Fiscal year 2011-2012

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, 2012, 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 using the Government’s accounting policies, which are based on Canadian Public sector accounting standards.

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 (ICFR) 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 risk-based assessment of the effectiveness of the system of ICFR. 

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 effectiveness of associated key controls, and to make any necessary adjustments.

The Agency will be subject to periodic Core Control Audits performed by the Office of the Comptroller General and will use the results of such audits to adhere to the Treasury Board Policy on Internal Control.

In the interim, the Agency has undertaken a risk-based assessment of the system of ICFR for the year ended March 31, 2012, in accordance with the Treasury Board Policy on Internal Control, and the action plan is summarized in the annex.

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 the 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 2012, statement of operations and departmental net financial position, statement of change in departmental net debt 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 2012, and the results of its operations, changes in its net debt, 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.

Terrance DeJong, CA
Assistant Auditor General
for the Auditor General of Canada

21 December 2012
Ottawa, Canada

Northern Pipeline Agency
Statement of Financial Position
As at March 31
  2012 2011
Restated
(note 12)
Liabilities
Accounts payable and accrued liabilities (note 4) $ 701,207 $ 85,336
Deferred revenue (note 5) 984,212 1,396,053
Total gross liabilities 1,685,419 1,481,389
Liabilities held on behalf of Government
Deferred revenue (note 5) (984,212) (1,396,053)
Total liabilities held on behalf of Government (984,212) (1,396,053)
Total net liabilities 701,207 85,336
Financial assets
Due from Consolidated Revenue Fund  656,756 13,839
Accounts receivable and advances (note 6) 1,098,242 375,274
Total gross financial assets 1,754,998 389,113
Financial assets held on behalf of Government
Accounts receivable (note 6) (1,084,661) (338,246)
Total financial assets held on behalf of Government (1,084,661) (338,246)
Total net financial assets 670,337 50,867
Departmental net debt 30,870 34,469
Non-financial assets
Tangible capital assets (note 7) 30,870 34,469
Total non-financial assets 30,870 34,469
Departmental net financial position  $- $-

Contractual obligations (note 8)

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



Northern Pipeline Agency
Statement of Operations and Departmental Net Financial Position
For the year ended March 31
  2012
Planned Results
2012 2011
Restated
(note 12)
Expenses
Salaries and employee benefits $829,288 $1,084,493 $587,840
Transfer payments  - 644,106  -
Professional and special services 341,075 232,146 358,743
Transportation and communication 158,075 128,281 103,344
Rentals 46,812 38,005 44,551
Small equipment 2,000 6,191 1,484
Utilities, Materials, Supplies 5,000 4,102 6,735
Information 2,000 570 4,409
Amortization 3,035 4,699 2,193
Total recoverable expenses 1,387,285 2,142,593 1,109,299
 Services provided without charge by other government departments    (note 9) 58,556 119,522 85,832
Revenues
Regulatory revenue 1,387,285 2,142,593 1,109,299
Revenue earned on behalf of government  (1,387,285) (2,142,593) (1,109,299)
Total revenues 0 0 0
Net cost of operations before government funding 1,445,841 2,262,115 1,195,131
Government funding
Net cash provided by Government - 1,499,676 1,164,007
Change in due from Consolidated Revenue Fund - 642,917 (54,708)
Services provided without charge by other government departments    (note 9) - 119,522 85,832
Net cost of operations after government funding - 0 0
Departmental net financial position - Beginning of year 0 0 0
Departmental net financial position - End of year $0 $0 $0

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

Northern Pipeline Agency 
Statement of Change in Departmental Net Debt
For the year ended March 31
  2012 2011
Net cost of operations after government funding $- $-
Change due to tangible capital assets
Acquisition of tangible capital assets 1,100 26,209
Amortization of tangible capital assets                (4,699) (2,193)
Total change due to tangible capital assets (3,599) 24,016
Net increase (decrease) in departmental net debt (3,599) 24,016
Departmental net debt - Beginning of year 34,469 10,453
Departmental net debt - End of year $30,870 $34,469

