Fiscal year 2010-2011

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 the Northern Pipeline Agency (“the Agency”). 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 Agency’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Agency’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 Agency; 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 Office of the Auditor General, the independent auditor for the Government of Canada, has expressed an opinion on the fair presentation of the financial statements of Agency which does not include an audit opinion on the annual assessment of the effectiveness of the Agency's internal controls over financial reporting.

INDEPENDENT AUDITOR’S REPORT

To the Minister of Natural Resources

Report on the Financial Statements

I have audited the accompanying financial statements of the Northern Pipeline Agency, which comprise the statement of financial position as at 31 March 2011, and the statement of operations, statement of equity of Canada and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Northern Pipeline Agency as at 31 March 2011, and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Report on Other Legal and Regulatory Requirements

In my opinion, the transactions of the Northern Pipeline Agency that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Financial Administration Act and regulations, the Northern Pipeline Act and regulations, the National Energy Board Cost Recovery Regulations and the by-laws of the Northern Pipeline Agency.

John Apt, CA
Principal
for the Auditor General of Canada

22 December 2011 Ottawa, Canada

 

Northern Pipeline Agency Statement of Financial Position As at March 31
  2011   2010
       
ASSETS
Financial assets
Due from the Consolidated Revenue Fund $1,071,646   $927,188
Accounts receivable and advances (Note 4) 375,274   327,336
  1,446,920   1,254,524
       
Non-financial assets
Tangible capital assets (Note 5) 34,469   10,453
       
TOTAL ASSETS $1,481,389   $1,264,977
       
       
LIABILITIES
Accounts payable and accrued liabilities (Note 6) $85,336   $79,400
Deferred revenue (Note 7) 1,396,053   1,185,577
       
TOTAL LIABILITIES 1,481,389   1,264,977
       
Equity of Canada -   -
       
TOTAL LIABILITIES AND EQUITY OF CANADA $1,481,389   $1,264,977

Contractual obligations (Note 8)

The accompanying notes form an integral part of the financial statements.

 

Northern Pipeline Agency Statement of Operations For the Year Ended March 31
  2011   2010
       
REVENUE
Regulatory revenue $1,109,299   $598,950
       
OPERATING EXPENSES
Salaries and employee benefits $587,840   $252,945
Professional and special services 358,743   228,395
Transportation and communication 103,344   60,184
Rentals 44,551   42,058
Small equipment 1,484   7,751
Utilities, Materials, Supplies 6,692   4,326
Information 4,409   1,839
Amortization 2,193   867
Loss on write-off of tangible capital assets -   568
Other 43   17
       
TOTAL RECOVERABLE EXPENSES 1,109,299   598,950
       
NON-RECOVERABLE SERVICES RECEIVED WITHOUT CHARGE (Note 9) 85,832   51,513
       
NET COST OF OPERATIONS $85,832   $51,513
       
       

The accompanying notes form an integral part of the financial statements.

 

Northern Pipeline Agency Statement Equity of Canada For the Year Ended March 31
  2011   2010
Equity of Canada, beginning of the year $ -   $ -
Net cost of operations (85,832)   (51,513)
Change in Due from the Consolidated Revenue Fund 144,458   (75,967)
Non-recoverable services received without charge 85,832   51,513
Net cash provided by Government (144,458)   75,967
Equity of Canada, end of the year $ -   $ -

The accompanying notes form an integral part of the financial statements.

 

Northern Pipeline Agency Statement of Cash Flows For the Year Ended March 31
  2011   2010
       
Operating Activities
       
Net cost of operations $85,832   $51,513
Adjustment for non-cash items
Services received without charge (Note 9) (85,832)   (51,513)
Amortization of tangible capital assets (2,193)   (867)
(Loss) on write-off of tangible capital assets -   (568)
  ($2,193)   ($1,435)
       
Variations in the Statement of Financial Position
Increase in accounts receivable and advances 47,938   306,779
(Increase) in accounts payable and accrued liabilities (5,936)   (46,273)
(Increase) in deferred revenue (210,476)   (190,886)
Cash used by operating activities ($170,667)   $68,185
       
Investment Activities
       
Acquisition of tangible capital assets 26,209   7,782
Cash used by investment activities 26,209   7,782
       
Financing Activities
       
Net cash provided (used) by Government of Canada $ 144,458   $ (75,967)

The accompanying notes form an integral part of the financial statements.

