Financial Statements
Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Justice Canada for Fiscal year 2017-2018
For the year ended March 31
1. Introduction
This document provides summary information on the measures taken by the Department of Justice Canada (the Department) to maintain an effective system of internal control over financial reporting (ICFR) as well as information on internal control management, assessment results and related action plans.
Detailed information on the Department’s authority, mandate, and program activities can be found in the Departmental Results Report and the Departmental Plan.
2. Departmental system of internal control over financial reporting
2.1 Internal control management
The Department has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control.
A departmental internal control management framework approved by the Deputy Minister is in place which includes:
- Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers in their areas of responsibility for internal control management;
- Values and Ethics unit, which provide educational and awareness programs and have developed a departmental code of conduct;
- Ongoing communication and training on the legislative and policy requirements for sound financial management and control; and
- Semi-annual monitoring of, and regular updates on, internal control management, as well as provision of related assessment results and action plans to the deputy head and departmental senior management and, as applicable, the Departmental Audit Committee (DAC).
DAC is an independent and objective advisory committee to the Department. Its responsibilities include providing advice to the Deputy Minister on the Department’s systems of internal control, financial reporting and financial disclosures. It also provides advice on the risk-based assessment plans and associated results regarding the effectiveness of the departmental system of ICFR.
2.2 Service arrangements relevant to financial statements
The Department relies on other organizations to process certain transactions that are recorded in its financial statements. There are three types of service arrangements, as detailed below: common arrangements used by most departments, specific arrangements used by the Department and common services provided by the Department.
Common Arrangements within the Government of Canada
- Public Services and Procurement Canada (PSPC) centrally administers the payments of salaries and the procurement of goods and services consistent with the Department’s delegation of authority, and provides accommodation services;
- Treasury Board of Canada Secretariat (TBS), which provides information on public service insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans;
- Shared Services Canada (SSC) provides information technology (IT) infrastructure services to the Department in the areas of data centre and network services.
Readers of this Annex may refer to the Annexes of the above-noted organizations for a greater understanding of the systems of ICFR related to these specific services.
Specific Arrangements for the Department
The Department provides certain corporate (internal) services to the Public Prosecution Service of Canada (PPSC).
Common Services provided by the Department
- The Department is the common service provider of legal services to federal departments and agencies, and as such, the Department charges these organizations with the cost of providing legal services pursuant to legal services agreements, and provides an annual dollar figure for those legal services it provides without charge;
- The Department provides information on pending litigation cases in order to assist federal departments and agencies in the reporting of contingencies.
3. Departmental Assessment Results During Fiscal Year 2017-18
3.1 New or significantly amended key controls
In the current year, there were no significantly amended key controls in existing processes that required a reassessment.
3.2 Ongoing monitoring program
In 2016-17, the Department completed and implemented a new risk-based, ongoing monitoring program of ICFR covering three fiscal years from 2016-17 to 2018-19.
Information Technology General Controls
The key controls of the system supporting the delivery of the Family Orders and Agreements Enforcement Assistance (FOAEA) Act were assessed during 2017-18. Although the FOAEA system is built in such a manner that any changes to the system are well documented, segregation of duties should still be strengthened. A management action plan has been put in place and monitoring activities will be reported back to senior management.
Process level controls
As part of the revised rotational monitoring plan to assess the Department’s key controls embedded within the business processes, a thorough review of Professional and Special Services (Expense), Legal Services Revenue, Family Law Account (Liability) and Family Law Fees (Revenue) financial statement accounts were performed during 2017-18 which entailed documenting the design of all sub-processes and testing control effectiveness. The assessment results are as follows:
| Key Control Areas | Overall Risk | Areas for Improvements |
|---|---|---|
| Professional and Special Services (Expense) | High |
|
| Legal Services Revenue | High | Section 5 provides details on the common service provided by the Department |
| Family Law Liability & Revenue Accounts | High (Liability) & Moderate (Revenue) |
|
Management action plans addressing the areas for improvements have been developed by the process owners and are actively monitored and reported back to senior management.
4. Departmental action plan for the next fiscal year and subsequent years
The Department’s rotational risk-based ongoing monitoring plan for fiscal year 2018-19 is focused on the assessment of the operating effectiveness of the controls related to Travel & Relocation processes, Tangible Capital Assets, and the ITGCs on the Department’s management information systems for rendering common services.