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

Northern Pipeline Agency
Statement of Cash Flows
For the year ended March 31
  2012 2011
Restated
(note 12)
Operating activities
Net cost of operations before government funding: $2,262,115 $1,195,131
Non-cash items:
Amortization of tangible capital assets (4,699) (2,193)
Services provided without charge by other government departments (note 9) (119,522) (85,832)
Variations in statement of financial position:
Increase (decrease) in accounts receivable and advances (23,447) 36,628
(Increase) in accounts payable and accrued liabilities (615,871) (5,936)
Cash used in operating activities 1,498,576 1,137,798
Capital investing activities
Acquisitions of tangible capital assets 1,100 26,209
Cash used in capital investing activities 1,100 26,209
Net cash provided by Government of Canada $1,499,676    $1,164,007

The accompanying notes form an integral part of these 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; and
  • 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.1 of 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 using the Government’s accounting policies stated below, which are based on Canadian public sector accounting standards.  The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

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 Departmental Net Financial Position 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.  The planned results amounts in the Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statement included in the 2011-12 Report on Plans and Priorities.

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)  Amounts due from or to 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 Agency is entitled to draw from CRF without further authorities to discharge 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.

Revenues that are non-respendable are not available to discharge the Agency’s liabilities.  While the Commissioner is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues.  As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity’s gross revenues.

e) Expenses:

Expenses are recorded on the accrual basis.

Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. 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 charged by Treasury Board Secretariat are included in the employee benefits charged to the Agency. 

g) Accounts receivable:

Accounts receivables are stated at the lower of cost and net recoverable value.  A valuation allowance would be recorded for accounts receivable where recovery is considered uncertain.

h) Tangible capital assets:

All tangible capital assets 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:

Machinery and equipment  10 years
Office furniture and equipment    10 years
Informatics hardware    4 years

 i)  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. 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 periodically and, as adjustments become necessary, they are recorded 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 Departmental Net Financial Position 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 authorities used:
  2012 2011
Net cost of operations before government funding $2,262,115 $1,195,131
Adjustments for items affecting net cost of operations
but not affecting authorities:
Less:
Services provided without charge by other government departments
(119,522) (85,832)
Amortization of tangible capital assets (4,699) (2,193)
Other adjustments (31,381) (8,759)
Total items affecting net cost of operations but not affecting authorities (155,602) (96,784)
Adjustment for items not affecting net cost of operations
but affecting authorities:
Add: Acquisition of tangible capital assets 1,100 26,209
Current year authorities used $2,107,613    $1,124,556


b) Authorities provided and used:
  2012 2011
Vote 30 - Program expenditures $2,903,000 $1,203,000
Vote 30b – Transfer from Vote 25 60,150 12,200
Statutory amounts 111,918 81,522
Lapsed appropriations (967,455) (172,166)
Current year authorities used $2,107,613 $1,124,556

4.   Accounts payable and accrued liabilities

The following table presents details of the Agency’s accounts payable and accrued liabilities balances:
  2012 2011
Accounts payable to other government departments and agencies $223,051 $45,159
Accounts payable to external parties 478,156 39,934
Total accounts payable 701,207 85,093
Accrued liabilities - 243
Total accounts payable and accrued liabilities $701,207    $85,336

5.   Deferred revenue

The table below provides the balance of deferred revenue balance for the agency in fiscal year 2010-2011 and 2011-2012.
Deferred revenue consists of:
  2012 2011
Deferred revenue, opening balance $1,396,053 $1,185,577
Net billings in the fiscal year 1,730,752 1,319,775
Recoverable expenses in the current year (2,142,593) (1,109,299)
Deferred revenue,  gross closing balance 984,212 1,396,053
Deferred revenues held on behalf of Government (984,212) (1,396,053)
Net closing balance $0 $0

6.   Accounts receivable and advances

The following table presents details of the Agency’s accounts receivable and advances balances:
  2012 2011
Restated (note12)
Receivables - Other government departments and agencies $13,181 $36,628
Receivables - External parties 1,084,661 338,246
Standing advances 400 400
Gross accounts receivable 1,098,242 375,274
Accounts receivable held on behalf of Government (1,084,661) (338,246)
Net account receivable $13,581 $37,028