1. Authority and Objectives

In 1978, Parliament enacted the Northern Pipeline Act to:

  • give effect to an Agreement on Principles Applicable to a Northern Natural Gas Pipeline (the Agreement) between the Governments of Canada and the United States of America;
  • establish the Northern Pipeline Agency (the Agency) to oversee the planning and construction of the Canadian portion of the project.

The Agency is designated as a department and named under Schedule I.1of the Financial Administration Act, reporting to Parliament through the Minister of Natural Resources.

The objectives of the Agency are to:

  1. carry out and give effect to the Agreement of September 20, 1977 between Canada and the United States underpinning the project;

  2. carry out federal responsibilities in relation to the pipeline;

  3. facilitate the efficient and expeditious planning and construction of the pipeline, taking into account local and regional interests;

  4. facilitate consultation and coordination with the governments of the provinces and the territories traversed by the pipeline;

  5. maximize the social and economic benefits of the pipeline while minimizing any adverse social and environmental effects; and

  6. advance national economic and energy interests and to maximize related industrial benefits by ensuring the highest possible degree of Canadian participation.

In accordance with Section 29 of the Northern Pipeline Act and with the National Energy Board Cost Recovery Regulations, the Agency is required to recover all of its annual operating costs from the companies holding certificates of public convenience and necessity. Currently, Foothills Pipe Lines Ltd. (“Foothills”) is the sole holder of such certificates.

The Agency is reimbursed all recoverable expenses by Foothills and the funds are deposited in the Consolidated Revenue Fund (“CRF”) of the Government of Canada. The Government of Canada, in turn, provides funds for working capital through an annual Parliamentary appropriation which is paid from the CRF.

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with 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 except as disclosed in Note 12 – Net Debt Indicator.

Significant accounting policies are as follows:

a) Parliamentary appropriations:

The Agency is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the Agency do not parallel financial reporting according to generally accepted accounting principles since appropriations 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 appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

b) Net cash provided by Government:

The Agency operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Agency is deposited to the CRF and all cash disbursements made by the Agency are paid from the CRF. The net cash provided by the Government is the difference between all cash receipts and all cash disbursements including transactions between the Agency and departments of the federal government.

c) Due from the Consolidated Revenue Fund:

Due from the Consolidated Revenue Fund (CRF) represents the amount of cash that the Agency is entitled to draw from the Consolidated Revenue Fund without further appropriations, in order to discharge its liabilities.

d) Revenue/Deferred revenue:

Revenues from regulatory fees recovered from Foothills are recognized in the year in which the expenses were incurred.

Revenues that have been received but not yet earned are recorded as deferred revenues. Deferred revenues represent the accumulation of excess billings over the actual expenses.

e) Expenses:

Expenses are recorded on the accrual basis.

Services provided without charge from other government departments are recorded as operating expenses at their estimated cost and credited directly to equity.

f) Employee future benefits:


Future benefits for seconded employees, including pension benefits, providing services to the Agency are funded by the employee’s home-base department. Estimated costs are included in the employee benefits charged to the Agency.

g) Accounts receivable:

Receivables are stated at amounts expected to be ultimately realized. A provision is made for receivables where recovery is considered uncertain.

h) Tangible capital assets:

All tangible capital assets and leasehold improvements having an initial cost of $1,000 or more are recorded at their acquisition cost. Tangible capital assets owned by the Agency are valued at cost, net of accumulated amortization. Amortization is calculated using the straight-line method, over the estimated useful life of the assets as follows:

i) Measurement uncertainty:

The preparation of these financial statements in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are based on Canadian generally accepted accounting principles for the public sector, 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. Salaries and employee benefits and the useful life of tangible capital assets are the most significant items where estimates are used. Actual results could differ significantly from those estimated. Management’s estimates are reviewed annually and as adjustments become necessary, they are recognized in the financial statements in the year in which they become known.

