a building under a capital lease with a cost of $90,953,000 and accumulated amortization of $1,400,000 as at March 31, 2011 (nil as at March 31, 2010). The obligations related to the upcoming years include the following:
| 2011 | 2010 | |
|---|---|---|
| (in thousands of dollars) | ||
| 2012 | $4,718 | $ - |
| 2013 | 4,718 | - |
| 2014 | 4,718 | - |
| 2015 | 4,718 | - |
| 2016 and thereafter | 97,509 | - |
| Total future minimum lease payments | 116,381 | - |
| Less: imputed interest (3.45%) | 38,191 | - |
| Balance of obligations under leased tangible capital assets | $78,190 | $ - |
12. Contingent liabilities
Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:
(a) Contaminated sites
Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs. The Department has identified approximately 7 sites (11 sites in 2010) where such action is possible and for which a liability of $1,106,361,000 ($349,948,000 in 2010) has been recorded. The Department has identified additional costs related to the contaminated sites of $27,673,000 ($2,901,000 in 2009-2010) that are not accrued, as these are not considered likely to be incurred at this time. The Department's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the department in the year in which they become likely and are reasonably estimable.
(b) Claims and litigation
Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. Based on the Department's assessment, legal proceedings for claims estimated at $17,350,000 ($14,500,000 in 2010) were pending at March 31, 2011. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.
13. Other Liabilities
| (in thousands of dollars) | April 1, 2010 | Receipts and other credits | Payments and other charges | March 31, 2011 |
|---|---|---|---|---|
| Guarantee deposits - Oil and gas | $4,634 | $113,829 | $(114,034) | $4,429 |
| Shared costs projects | 2,006 | 240 | - | 2,246 |
| Market development and incentive payments - Alberta | 4,664 | - | (13) | 4,651 |
| Shared costs agreements - Research | 5,231 | 14,505 | (15,337) | 4,399 |
| Total | $16,535 | $128,574 | $(129,384) | $15,725 |
Guarantee deposits – Oil and gas: This account was established to record securities in the form of cash, promissory notes, and bonds which are required to be issued to, and held by the Government of Canada pursuant to an Exploration License in accordance with section 24 of the Canada Petroleum Resources Act. These securities are a performance guarantee that the agreed exploration will be performed in the manner and time frame specified. Interest is not paid on these deposits.
Shared-cost projects - This account was established to facilitate the retention and disbursement of moneys received from private organizations and other governments for cost-sharing scientific projects.
Market development incentive payments – Alberta: This account records money received from the Government of Alberta, to encourage the expansion of natural gas market in Alberta and provinces to the East, in accordance with an agreement between the Government of Canada and the Government of Alberta dated September 1, 1981 and pursuant to section 39 of the Energy Administration Act. The original term of the agreement was from November 1, 1981 to January 31, 1987. As a result of the Western Accord of March 25, 1985, payments from the Government of Alberta terminated as at April 30, 1986, however, payments are being made from the account for selected programs which encourage the use of natural gas for vehicles.
Shared-cost agreements – Research: This account was established to facilitate the retention and disbursement of moneys received from private industries and other governments for joint projects or shared-cost research agreements.
14. Restricted Equity of Canada
A portion of the Department's equity is restricted to be used for a specific purpose. Related revenues and expenses are included in the Statement of Operations.
The Environmental Studies Research Fund account was established pursuant to subsection 76(1) of the Canada Petroleum Resources Act. The purpose of the fund is to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration development and production activities on frontier land, authorized under this Act or any other Act of Parliament, should be conducted. Legislation required that the revenues of these accounts to be earmarked and that related payments and expenses be charged against such revenues. The transactions do not represent liabilities to third parties but are internally restricted for specified purposes.
| 2011 |
2010 Restated (Note 19) |
|
|---|---|---|
| (in thousands of dollars) | ||
| Environmental Studies Research Fund – Restricted | ||
| Balance, beginning of year – Restricted | $3,979 | $2,739 |
| Revenues | 177 | 1,271 |
| Expenses | (775) | (31) |
| Balance, end of year – Restricted | 3,381 | 3,979 |
| Unrestricted Equity of Canada, end of year | (813,561) | (143,998) |
| Total Equity of Canada, end of year | $(810,180) | $(140,019) |
15. Contingent Recoveries
NRCan issues conditionally repayable contributions that become repayable if conditions specified in the contribution agreement come into effect.