Based on our most recent environmental scan and risk assessment, a decision has been made that the review of Accounts Payable and Accrued Liabilities, which was originally planned for during the said fiscal year has been postponed to fiscal year 2019-20, and is substituted with the assessment of Financial Close & Reporting. As financial close has a direct impact on the fair presentation of the financial statements and since this process has never been officially reviewed for the Department, Management decided to elevate its priority.
Currently, the Department is also in the process of developing a risk-based rotational ongoing monitoring plan for internal control over financial management and financial reporting covering fiscal years from 2019-20 to 2021-22. This plan will be established after we have conducted the fraud risk assessment in fiscal year 2018-19, at which point the results can be incorporated into the plan.
As a Common Service Provider (CSP) to other government departments of Canada, the plan will also cover internal controls over common service to address the requirements of the new TBS Policy on Financial Management.
The plan will be monitored and maintained to ensure that prompt corrective action is taken when control weaknesses and material unmitigated risks are identified, including the risk of fraud, in the system of internal control over financial management and financial reporting.
5. Departmental assessment results of common services during the 2017-18 fiscal year
The Department of Justice Canada, as a CSP of legal services, has completed an annual assessment of the internal controls related to the legal services it provides. The results of this annual assessment are detailed below:
| Key Control Areas | Design Effectiveness Testing and Remediation | Operational Effectiveness Testing and Remediation | Ongoing Monitoring Rotation |
|---|---|---|---|
| Legal Service Revenues - Design Effectiveness | Complete | Future fiscal yearTable note i | Future fiscal yearTable note i |
| ITGC - Legal Services | 2019 fiscal year | Future fiscal yearTable note i | Future fiscal yearTable note i |
- Table note i
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At the present, the Department is in the process of developing a risk-based rotational ongoing monitoring plan for internal control over financial management and financial reporting covering fiscal years from 2019-20 to 2021-22, and will be incorporating results of fraud risk assessment in fiscal year 2018-19. This plan will also include internal controls over common service, in this case the legal services we provide, to address the requirements of the new TBS Policy on Financial Management.
As a result of the completed design effectiveness testing on Legal Services Revenues (LSR), and the ongoing monitoring of key controls, the Department identified remediation for the Memorandum of Understanding (MOU) between the Department of Justice and other government departments (OGDs), including Annex B – Planning and Forecasting.
The MOU establishes the roles and responsibilities, the types of legal services provided, service standards, processes for planning, invoicing, reporting, and an approach for dispute resolution. It promotes a common understanding within Justice and with client organizations of the governance, accountability, financial arrangements and performance objectives which reflect the mutual responsibilities of both parties to effectively manage the demand for and supply of quality legal services.
The MOU is a four-step process that Justice develops with its clients (OGDs), which includes:
- Integrated Business Planning
- Client Negotiations
- MOU finalization; and
- In-year Monitoring and Reporting
In accordance with the recommendation by the Treasury Board Common Services Policy and Guidelines on Service Agreements, clients who receive legal services from Justice are required to enter into an MOU with Justice.
The Annex B qualifies as the Expenditure Initiation and Section 32 of the Financial Administration Act that departments must sign in order to be compliant with policy. This allows the Department of Justice to collect revenues (monies) from the clients. An established threshold amount of 10% has been determined before a new Annex B must be signed, which is based on recognized revenue.
The recommended improvements are:
- To establish a consistent methodology for allocating the client billing discount, and to only allow for in-year changes to the discounts on the already signed agreements in very specific cases (such as, collective agreement funding change and TBS reductions, etc.) in order to promote fairness and transparency on the common services provided, and to ensure the discount is not over-allocated from a departmental perspective.
- To establish a methodology governing when a revised MOU (Annex B) needs to be signed in order to satisfy financial policy requirements, while respecting the time and effort required to warrant a revision, and so it can be applied consistently while respecting the established thresholds.
The Department is engaging in discussions about its funding model for legal services, with the aim of adopting a simplified and sustainable model. The action plan to assess and monitor the internal controls related to legal services revenues is subject to change pending the outcome of this review.
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