7. Tangible capital assets

The following table reports the tangible capital assets owned by Northern Pipeline Agency in fiscal year 2010-2011 and 2011-2012.  The assets are classified as machinery and equipment, office furniture and equipment and informatics hardware.
Capital asset class Cost Accumulated amortization Net book value
Opening balance
April 1, 2011
Acquis-itions Disposals, write-offs and other Closing balance
March 31, 2012
Opening balance
April 1, 2011
Amorti-zation Disposals, write-offs and other Closing balance
March 31, 2012
Net book value
2012
Net book value
2011
Machinery and equipment  $ 24,829  - $24,829 $14 $2,483 $2,497 $22,332 $24,815
Office furniture and equipment 11,262 1,100 12,362 4,595 1,181 5,776 6,586 6,667
Informatics hardware 9,301  - 9,301 6,314 1,035 7,349 1,952 2,987
Total $45,392 $1,100 $0 $46,492 $10,923 $4,699 $0 $15,622 $30,870 $34,469

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:

The below table provides the estimated total amount of the contractual obligations for upcoming years.
  2013 2014 2015 and thereafter Total
Operating leases $16,678 $1,201 $0 $17,879

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:
  2012 2011
Audit services provided by the Auditor General of Canada $114,000 $81,932
Management services provided by Natural Resources Canada 5,522 3,900
Total $119,522 $85,832

Accounts payable and receivable with related parties are detailed in Note 4 and 6, respectively.

Related party expenses for payroll expenses amounted to $1,084,493 (2011 - $587,840) and for all other expenses relate primarily to professional and consulting services, and rental of storage space amounting to $187,621 (2011 - $255,402)

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 (2011 - $2,806) is collected on behalf of and forwarded directly to the Government of the Yukon Territory.  The balance of $27,594 (2011 - $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. Accounting changes

During 2011, amendments were made to Treasury Board Accounting Standard 1.2 – Departmental and Agency Financial Statements to improve financial reporting by government departments and agencies.  The amendments are effective for financial reporting of fiscal years ending March 31, 2012, and later.  The significant changes to the Agency’s financial statements are described below.  These changes have been applied retroactively, and comparative information for 2010-11 has been restated.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position.  Accompanying the change, the Agency now presents a Statement of Change in Net Debt and no longer presents a Statement of Equity.

Revenue and related accounts receivable are now presented net of non-respendable amounts in the Statement of Operations and Departmental Net Financial Position and Statement of Financial Position. The effect of this change was to increase the net cost of operations before government funding by $2,142,593 for 2012 ($1,109,299 for 2011) and decrease total financial assets by $1,084,661 for 2012 ($338,246 for 2011).

Government funding, as well as the credit related to services provided without charge by other government departments, are now recognized in the Statement of Operations and Departmental Net Financial Position below “Net cost of operations before government funding.”  In previous years, the Agency recognized these transactions directly in the Statement of Equity of Canada. 

  2011 As previously stated Effect of change 2011 Restated
Statement of Financial Position:
Due from consolidated revenue fund 1,071,646 (1,057,807) 13,839
Assets held on behalf of government 0 (338,246)  (338,246)
Liabilities held on behalf of government 0 (1,396,053) (1,396,053)
Departmental net financial position 0 0 0
Statement of Operations and
Departmental Net Financial Position:
Revenue earned on behalf of government   0  (1,109,299) (1,109,299)
Net cost of operations before government funding 85,832 1,109,299 1,195,131
Government funding
Net cash provided by Government (144,458) 1,308,465 1,164,007
Change in due from Consolidated Revenue Fund 144,458 (199,166) (54,708)
Statement of Cash Flows:
Net cost of operations before government funding 85,832 1,109,299 1,195,131
Increase (decrease) in account receivable and advance 47,938 (11,310) 36,628
(Increase) in deferred revenue (210,476) 210,476 0

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of the Northern Pipeline Agency
for fiscal year 2011-2012 (unaudited)

Summary of the assessment of effectiveness of the system of internal control over financial reporting and the action plan

Note to the reader

With the Treasury Board Policy on Internal Control, effective April 1, 2009, departments and agencies 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 and agencies are expected to conduct annual assessments of their system of ICFR, establish action plans to address any necessary adjustments, 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 the effectiveness of those 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 their system 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 Statement of Management Responsibility Including Internal Control over Financial Reporting of the Northern Pipeline Agency (the Agency) for fiscal-year 2011-2012.