Lloydminster Bi-Provincial Upgrader - Canada sold its interests in the Lloydminster Bi-Provincial Upgrader to Husky Oil in 1995. The terms of sale included an upside interest provision whereby Canada would be eligible to receive additional payments for a period of up to 20 years if the differential between light and heavy crude oil reached a certain threshold. As a result of the increase in oil prices since the date of sale, the upside interest provision was triggered and eligible payments to Canada have increased. Canada's eligibility for upside interest payments ends in 2015.
Vancouver Island Pipeline Contribution - Canada provided $50 million in support of the construction of Vancouver Island Pipeline in the early 1990's. This support was provided in the form of a repayable contribution. Repayment was contingent upon the proponent meeting certain financial conditions. Full repayment is expected to be received by 2014.
The Ethanol Expansion Program (EEP) was launched in August 2003 with a budget of $100 million, as part of the Budget 2003 Climate Change measures. The purpose of the EEP was to contribute to the expansion of ethanol production and use in Canada and the reduction of transportation greenhouse gas emissions. Incentives were provided to enable the construction of new ethanol facilities or the expansion of existing ones. The support was provided in the form of repayable contributions. Repayments are to be made over a seven year period or until Canada has received repayments totalling an amount equal to the contribution, whichever comes first. Repayment is contingent upon the proponents meeting certain financial conditions. The final repayment reports will be received in 2017.
Other contingent recoveries relate to agreements entered into with proponents for early stage research and development (R&D) activities. Recoveries are contingent upon the successful commercialization of products generated by the R&D activities.
The Department has estimated the contingent recoverable amounts as $98,713,000 ($104,705,000 in 2010). Contingent recoveries are not recorded in the financial statements.
16. Contractual Obligations
The nature of the Department's activities can result in some large multi-year contracts and obligations whereby the Department will be obligated to make future payments in order to carry out its transfer payment programs. Significant contractual obligations that can be reasonably estimated are summarized as follows:
| (in thousands of dollars) | 2012 | 2013 | 2014 | 2015 | 2016 and thereafter | TOTAL |
|---|---|---|---|---|---|---|
| Transfer payments | $720,432 | 291,834 | 257,979 | 234,009 | 626,109 | $2,130,363 |
17. Related party transactions
The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal Course of business and on normal trade terms. Also, during the year, the Department received common services which were obtained without charge from other Government departments as presented in part (a).
(a) Common services provided without charge by other government departments:
During the year the Department received services without charge from certain common service organizations, related to accommodation, legal services, the employer's contribution to the health and dental insurance plans, and workers' compensation coverage. These services received without charge are as follows:
| Services provided without charge | (in thousands of dollars) | |
|---|---|---|
| 2011 | 2010 | |
| Accommodation provided by Public Works and Government Services Canada | $17,469 | $16,848 |
| Contributions covering employer's share of employees' insurance premiums and costs paid by Treasury Board Secretariat | 33,594 | 33,073 |
| Worker's compensation cost provided by Human Resources Canada | 259 | 263 |
| Legal services provided by Department of Justice | 1,672 | 1,834 |
| Total | $52,994 | $52,018 |
The Government has centralized some of its administrative activities for efficiency and cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the Department's Statement of Operations.
(b) Other transactions with related parties:
| (in thousands of dollars) | ||
| 2011 | 2010 | |
|---|---|---|
| Expenses – Other Government departments and agencies | $57,248 | $32,403 |
| Revenues – Other Government departments and agencies | 1,497 | 1,100 |
18. Segmented information
Presentation by segment is based on the Department's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues.
