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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, 2013, and all information contained in these statements rests with the management of Natural Resources Canada. 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 department’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department’s Departmental Performance Report,is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (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 Actand other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training, and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the department; and through conducting an annual 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 ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2013 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the department’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the department’s operations, and by the Departmental Audit Committee, which oversees management’s responsibilities for maintaining adequate control systems and quality of financial reporting.

The financial statements of Natural Resources Canada have not been audited.

Natural Resources Canada

Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)
2013 2012
Liabilities
Accounts payable and accrued liabilities (note 4) 570,717 1,090,651
Vacation pay and compensatory leave 22,573 23,934
Lease obligation for tangible capital assets (note 5) 74,012 76,137
Employee future benefits (note 6) 53,509 67,319
Other liabilities (note 7) 13,250 18,150
Environmental liabilities (note 15a) 1,035,415 1,085,010
Total net liabilities 1,769,476 2,361,201
Financial assets
Due from Consolidated Revenue Fund 456,696 925,187
Accounts receivable and advances (note 8) 202,964 206,749
Loan receivable (note 9) 40,000 40,667
Total gross financial assets 699,660 1,172,603
Financial assets held on behalf of Government
Accounts receivable and advances (note 8) (198,034) (203,487)
Loan receivable (note 9) (40,000) (40,667)
Total financial assets held on behalf of Government (238,034) (244,154)
Total net financial assets 461,626 928,449
Departmental net debt 1,307,850 1,432,752
Non-financial assets
Prepayments (note 10) 10,241 90,361
Inventory (note 11) 1,660 1,818
Tangible capital assets (note 12) 235,680 221,392
Total non-financial assets 247,581 313,571
Departmental net financial position (note 13) $ (1,060,269) $ (1,119,181)

Contractual obligations (note 14)

Contingent liabilities (note 15)

Contingent recoveries (note 16)

Natural Resources Canada

Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31
(in thousands of dollars)
2013
Planned Results
2013 2012*
Expenses
Statutory Programs - Atlantic Offshore 1,134,954 592,456 -
Energy-efficient Practices and Lower-carbon Energy Sources 566,462 335,752 -
Responsible Natural Resource Management 233,646 236,713 -
Internal services 122,713 179,651 254,462
Technology Innovation 440,568 161,632 -
Innovation for New Products and Processes 73,001 143,093 -
Investment in natural resource sectors 75,424 77,279 -
Landmass Information 50,453 81,644 -
Market Access and Diversification 31,628 91,134 -
Protection for Canadians and Natural Resources 65,145 64,525 -
Economic Opportunities for natural resources - - 1,485,600
Clean energy - - 1,354,727
Ecosystem risk management - - 220,085
Natural resources and landmass knowledge and systems - - 80,401
Adapting to a changing climate and hazard risk management - - 61,829
Natural resource-based communities - - 25
Geomatics Canada Revolving Fund - - 3,235
Total expenses 2,793,994 1,963,879 3,460,364
Revenues
Rights and privileges 1,125,625 543,084 1,150,865
Miscellaneous revenue 381,303 470,927 589,520
Revenue from services of a non-regulatory nature 16,235 21,462 20,514
Proceeds from sales of goods and information products 2,319 2,512 2,773
Revenue from services of a regulatory nature 994 1,464 1,370
Services to other government departments - 111 -
Revenues earned on behalf of Government (1,488,342) (1,013,591) (1,739,978)
Total revenues 38,134 25,969 25,064
Net cost from continuing operations 2,755,860 1,937,910 3,435,300
Transferred operations (note 18)
Expenses - - 14,831
Net cost of transferred operations - - 14,831
Net cost of operations before government funding and transfers 2,755,860 1,937,910 3,450,131
Government funding and transfers
Net cash provided by Government 2,411,672 3,164,716
Change in due from (to) Consolidated Revenue Fund (468,491) 121,221
Services provided without charge by other government departments (note 17a) 53,732 59,361
Transfer of assets and liabilities to other government departments (91) (5,256)
Net cost of operations after government funding and transfers (58,912) 110,089
Departmental net financial position - Beginning of year (1,119,181) (1,009,092)
Departmental net financial position - End of year $ (1,060,269) $ (1,119,181)

Segmented information (note 19)

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

* NRCan’s Program Activity Architecture (PAA) has changed significantly from 2011-12 to 2012-13. The 2011-12 results are presented using the 2011-12 PAA.

Natural Resources Canada

Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31
(in thousands of dollars)
2013 2012
Net cost of operations after government funding and transfers (58,912) 110,089
Change due to tangible capital assets
Acquisition of tangible capital assets 31,375 34,679
Amortization of tangible capital assets (17,533) (18,371)
Proceeds from disposal of tangible capital assets (320) (444)
Net gain on disposal of tangible capital assets including adjustments 857 640
Transfer to other government departments (note 12) (91) (8,568)
Total change due to tangible capital assets 14,288 7,936
Change due to inventories (158) (96)
Change due to prepayment (80,120) (23,775)
Net increase (decrease) in departmental net debt (124,902) 94,154
Departmental net debt - Beginning of year 1,432,752 1,338,598
Departmental net debt - End of year $ 1,307,850 $ 1,432,752