3. Parliamentary Appropriations

The Government of Canada funds the expenses of the Agency through Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the Agency has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled as follows:

a) Reconciliation of net cost of operations to current year appropriations used
  2011 2010
     
Net cost of operations $ 85,832 $ 51,513
Adjustments for items affecting net cost of operations but
not affecting appropriations:
Add (Deduct):
Services received without charge (85,832) (51,513)
Amortization of tangible capital assets (2,193) (867)
Revenue not available for spending 1,109,299 598,950
Other (8,759) 3,682
  1,098,347 601,765
     
Adjustments for items not affecting net cost of operations
but affecting appropriations:
Add (Deduct):
Acquisitions of tangible capital assets 26,209 7,782
     
Current year appropriations used $1,124,556 $609,547

b) Appropriations provided and used

  2011 2010
     
Vote 30 - Program expenditures $1,203,000 $613,000
Vote 30b – Transfer from Vote 25 12,200 12,200
Statutory amounts 81,522 34,859
Lapsed appropriations (172,166) (50,512)
Current year appropriations used $1,124,556 $609,547

4. Accounts receivable and advances

The following table presents details of the Agency’s accounts receivable and advances balances:
  2011 2010
Receivables from external parties $338,246 $326,936
Receivable from other government departments and agencies 36,628 -
Standing Advance 400 400
Total $375,274 $327,336

5. Tangible Capital Assets

  Cost Accumulated Amortization Net book value 2011 Net book value 2010
Machinery and Equipment $24,829 $14 $24,815 -
Office furniture and equipment 11,262 4,595 6,667 7,792
Informatics Hardware 9,301 6,314 2,987 2,661
Total $45,392 $10,923 $34,469 $10,453

Amortization expense for the year ended March 31, 2011 is $2,193 (2010 - $867). During the year, the Agency acquired tangible capital assets of $26,209 (2010 - $7,782) and tangible capital assets with a net book value of $0 (2010 - $568) were written off during the year.

6. Accounts payable and accrued liabilities

The following table presents details of the Agency’s accounts payable and accrued liabilities balances:
  2011 2010
Payable to other government departments and agencies $45,159 $47,718
Payable to external parties 39,934 31,682
Accrued liabilities 243 -
Total $85,336 $79,400

7. Deferred revenue

Deferred revenue consists of:
  2011 2010
Deferred Revenue, Opening Balance $1,185,577 $994,691
Billings in the fiscal year 1,319,775 789,836
Recoverable expenses in the current year (1,109,299) (598,950)
Deferred Revenue, Closing Balance $1,396,053 $1,185,577

8. Contractual obligations

The nature of the Agency’s activities can result in some large multi-year contracts and obligations whereby the Agency will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

  2012 2013 2014 and
thereafter
Total
Operating leases $16,868 $15,849 $1,063 $33,780

9. Related party transactions

The Agency is related as a result of common ownership to all Government of Canada departments, agencies and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms applicable to all individuals and enterprises except that certain services, as defined previously, are received without charge.

Common services provided without charge by other government departments:
  2011 2010
Audit services provided by the Auditor General of Canada $81,932 $48,157
Management services provided by Natural Resources Canada 3,900 3,356
Total $85,832 $51,513

Accounts receivables and payables with related parties are detailed in Note 4 and 6, respectively.