| (in thousands of dollars) | ||||||||||
|
Economic Opportu- nities for natural resources |
Clean energy | Internal Services |
Eco- system risk manage- ment |
Natural resource and landmass know- ledge and systems |
Adapting to a changing climate and hazard risk manage- ment |
Natural resource- based commu- nities |
Geomatics Canada Revolving Fund | 2011 Total |
2010 Total Restated (Note 19) |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Transfer payments | ||||||||||
| Industry | $7,698 | $791,120 | $2,593 | $738 | - | $552 | $320 | - | $803,021 | $349,411 |
| International | 264 | 732 | 242 | 819 | - | 97 | - | - | 2,154 | 1,470 |
| Non-profit organization | 87,642 | 22,212 | 1,257 | 854 | 96 | 5,258 | 5,287 | - | 122,606 | 73,197 |
| Other levels of government | 2,097,686 | 5,267 | 19 | 21 | - | 829 | - | - | 2,103,822 | 1,773,680 |
| Individuals | - | 351,182 | 10 | - | - | - | 1,463 | - | 352,655 | 266,772 |
| Total transfer payments | 2,193,290 | 1,170,513 | 4,121 | 2,432 | 96 | 6,736 | 7,070 | - | 3,384,258 | 2,464,530 |
| Operating expenses | ||||||||||
| Salaries and employee benefits | 77,693 | 84,896 | 204,558 | 30,424 | 47,883 | 44,044 | 3,580 | 967 | 494,045 | 501,662 |
| Environmental expenses | - | - | 756,413 | - | - | - | - | - | 756,413 | (9,468) |
| Information | 560 | 2,991 | 1,961 | 236 | 240 | 270 | 23 | 1 | 6,282 | 10,648 |
| Professional and special services | 21,723 | 27,511 | 70,050 | 146,523 | 33,393 | 4,664 | 432 | 2,473 | 306,769 | 296,403 |
| Rentals | 10,871 | 3,750 | 4,091 | 672 | 25,822 | 835 | 23 | 86 | 46,150 | 33,138 |
| Transportation | 10,338 | 5,430 | 7,492 | 2,413 | 4,657 | 4,256 | 383 | 107 | 35,076 | 34,848 |
| Utilities, material and supplies | 4,889 | 4,276 | 2,816 | 1,879 | 5,235 | 3,477 | 243 | 173 | 22,988 | 24,251 |
| Purchased repairs and upkeep | 480 | 592 | 5,758 | 259 | 663 | 395 | 29 | 41 | 8,217 | 14,125 |
| Acquisitions | 2,923 | 3,961 | (2,046) | 1,234 | 2,967 | 2,474 | 95 | 14 | 11,622 | 18,804 |
| Amortization | 2,348 | 3,022 | 14,883 | 747 | 1,646 | 1,501 | 90 | 13 | 24,250 | 13,272 |
| Other | 1,297 | 12,864 | (11,699) | 15,880 | (17,534) | (1,996) | 7 | 721 | (460) | 2,613 |
| Total operating expenses | 133,122 | 149,293 | 1,054,277 | 200,267 | 104,972 | 59,920 | 4,905 | 4,596 | 1,711,352 | 940,296 |
| Total Expenses | $2,326,412 | $1,319,806 | $1,058,398 | $202,699 | $105,068 | $66,656 | $11,975 | $4,596 | $5,095,610 | $3,404,826 |
| Revenues | ||||||||||
| Lease and Use of Public Property | $47 | $5 | $32 | $3 | $22 | $13 | $1 | - | $123 | $385 |
| Other | (33) | 468 | 13,609 | 37 | 33 | 141 | 5 | 2,699 | 16,959 | 9,411 |
| Proceeds from sales | 73 | - | - | 6 | 1,255 | 708 | 1 | 708 | 2,751 | 3,254 |
| Revenue from Services of a Non-Regulatory Nature | 1,649 | 12,279 | 1 | 3,181 | 457 | 2,576 | 4 | 614 | 20,761 | 25,538 |
| Revenue from Services of a Regulatory Nature | - | - | - | - | - | 1,242 | - | - | 1,242 | 1,352 |
| Rights and Privileges | 1,185,464 | - | - | 42 | - | 2,020 | 18 | - | 1,187,544 | 1,129,654 |
| Interest | 442,566 | 2 | 160 | - | 1 | - | - | - | 442,729 | 323,881 |
| Total Revenues | 1,629,766 | 12,754 | 13,802 | 3,269 | 1,768 | 6,700 | 29 | 4,021 | 1,672,109 | 1,493,475 |
| Net cost from operations | $696,646 | $1,307,052 | $1,044,596 | $199,430 | $103,300 | $59,956 | $11,946 | $575 | $3,423,501 | $1,911,351 |
View larger segmented information table
19. Restatement of prior years
(a) 2008-2009 Financial Statements - Adoption of new accounting policies:
During the year, the Department adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements which is effective for the Department for the 2010-11 fiscal year. The major change in the accounting policies required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position and the elimination of the Investment in Atomic Energy of Canada Limited from the assets on the Statement of Financial Position.