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, financial statement preparation, accounting and financial and procurement transactions processing.  Consequently, the Agency’s ICFR are reliant on NRCan’s ICFR. 

1.1  Authority, Mandate and Program Activities  

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 and Report on Plans and Priorities.

1.2  Financial Highlights

The audited Financial Statements of the Agency for fiscal-year 2011-2012 can be found at http://npa.gc.ca/node/69. Information can also be found in the Public Accounts of Canada

  • Total expensesare $2.3 M, of which $2.1 M is recoverable from Foothills Pipe Lines Limited.
  • The Agency’s biggest expense is salary and employee benefits (47 %), for a value of $1.0 M.
  • Total revenues for the Agency are $2.1 M. 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:

The department of Public Works and Government Services Canada centrally administers the payments of salaries.

The Treasury Board Secretariat provides the Agency with information used to calculate various accruals and allowances, such as the accrued severance liability.

Shared Services Canada provides the Agency with email, data centre and network services

The Department of Justice provides legal services to the Agency.

Specific arrangement:

NRCan provides administrative and financial services to the Agency.

The department of Agriculture and Agri-Food Canada provides Integrated Financial and Material System (SAP) services to the Agency. 

 1.5  Material changes in fiscal-year 2011-2012

  • Starting April 4, 2011, the Agency has used the SAP financial system, implemented in partnership with NRCan and Agriculture and Agri-Food Canada (AAFC), replacing the previous financial system Government Financial System (GFS).  The SAP system used by the Agency runs on AAFC’s informatics servers; AAFC provides SAP support services in the form of system acquisition, development and maintenance.
  • The Honourable Joe Oliver was appointed Minister of Natural Resources on May 18, 2011.
  • Chrystia Chudczak was named Assistant Commissioner and Comptroller, effective September 2011.
  • The responsibility for providing email, data centre and network services was transferred to Shared Services Canada (SSC) on November 15, 2011.

2.    Control environment relevant to ICFR

The Agency’s financial transactions are processed within the NRCan’s control environment.  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.

2.1 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.

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 operates under 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 such as:

  • 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 which are applicable to the Agency are the following:

  • Grants and Contributions (standard)
  • 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 process for the recovery of expenditures from Foothills Pipe Lines Limited by the Agency is unique, and therefore associated specific key control activities have been incorporated within the NRCan internal control documentation.

The General Computer Controls (GCC’s) (also known as Information Technology (IT) General Controls) which are applicable to the Agency are as follows:

  • SAP logical security: SAP access procedures under the responsibility of NRCan.

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 objective 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 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.

Operating effectiveness means that the application of key controls has been tested over a defined period and that any required remediation is addressed

Ongoing monitoring is a systematic, integrated approach in support of continuous improvement of ICFR, which includes periodic risk-based assessments and timely remediation

Testing covers all levels of control: entity, business processes and General Computer Controls.

3.2 Scope of the assessment during fiscal year 2011-2012

The assessments conducted during the Fiscal Year 2011-2012 by NRCan that apply to the Agency are as follows:

Business Processes

Design effectiveness

  • Operating Expenditures (assessment started in 2010-2011), including the non-automated transaction approval processes used by the Agency.
  • Revenues and Accounts Receivable - billing process for the recovery of expenditures from Foothills Pipeline Limited.

Operating Effectiveness

  • Payroll and Benefits
General Computer Controls (GCC’s)

Design effectiveness

  • SAP logical security: SAP access procedures under the responsibility of NRCan.
Ongoing monitoring
  • Updates to all business processes internal control documentation to replace GFS related controls with SAP related controls (other than the Financial Close and Reporting business process, which will be updated in 2012-2013). 
  • Design and operating effectiveness testing of the SAP automated controls (except for the Financial Close and Reporting business process).
  • Updates to the multi-year plan for on-going monitoring.