10. Easement Fee

In 1983, the Government of Canada, pursuant to Subsection 37(3) of the Northern Pipeline Act, granted Foothills Pipe Lines Ltd. a twenty-five year easement upon and under lands in the Yukon Territory. For the right of easement, Foothills Pipe Lines Ltd. is to pay the Agency an annual amount of $30,400; of this annual amount, $2,806 (2010 - $2,806) is collected on behalf of and forwarded directly to the Government of the Yukon Territory. The balance of $27,594 (2010 - $27,594) was remitted to the Government of Canada by the Agency. This fee is not accounted for in these financial statements.

11. Financial Instruments

The Agency’s financial instruments consist of accounts receivable, accounts payable, deferred revenues and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Agency is not exposed to significant interest, currency or credit risk arising from these financial instruments. Unless otherwise disclosed in these financial statements, management estimates that the carrying values of the financial instruments approximate their fair value due to their impending maturity.

12. Net Debt Indicator

The presentation of the net debt indicator and a statement of change in net debt is required under Canadian generally accepted accounting principles.

Net debt is the difference between a government’s liabilities and its financial assets and is meant to provide a measure of the future revenues required to pay for past transactions and events. A statement of change in net debt would show changes during the period in components such as tangible capital assets, prepaid expenses and inventories. The Agency is financed by the Government of Canada through appropriations and operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by departments is deposited to the CRF and all cash disbursements made by departments are paid by the CRF. Under this government business model, assets reflected on the departmental financial statements, with the exception of the Due from the Consolidated Revenue Fund, are not available to use for the purpose of discharging the existing liabilities of the department. Future appropriations and any respendable revenues generated by the department’s operations would be used to discharge existing liabilities.

    2011 2010
Liabilities
Accounts payable and accrued liabilities $85,336 $79,400
Deferred revenue   1,396,053 1,185,577
Total Financial Liabilities   $1,481,389 $1,264,977
       
Financial Assets
Due from the Consolidated Revenue Fund $1,071,646 $927,188
Accounts receivable and advances   375,274 327,336
Total Financial Assets   $1,446,920 $1,254,524
       
Net Debt Indicator   $34,469 $10,453

Summary of the assessment of effectiveness of the systems of internal control over financial reporting and the action plan of the Northern Pipeline Agency for fiscal year 2010-2011
(Unaudited)

Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting

Note to the reader

With the 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 necessaryadjustments, and to attach in annex to their Statements of Management Responsibility a summary of their assessment results and action plan. This annex is unaudited.

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
  • 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 risks 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 and controls, to assess their 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 assessments of the effectiveness of systems of ICFR will vary from one organization to another based on risks and taking into account their unique circumstances.

1. Introduction

This unaudited document is attached to the Northern Pipeline Agency (Agency)Statement of Management Responsibility Including Internal Control over Financial Reporting for the fiscal-year 2010-2011, and is being produced for the first time by the Agency as per the Treasury Board Policy on Internal Control.

It should be noted that the Agency has a service partnership agreement with Natural Resources Canada (NRCan) regarding a full range of administrative and financial services. Among these services provided to the Agency by NRCan are the maintenance of financial signing authority records and the delegation instrument, accounting and financial statement preparation, and financial and procurement transactions processing. Consequently, the Agency’s ICFR are completely reliant on NRCan’s ICFR.

1.1 Authority and Mandate

The Agency was established by the Northern Pipeline Act in 1978 to facilitate the planning and construction by Foothills Pipe Lines Limited of the Canadian portion of the Alaska Highway Gas Pipeline Project and to maximize social and economic benefits from its construction and operation, and minimize any adverse effects.

Detailed information on the Agency’s authority, mandate and program activities can be found in its Departmental Performance Report [update with 2010-2011 info] and Report on Plans and Priorities.

1.2 Financial Highlights

The audited Financial Statements of the Agency for fiscal-year 2010-2011 can be found at the http://www.nrcan.gc.ca/performance-reports/home. Information can also be found in the Public Accounts of Canada.