The adoption of the new Treasury Board accounting policies have been accounted for retroactively to fiscal year 2008-09 with positive effect of $468 million on the balance of Equity of Canada.
(b) 2009-2010 Financial Statements – Overstatement of severance benefits closing balance
According to the significant accounting policy referred to in Note 2(g), the obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability employee severance benefits for the Government as a whole.
In fiscal year 2009, the final Government-wide liability for severance benefits was higher than the estimated liability originally recorded by departments, which resulted in an adjustment to the department's severance pay liability of $11,158,986. As the books were closed, this adjustment was made for the purposes of presentation in departmental financial statements only. In fiscal year 2010, when applying the severance liability rate, the entry did not account for the adjustments made, and as such, the fiscal year 2010 financial statements disclosed an overstated expense and severance liability of $11,158,986. A restatement has been made to the severance benefits closing balance for the correction of that error.
The adoption of the new Treasury Board accounting policies and the adjustment of the severance benefits have been accounted for retroactively with the following impact on the comparatives for fiscal year 2009 and 2010:
| 2009 | 2010 | ||||
|---|---|---|---|---|---|
| As previously stated | Effect of changes due to adoption of the new Treasury Board accounting policies (a) | Restated | Effect of changes due to correction of Employee Future Benefits (b) | Restated | |
| (in thousands of dollars) | |||||
| Equity of Canada, beginning of year | $(609,002) | $(609,002) | $(270,561) | ||
| Assets | 457,996 | 468,243 | 926,239 | - | 1,043,425 |
| Due from the Consolidated Revenue Fund | - | 632,402 | 632,402 | - | 620,648 |
| Investment in Atomic Energy of Canada Ltd | 164,159 | (164,159) | - | - | - |
| Liabilities | 1,196,800 | - | 1,196,800 | (11,159) | 1,183,444 |
| Employee future benefits | 80,536 | - | 80,536 | (11,159) | 88,109 |
| Equity of Canada, end of year | $(738,804) | $468,243 | $(270,561) | $(11,159) | $(140,019) |
20. Comparative information
Comparative figures have been reclassified to conform to the current year's presentation.
Summary of the assessment of effectiveness of the system of internal control over financial reporting and the action plan of Natural Resources Canada for fiscal year 2010-2011
Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting
Note to the reader
With the new Treasury Board Policy on Internal Control, effective April 1, 2009, departments are now required to 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 plans to address any necessary adjustments, 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 on-going 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.
1. Introduction
This document is attached to the Natural Resources Canada (NRCan) Statement of Management Responsibility Including Internal Control Over Financial Reporting for the fiscal-year 2010-2011. This document provides summary information on the measures taken by NRCan to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides summary information on the assessments conducted by NRCan during the 2010-2011 fiscal year, the second year for which such information has been published by the Department. This document includes progress, results and related action plans along with some financial highlights pertinent to understanding the control environment unique to the department.
1.1 Authority, Mandate and Program Activities
Detailed information on NRCan's authority, mandate and program activities can be found in its Departmental Performance Report and Report on Plans and Priorities.
1.2 Financial Highlights
The financial statements (unaudited) of NRCan for fiscal-year 2010-2011 can be found at http://www.nrcan.gc.ca/publications/quarterly-financial-reports/1193. Information can also be found in the Public Accounts of Canada.
- Total expenses are $5.1 B
- Transfer payments comprise the majority (66%) of the expenses for a value of $3.38 B
- Salary expenses are $494 M
- Total revenues for NRCan are $1.67 B
- Net book value of total assets is $1.33 B
- NRCan has total liabilities of $2.14 B which include an accrual of $1.11 B to record the estimated costs related to the management and remediation of contaminated sites.
- NRCan has one revolving fund whose financial statements are audited annually. The financial results are consolidated into the departmental financial statements.
- NRCan utilized a financial system called Government Financial System (GFS) in fiscal year 2010-2011. This system interfaced with other departmental systems such as the GFS User Friendly (GUFI) application, and the ecoENERGY Retrofit – Homes grant program database.
1.3 Service arrangements relevant to the financial statements
NRCan relies on other organizations and their internal controls for the processing of certain transactions that are recorded in its financial statements:
- The department of Public Works and Government Services Canada centrally administers the payments of salaries.
