Statement of Management Responsibility including Internal Control over Financial Reporting Annex for the Fiscal Year 2016 - 2017
1. Introduction
This document provides summary information on the measures taken by Veterans Affairs Canada (VAC) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management and assessment results and related action plans.
Detailed information on VAC’s authority, mandate, and program activities can be found in the Departmental Performance 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 over financial reporting 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 for senior managers in their areas of responsibility for control management;
- values and ethics;
- on a regular basis, monitoring and regular updates on internal control management plus assessment results and action plan to the Deputy Minister and the Departmental Audit Committee (DAC).
Below are VAC’s key positions and committees with responsibilities for maintaining and reviewing the effectiveness of its system of ICFR.
- Deputy Minister - VAC’s Deputy Minister, as Accounting Officer, assumes overall responsibility and leadership for the measures taken to maintain an effective system of internal control. In this role, the Deputy Minister chairs the Senior Management Committee.
- Chief Financial Officer (CFO) - VAC’s CFO reports directly to the Deputy Minister and provides leadership for the coordination, coherence and focus on the design and maintenance of an effective and integrated system of ICFR, including its annual assessment.
- Senior Departmental Managers - VAC’s senior departmental managers (Assistant Deputy Ministers and Deputy Minister Direct Reports) in charge of program delivery and corporate services are responsible for maintaining and reviewing effectiveness of the system of ICFR falling within their mandate.
- Chief Audit Executive (CAE) - VAC’s CAE reports directly to the Deputy Minister and provides assurance through periodic risk based internal audits which are instrumental to the maintenance of an effective system of ICFR.
- Departmental Audit Committee (DAC) - The DAC is an advisory committee that provides objective views on the department’s risk management, control and governance frameworks. It is comprised of the Deputy Minister and three external members. Established in 2008, the committee is responsible for reviewing VAC’s Corporate Risk Profile and its system of internal control, including the assessment and action plans relating to the system of ICFR.
- Senior Management Committee (SMC) - As the VAC central decision-making body, SMC reviews, approves and monitors the Corporate Risk Profile and the departmental system of internal control, including the assessment and action plans relating to the system of ICFR.
2.2 Service arrangements relevant to financial statements
The Department relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:
Common Arrangements:
- Pulic Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and the procurement of goods and services, as per the Department’s Delegation of Authority and provides accommodation services;
- Treasury Board Secretariat provides the department with information used to calculate various accruals and allowances, such as the accrued severance liability;
- The Department of Justice provides legal services to VAC; and
- Shared Services Canada (SSC) provides IT infrastructure services to VAC in the areas of email, data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and VAC.
Specific Arrangements:
- An external service provider administers the Federal Health Claims Processing System on behalf of the Service Delivery Branch. The external service provider has the responsibility to ensure that payments are made in accordance with the conditions set out by the department. As a result, reliance is placed on the control procedures of the external service provider which are subject to a CSAE 3416 audit.
- Another external service provider administers portions of the Vocational Rehabilitation program to help disabled CF Veterans who need support to re-enter civilian life through the provision of medical, psycho/social, and vocational assistance/services.
3. Departmental assessment results during fiscal year 2016-2017
On-Going Monitoring of Key Controls
During the 2016-2017 fiscal year, the department completed planned on-going monitoring of key controls as outlined in the table below.
3.1 Progress during fiscal year 2016-2017
The Department continued to conduct its on-going monitoring according to the previous fiscal year’s rotational plan as follows:
| Previous year’s rotational on-going monitoring plan for current year | Status |
|---|---|
| Entity Level Controls | Completed as planned and no remedial actions required |
| Disability Awards | Completed as planned, will be tested again in next rotational cycle |
| Disability Pensions | Completed as planned and remedial actions started |
| Operating and Maintenance Payables | Completed as planned and remedial actions started |
| Payroll | Review deferred to 2017-2018 rotation due to unavailability of documentation |
| Treatment Benefits under departmental management | Completed as planned and no remedial actions required |
| Veterans Independence Program under departmental management | Completed as planned and remedial actions started |
As noted in the table above, the results of on-going monitoring identified areas requiring improvement relating to Disability Pensions, Operating and Maintenance Payables, and the Veterans Independence Program. For each of these areas, the identified control failures were generally administrative in nature (e.g. approval authority) and not determined to be significant or impact the integrity of the departmental financial statements. Actions are in progress to address any weaknesses noted. Testing in the Disability Award payment stream identified a control failure generally not present in the significant testing otherwise performed for the payment stream. Disability Awards will be evaluated again in the 2017-18 rotation to determine if the control failure re-occurs.
3.2 Action plan for the next fiscal year and subsequent years
The Department’s rotational on-going monitoring plan over the next three years, based on an annual validation of the processes and controls and related adjustments to the on-going monitoring plan as required, is shown in the table below.
| Internal Control over Financial Reporting | |||
|---|---|---|---|
| Operating Effectiveness Testing Rotation | |||
| 2017-18 | 2018-19 | 2019-20 | |
| Entity level controls | Yes | ||
| IT general controls under departmental management | Yes | ||
| Key Business Processes | |||
| Contract Administration | Yes | ||
| Disability Awards | Yes | Yes | |
| Disability Pensions | Yes | ||
| Earnings Loss | Yes | ||
| Financial close & reporting | Yes | ||
| Long Term Care | Yes | ||
| Operating and Maintenance Payables | Yes | ||
| OSI Clinics | Yes | ||
| Payroll | Yes | Yes | |
| Rehabilitation under departmental management | Yes | ||
| Treatment Benefits under departmental management | Yes | Yes | Yes |
| Veterans Independence Program under departmental management | Yes | Yes | |
| War Veterans Allowance | Yes | ||