  • Total expenses are $1,195 K, of which $1,109 K is recoverable from Foothills Pipe Lines Limited
  • The Agency’s biggest expense is salary, for a value of $588 K.
  • Total revenues for the Agency are $1,109 K. In accordance with Section 29 of the Northern Pipeline Act, and with the National Energy Board Cost Recovery Regulations, the Agency is required to recover its annual operating costs from the companies holding certificates of public convenience and necessity. Currently, Foothills Pipe Lines Limited is the sole holder of such certificates.

1.3 Audited financial statements

The financial statements of the Agency have been audited by the Office of the Auditor General since its inception, as required under the Northern Pipeline Act.

1.4 Service arrangements relevant to the financial statements

The Agency relies on other organizations and their internal controls for the processing of certain transactions that are recorded in its financial statements:

Common arrangements:

  • Public Works and Government Services Canada centrally administers the payments of salaries.
  • Treasury Board Secretariat provides the Agency with information used to calculate some accruals.

Specific arrangement:

  • NRCan provides administrative and financial services, including the management of the financial system – Government Financial System (GFS).

1.5 Material changes in fiscal-year 2010-2011

Serge P. Dupont was appointed Commissioner, on October 12, 2010.

2. Control environment relevant to ICFR

The Agency’s financial transactions are processed within the NRCan’s control environment. The Agency uses the same financial system as NRCan, which for 2010-2011 was the Government Financial System – GFS. Both NRCan and the Agency have moved to a new financial system (SAP) as of April 4, 2011, in partnership with Agriculture and Agri-Food Canada.

Key positions, roles and responsibilities

Below are the Agency’s key positions with responsibilities related to the system of ICFR:

Commissioner – The Commissioner is the Deputy Head of the Agency. The Deputy Minister of NRCan is currently the Commissioner for the Agency and assumes the overall responsibility and leadership for the measures taken to maintain an effective system of internal control. The Chief Financial Officer of NRCan provides recommendations and objective and independent advice to the Commissioner, and provides leadership for the design and maintenance of an effective and integrated system of ICFR at NRCan (on which the Agency relies), including its annual assessment.

Assistant Commissioner and Comptroller – The Assistant Commissioner and Comptroller supports the Commissioner with respect to the operation of the Agency. The Chief Financial Officer of NRCan provides recommendations and objective and independent advice to the Assistant Commissioner and Comptroller.

2.2 Key measures taken by the Agency

The Agency relies on NRCan’s control environment, which includes a series of measures to help manage risks through the establishment of an appropriate control environment and risk management processes.

The NRCan’s control environment that is applicable to the Agency is described below.

Entity-Level Controls are the overarching controls of NRCan:

  • Control environment (e.g. values and ethics code, hiring standards, staff training);
  • 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).

The Agency does not participate in NRCan’s senior management Committees.

The business processes identified as key processes in relation to the system of ICFR at NRCan and which are applicable to the Agency are the following:

  • Capital Assets
  • Financial Close and Reporting
  • Payroll and Benefits
  • Revenues and Accounts Receivable
  • Operating Expenditures

Differences in key controls identified by NRCan as they pertain to the Agency are as follows:

  • In the area of operating expenditures, some electronic tools used by NRCan for the electronic approval of transactions are not, at this time, used by the Agency.
  • The billing for the recovery of expenditures from Foothills Pipe Lines Limited is unique and material to the Agency; associated control activities will be added to the internal control documentation for the Revenues and Accounts Receivable business process.

The General Computer Controls for the financial system used by NRCan and the Agency in 2010-2011 (GFS) were not documented given the implementation of a new financial system (SAP) as of fiscal year 2011-2012.

3. Assessment of the Agency’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 monitoringand continuous improvement of the 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 effectivenessmeans 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 level controls which include entity, general computer and business process controls.

3.2 Assessment scope as of March 31st, 2011

As of March 31, 2011, NRCan has assessed design effectiveness and operating effectiveness of key controls for various processes. The following list identifies the processes that apply to the Agency:

Entity-Level controls

Operating effectiveness

  • Control Environment;
  • Risk Management;
  • Information Systems and Communications;
  • Monitoring.