- The Treasury Board Secretariat provides the Department with information used to calculate various accruals and allowances, such as the accrued severance liability.
1.4 Material changes in fiscal-year 2010-2011
Significant changes that have occurred within NRCan during the fiscal year 2010-2011 are as follows:
- Serge P. Dupont was appointed Deputy Minister on October 12, 2010.
- Karen Ellis was appointed Associate Deputy Minister on February 7, 2011.
- A new Executive Committee was established on February 11, 2011, replacing the Departmental Management Committee. The responsibilities of the Executive Committee are further described in Section 2.1.
- A Business Transformation Committee was established on February 11, 2011. The responsibilities of the Business Transformation Committee are further described in Section 2.1.
2. NRCan's control environment relevant to ICFR
NRCan recognizes the importance of setting the tone from the top to help ensure that staff at all levels understand their roles in maintaining effective systems of ICFR and are well equipped to exercise these responsibilities effectively. NRCan's focus is to ensure risks are managed well through a responsive and risk-based control environment that enables continuous improvement and innovation.
2.1 Key positions, roles and responsibilities
Following are NRCan's key positions and committees with responsibilities for maintaining and reviewing the effectiveness of its system of ICFR.
Deputy Minister (DM) – NRCan's Deputy Minister, as Accounting Officer, assumes overall responsibility and leadership for the measures taken to maintain an effective system of internal control. In this role, the DM chairs the Executive Committee.
Associate Deputy Minister (Associate DM) – The Associate Deputy Minister supports the Deputy Minister with respect to the stewardship of NRCan, including financial management. In this role, the Associated Deputy Minister chairs the Business Transformation Committee.
Chief Financial Officer (CFO) – NRCan's CFO reports directly to the DM and provides leadership for the design and maintenance of an effective and integrated system of ICFR, including its annual assessment. The CFO provides leadership to the financial management of NRCan and is a member of the Business Transformation Committee and the Transfer Payment Review Committee.
Assistant Deputy Ministers (ADMs) - ADMs are NRCan's senior departmental managers in charge of program delivery and are responsible for maintaining a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, assets are safeguarded, transactions are in accordance with the Financial Administration Act (FAA) and executed in accordance with prescribed regulations, within parliamentary authorities and are properly recorded to maintain accountability of Government funds.
Chief Audit Executive (CAE) – NRCan's CAE reports directly to the DM and provides assurance through periodic internal audits, as identified by the Risk-Based Audit Plan, which are instrumental to the maintenance of an effective system of ICFR
Departmental Audit Committee (DAC) - The DAC is an advisory committee to the Deputy Minister (DM); it is comprised of three external members. It provides objective advice and recommendations to the DM in the area of risk management, control and governance frameworks and processes.
Executive Committee (EC) - The Executive Committee (EC), established on February 11, 2011, is the most senior decision-making committee of the Department, ensuring policy, science, program and corporate integration. The EC also approves corporate plans and strategies and oversees resource allocation and corporate risk management.
Business Transformation Committee (BTC) - The Business Transformation Committee (BTC), established on February 11, 2011, leads and manages the Department's programs and business processes with a view to enhance the utilization of human, financial, information management and technology, and real property resources and to improve the capacity and responsiveness of NRCan to meet its strategic outcomes.
Transfer Payment Review Committee (TPRC) - The TPRC provides strategic advice and oversight in the management of grants and contributions (G's & C's).
Committees retired on February 11, 2011:
Departmental Management Committee (DMC) - The DMC was the Department's key governance committee and primary decision-making group. DMC members participated in the top level strategic planning of NRCan's activities, formed the Department's policies, objectives and plans, and allocated and revised program priorities.
Resource Management Committee (RMC) – The RMC, chaired by the Associate Deputy Minister, established NRCan's budget priorities and requirements in accordance with the Integrated Business Plan, oversaw the allocation and control of the Department's financial resources, and oversaw the management and progress of major investment projects.
Key responsibilities of those two retired committees are now assumed by the new Executive Committee.
2.2 Key measures taken by NRCan
NRCan's control environment includes a series of measures to help the Department manage risks through the establishment of an appropriate control environment and risk management processes.
Entity-Level Controls (ELCs) are the overarching controls of the organization:
- Control environment (e.g. values and ethics code, hiring standards, staff training, audit committee);
- Risk Management;
- Information systems and Communications; and
- Monitoring (e.g. program of assessment of the systems of Internal Control over Financial Reporting, financial policy compliance reviews, multi-year risk-based internal audit plan).