4.  Assessment results during fiscal year 2011-2012

The following summarizes key results from the assessments completed by NRCan in 2011-2012.

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. The following key remediation requirements were identified in 2011-12:

Business Processes

Revenues and Accounts Receivable

  • Develop more comprehensive procedures and checklists to support the calculation and timely invoicing of recoverable amounts from Foothills Pipe Lines Limited. 
General Computer Controls

SAP access control processes which are under NRCan’s responsibility

  • Document additional procedures to support all SAP logical security duties to be carried out by NRCan, and monitor compliance with procedures.

4.2 Operating effectiveness of key controls

Results indicate that most controls were found to be in place and operating effectively and that NRCan has effectively remediated its controls in many of the areas previously identified for improvement. The following key remediation requirements were identified in 2011-12:

Business Processes

Payroll and Benefits

  • Ensure that evidence of verification of pay actions is always retained.
  • Review user access in the Regional Pay System (RPS).

4.3 Ongoing Monitoring

With the exception of the Financial Close and Reporting business process, all business process internal control documentation was updated to reflect SAP related control activities (replacing GFS control activities).  As well, design and operating effectiveness testing was performed for the SAP automated control activities, including user access.   

The following key remediation requirements were identified in 2011-12:

  • Review all SAP user access and restrict access to those users who require such access to perform their functions.
  • Monitor the use of one-time vendor codes to ensure their use remains appropriate.   

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 during fiscal year 2011-2012

Since initiating efforts on its ICFR program, NRCan has made significant progress in assessing and improving its controls. 

During the fiscal year 2011-2012, NRCan has conducted the following work, which is applicable to the Agency, as planned and identified in the Summary of the assessment of the effectiveness of the system of internal control over financial reporting and the action plan of the Northern Pipeline Agency for fiscal year 2010-2011:

Business Processes

Design effectiveness

  • Completed the documentation and design effectiveness testing for the Operating Expenditures business process, including ensuring that the non-automated transaction approval processes used by the Agency were taken into account.
  • Completed the documentation and design effectiveness testing of the Agency’s billing process for the recovery of expenditures from Foothills Pipeline Limited (incorporated within the Revenues and Accounts Receivable business process).

Operating Effectiveness

  • Completed operating effectiveness testing for the Payroll and Benefits business processes:

General Computer Controls (GCC’s)

  • Completed the documentation and design effectiveness testing of the SAP access control processes which are under NRCan’s responsibility.

 
Ongoing Monitoring

  • Completed the update to internal control documentation to reflect the key SAP related control activities for all business processes (except for the Financial Close and Reporting business process which will be updated in 2012-2013). 
  • Completed the design effectiveness and operating effectiveness testing of the key SAP automated control activities, including user access, except for the Financial Close and Reporting business process.
  • Completed the addition of details to the multi-year plan for on-going monitoring.

Remediation actions

  • Completed most remediation actions identified.
  • Remaining remediation actions required are planned or in progress.

5.2 Action plan for the next fiscal year and subsequent years

The following are NRCan’s action plan items that are applicable to the Agency:

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 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 plan for on-going monitoring, as may be required.

During the fiscal year 2013-2014, NRCan plans to:

  • Conduct monitoring activities as per the multi-year plan for on-going monitoring. The following  processes are currently on the plan for 2013-2014, however timing could change based on risks identified at that time:
    • Grants and Contribution (Standard);
    • Financial Close and Reporting; and
    • Entity level controls.
  • Address any additional remediation actions identified.
  • Update the multi-year plan for on-going monitoring, as may be required.

During the fiscal year 2014-2015, NRCan plans to:

  • Conduct monitoring activities as per the multi-year plan for on-going monitoring. The following processes are currently on the plan for 2014-2015, however timing could change based on risks identified at that time:
    • Operating Expenditures;
    • Payroll and Benefits;
    • General Computer Controls
  • Address any additional remediation actions identified.
  • Update the multi-year monitoring plan, as may be required.