Business Processes:
Design effectiveness

  • Payroll and Benefits;
  • Capital Assets;
  • Financial Close and Reporting;
  • Revenues and Accounts Receivable;
  • Operating expenditures.

Operating effectiveness

  • Financial Close and Reporting;

4. Assessment results as of March 31st, 2011

The following summarizes the significant findings of the assessments conducted as of March 31, 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. Remediation requirements, most of which were corrected as of March 31, 2011, were identified as follows:

  • Documentation and evidence of controls
    • Greater consistency in the quality and availability of documentation of controls and procedures; and,
    • In some instances, enhanced evidence of performance of control activities.
  • System access controls
    • Strengthened controls related to user access, segregation of duties and the monitoring of user roles.
  • Appropriate or sufficient processes in place
    • Strengthened processes around estimates included in the financial statements.
  • Monitoring and quality assurance of financial information
    • Enhanced and formalized monitoring activities within the department; and,
    • Enhanced review processes for accounting transactions, journal entries and departmental financial statement preparation.
  • Data integrity
    • Improved tracking and updating of asset master records and verifying existence of individual capital assets.
  • Reliance on information from other parties
    • Increased review of information provided by other parties.

4.2 Operating effectiveness of key controls

Most controls were found to be in place and operating effectively. Remediation requirements, most of which were corrected as of March 31, 2011, were identified as follows

  • Documentation and evidence of controls
    • Improved consistency in regards to the evidence of performance of control activities.
  • System access controls
    • Strengthened controls related to user access, segregation of duties and the monitoring of user roles.
  • Appropriate/sufficient processes in place
    • Clearer roles and responsibilities and processes surrounding key controls,
    • Enhanced review of transactions, and monitoring of activities.
  • Data integrity
    • Review of central accounting journal vouchers in the period they are created.

5. Action plan

The assessment of the effectiveness of the system of internal controls over financial reporting that underpin the financial statements and financial transactions of the Agency is expected to be completed as part of the action plan of NRCan.

5.1 Progress as of March 31, 2011

Below is a summary of the progress made by NRCan as of March 31, 2011, for those key controls that apply to the Agency.

Entity-Level controls

NRCan has undertaken and completed the design effectiveness and operating effectiveness testing for:

  • Control environment
  • Risk management
  • Information systems and Communications
  • Monitoring


Business processes

Design effectiveness

  • NRCan has completed the documentation and design effectiveness for the following business processes:
    • Payroll and Benefits;
    • Capital Assets;
    • Financial Close and Reporting;
    • Revenues and Accounts Receivables.
  • NRCan has substantially advanced the documentation and design effectiveness for the Operating Expenditures business process.

Operating effectiveness

  • NRCan has completed operating effectiveness testing of the Financial Close and Reporting process.

Remediation actions

  • NRCan has completed most remediation actions identified.

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 and the Agency as of April 4, 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. The following are NRCan’s action plan items that are applicable to the Agency:

During the fiscal year 2011-2012, NRCan plans to:

  • Complete the documentation and design effectiveness testing for the Operating Expenditures business process (started in 2010-2011), and include the non-automated transaction approval processes used by the Agency.
  • Update internal control documentation to reflect the SAP automated controls for all business processes, except the Financial Close and Reporting process (to be addressed in 2012-2013).
  • Update the documentation for the Revenues and Accounts Receivable business process to include and test for design effectiveness the Agency specific control activities pertaining to the billing for the recovery of expenditures from Foothills Pipe Lines Limited.
  • Complete the documentation and design effectiveness testing of SAP access control processes which are under NRCan’s responsibility.
  • Conduct operating effectiveness testing for the Payroll and Benefits business process.
  • Complete remaining remediation actions.
  • 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 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.
  • 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.