The business processes identified as key processes in relation to the system of Internal Control over Financial Reporting (ICFR) are the following:
- Grants and Contributions (G's & C's) (standard);
- Repayable Contributions;
- ecoENERGY Retrofit – Homes grant program;
- Capital Assets;
- Environmental Liabilities;
- Financial Close and Reporting;
- Payroll and Benefits;
- Revenues and Accounts Receivable;
- Offshore Royalty Revenues and corresponding statutory transfers;
- Loans;
- Operating Expenditures.
For General Computer Controls (GCC's) (e.g. implementation and operations of system, security, business continuity planning, network access), the following two applications have been identified:
- GFS UserFriendly (GUFI) application (used for the management of Grants and Contributions (standard) and Repayable Contributions, procurement, and as a reporting tool for financial information in general).
- ecoENERGY Retrofit – Homes grant program database (used for analyzing and recording energy evaluation electronic files, and to perform calculations to determine the grant amount awarded).
Given the implementation of SAP as the department's new financial system as of fiscal year 2011-2012, an assessment of GCC's related to NRCan's previous departmental financial system, GFS, was not conducted during 2010-2011.
3. Assessment of NRCan's system of ICFR
3.1 Assessment approach
In support of the Treasury Board Policy on Internal Control, an effective system of ICFR has the objectives 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 on-going monitoring and continuous improvement of the departmental system of ICFR.
Design effectiveness means to ensure 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: entity, business processes and General Computer Controls.
3.2 Scope of NRCan's assessment during fiscal year 2010-2011
During the Fiscal Year 2010-2011, the Department has undertaken the design effectiveness and operating effectiveness testing for entity level controls, business processes and General Computer Controls as follows:
Entity Level controls
Operating effectiveness
- Control environment
- Risk Management
- Information systems and Communications
- Monitoring
Business Processes
Design effectiveness
- Offshore Royalty Revenues and corresponding statutory transfers
- Loans
- Operating Expenditures
The first two processes are centralized at NRCan's Headquarters. A large portion of the control activities for the Operating Expenditures business process are only carried out in Headquarters, or at a new supplier Invoice Payment Centre (IPC) in Sherbrooke, Quebec, which reports directly to the Shared Services Office in Headquarters. The design effectiveness work took into account both locations. Where control activities occur in other regional offices, they are performed on the basis of departmental wide financial policies and procedures.
Operating Effectiveness
- Grants and Contributions (standard) Note 1
- Repayable contributions Note 1
- ecoENERGY Retrofit – Homes (grant program) Note 1
- Environmental liabilities
- Financial close and reporting
Samples used for operating effectiveness testing were selected from the full departmental transactions database, including transactions processed in regional offices, where applicable.
General Computer Controls (GCCs)
Design effectiveness
- GFS User Friendly (GUFI) application (applicable processes are centralized in one location).
- Revision and update to the GCCs for the ecoENERGY Retrofit – Homes system (applicable processes are centralized in one location).
Operating effectiveness
- GFS User Friendly (GUFI) application.
4. NRCan's assessment results during fiscal year 2010-2011
The following summarizes key assessment results from the design and operating effectiveness testing completed by NRCan in 2010-2011.
4.1 Design effectiveness of key controls
The design for key controls was appropriate such that most controls were in place and aligned with the risks.
As a result of the assessments conducted in 2010-11, NRCan identified some remediation requirements for the Loans business process related to enhancing controls required for monitoring collateral and collectability of loans.
4.2 Operating effectiveness of key controls
Most controls were found to be in place and operating effectively. Testing also confirmed that NRCan has effectively remediated its controls in many of the areas previously identified for improvement (such as maintaining evidence of control activities performed).
The following new key remediation requirements were identified in 2010-11: ensure review of aging reports of transfer payments requiring approval under Section 33 of the Financial Administration Act (FAA) is conducted every month, and ensure that central accounting journal vouchers are reviewed in the period they are created.
5. NRCan's action plan
5.1 Progress during fiscal year 2010-2011
Since initiating efforts on its ICFR program, NRCan has made significant progress in assessing and improving its controls. Below is a summary of the progress made by the Department during the 2010-2011 fiscal year:
Entity Level controls
NRCan has undertaken and completed the following operating effectiveness testing earlier than planned:
- Control environment
- Risk Management
- Information systems and Communications
- Monitoring
Business Processes
Design effectiveness
NRcan has conducted the design effectiveness work planned and identified in the Summary assessment of internal control over financial reporting and the action plan of Natural Resources Canada for fiscal year 2009-2010:
-
Completed the documentation and design effectiveness testing for the following business processes:
- Loans
- Offshore Royalty Revenues and corresponding statutory transfers
- Substantially advanced the documentation and design effectiveness testing of the Operating Expenditures business process.
Operating Effectiveness
NRCan has conducted the operating effectiveness work planned and identified in the Summary assessment of internal control over financial reporting and the action plan of Natural Resources Canada for fiscal year 2009-2010:
-
Completed operating effectiveness testing for the following business processes:
- Financial close and reporting
- Environmental liabilities
- Grants and Contributions (standard)
- Repayable contributions
- Substantially advanced the operating effectiveness testing of the ecoENERGY Retrofit – Homes grant program business process.
General Computer Controls (GCC's)
NRCan has conducted the GCC's work planned and identified in the Summary assessment of internal control over financial reporting and the action plan of Natural Resources Canada for fiscal year 2009-2010:
- Advanced the documentation, design and operating effectiveness testing of General Computers Controls for GFS User Friendly (GUFI).
NRCan has undertaken the following exercise earlier than planned:
- Substantially advanced a revision and update to the documentation of the GCCs for the ecoENERGY Retrofit – Homes system, and design effectiveness testing.
Remediation actions
NRCan has carried out remediation actions as planned in the Summary assessment of internal control over financial reporting and the action plan of Natural Resources Canada for fiscal year 2009-2010:
- Completed over 40 remediation actions in various areas.
- Substantially advanced remediation efforts in relation to an inventory count of capital assets – machinery and equipment.
- Advanced four remaining key remediation actions in the areas of Grants and Contributions (standard), Repayable contributions, and General Computer Controls related to the ecoENERGY Retrofit – Homes grant program database.
5.2 Action plan for the next fiscal year and subsequent years:
In partnership with Agriculture and Agri-Food Canada, a new departmental financial system (SAP) was implemented in NRCan as of April 2011. As a result, updates are required to the internal control documentation to enable further operating effectiveness testing in the new SAP environment. NRCan's go-forward action plan addresses this change in financial system.
During the fiscal year 2011-2012, NRCan plans to:
- Complete documentation and design effectiveness testing for the Operating Expenditures business process (started in 2010-2011).
- Complete documentation, design and operating effectiveness testing of General Computer Controls – GFS User Friendly (GUFI) application (started in 2010-2011).
- Update internal control documentation to reflect the SAP automated controls for all business processes (other than the Financial Close and Reporting process which will be addressed in 2012-2013).
- Complete documentation and design effectiveness testing of SAP access control processes which are under NRCan's responsibility.
-
Conduct operating effectiveness testing for the following processes:
- Grants and Contributions – ecoENERGY Retrofit – Homes grant program (testing started in 2010-2011)
- Payroll and Benefits
- Offshore Royalty Revenues and corresponding statutory transfers
- Loans
- Complete remaining remediation actions.
- Conduct a survey of remaining legacy systems under the SAP environment.
- Further detail the multi-year monitoring plan for ongoing operating effectiveness testing.
During the fiscal year 2012-2013, NRCan plans to:
- Update internal control documentation in the context of the new financial system (SAP) for the Financial Close and Reporting business process.
-
Conduct operating effectiveness testing for the following processes:
- Operating Expenditures
- Capital Assets
- Revenues and Accounts Receivable
- SAP access control processes which are under NRCan's responsibility.
- Conduct analysis of requirements for assessments of General Computer Controls for remaining legacy systems under the SAP environment.
- Address any additional remediation actions identified.
- Update the multi-year monitoring plan, taking into account assessment results of 2011-2012.
During the fiscal year 2013-2014, NRCan plans to:
- Conduct operating effectiveness testing as per the multi-year monitoring plan.
Note 1: Grants and Contributions (Gs & Cs) comprise the majority (66%) of expenses for a value of $3.38 B. For this reason, it was decided to undertake operating effectiveness testing of the Gs & Cs business processes for a second year in a row.
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