The accompanying notes form an integral part of these financial statements

Natural Resources Canada


(in thousands of dollars)">
2013 2012
Operating activities
Net cost of operations before government funding and transfers: 1,937,910 3,450,131
Non-cash items:
Amortization of tangible capital assets (17,533) (18,371)
Net gain on disposal of tangible capital assets including adjustments 857 640
Services provided without charge by other government departments (note 17a) (53,732) (59,361)
Variations in Statement of financial position:
Increase in accounts receivable and advances 1,668 1,243
Decrease in prepayments (80,120) (23,775)
Decrease in inventory (158) (96)
Decrease (increase) in accounts payable and accrued liabilities 519,934 (250,819)
Decrease in vacation pay and compensatory leave 1,361 1,983
Decrease in future employee benefits 13,810 11,239
Decrease in environmental liabilities 49,595 21,351
Decrease (Increase) in other liabilities 4,900 (2,425)
Transfer of net liabilities to other government departments (note 18) - (3,312)
Cash used in operating activities 2,378,492 3,128,428
Capital investing activities
Acquisitions of tangible capital assets 31,375 34,679
Proceeds from disposal of tangible capital assets (320) (444)
Cash used in capital investing activities 31,055 34,235
Financing activities
Lease obligation for tangible capital assets (2,593) (2,665)
Lease payments for tangible capital assets 4,718 4,718
Cash used in financing activities 2,125 2,053
Net cash provided by Government of Canada $ 2,411,672 $ 3,164,716

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

Natural Resources Canada

Notes to the Financial Statements (Unaudited)
For the year ended March 31, 2013

1. Authority and Objectives

The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department’s mandate is primarily based on the Department of Natural Resources Act, the Resources and Technical Surveys Act and the Forestry Act.

NRCan’s vision is to improve the quality of life of Canadians by creating a sustainable resource advantage. It seeks to fulfill this vision by working to: improve the competitiveness of the natural resource sectors; enable the sustainable development of Canada’s resources; and enhance the safety and security of citizens.

In 2012-13, NRCan fulfilled its mandate through the following activities:

Statutory Programs – Atlantic Offshore

This program activity is about monitoring and facilitating payment disbursal agreements and transfer payments under the Atlantic Offshore Accord Acts.

Energy-Efficient Practices and Lower-carbon Energy Sources

Canada’s energy markets are defined by consumption and production decisions; however, consumers and producers do not necessarily make decisions that minimize their impact on the environment due to several barriers including: 1) a lack of awareness of available options and their benefits, 2) insufficient capacity for adoption (e.g. regulatory frameworks, codes and standards, etc.) and 3) financial risk. The objective of this program activity is to address these barriers and encourage and enable energy consumers and producers to adopt cleaner and more efficient technologies, products, services and practices, thereby transforming the market.

This objective is achieved through education and outreach activities, targeted incentives, and regulatory interventions that keep pace with technological changes.

Responsible Natural Resource Management

Greater knowledge of risks and environmentally-responsible practices could help to prevent and reduce the environmental impacts of natural resource development. The objectives of the program activity are to enable government departments, regulatory bodies and industry to assess these impacts to the environment and develop, monitor and maintain resources or clean-up wastes responsibly. These objectives are achieved through the provision of assessments and knowledge rooted in sound science, and waste management efforts in collaboration with provinces, federal agencies and municipalities.

Internal Services – common activity for both 2011-12 and 2012-13

Internal services are activities supported by a group of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization.

Technology Innovation

Solutions to the environmental challenges faced by the natural resource sectors require sustained efforts in research, development and demonstration because the current level of science and technology is inadequate to address these concerns. However, the natural resource sectors neither have all the necessary knowledge nor make the necessary investments in innovation due to the potential poor return on investment. The objective of this program activity is to encourage academia, industry and the public sector to research, develop and demonstrate innovative solutions to environmental challenges encountered in the natural resource sectors. This objective is achieved through the generation and dissemination of scientific knowledge, and the development and demonstration of new technologies.

Innovation for New Products and Processes

Optimizing the use of Canada's natural resources and the processes by which they are developed would improve the productivity of the natural resources sectors and reduce its dependency on the sale of traditional natural resource products. The objective of this program activity is twofold: to maximize the productivity and to decrease our dependency on the sale of traditional products by encouraging natural resources sectors to adopt new technologies and processes to develop new products. This objective is achieved by conducting science, research, development, and demonstrations on new applications, technologies, processes, and products.

Investment in Natural Resource Sectors

Investing in the development of natural resources is costly and risky due to the uncertainties related to the potential economic viability of natural resources. There are many factors to consider when deciding whether or not to develop a natural resource. In some cases, investors and/or companies lack knowledge on and, thus, are unaware of potential opportunities. The objective of this program activity is to encourage natural resource sector investment by either decreasing the risk of development or increasing knowledge on opportunities. This objective is achieved by providing funding and information on the factors that determine the potential economic viability of natural resources.

Landmass Information

NRCan provides clearly defined legal boundaries, a robust property system framework, authoritative geographic infrastructure and fundamental geospatial information on Canada’s landmass. Without these frameworks, negative impact will result to the Canadian economy, environment and standard of living. This program activity delivers Canada's regulatory system for Canada-Lands legal surveys, the fundamental geodetic reference system, earth observation and mapping information. Together, these support the Canadian public, other departments and levels of government, the private sector and academia to carry out a variety of decisions founded on location-based information, such as land transactions, commercial/industrial development, transportation and logistics. This fundamental information enables, effective management of Canada’s natural resources and lands including opportunities for collaboration across jurisdictions (i.e. cross-border planning, regulatory efficiency), which advances the interests of Canada’s natural resources sectors, both domestically and at the international level.

Market Access and Diversification

Canada’s natural resource sectors face two key barriers to market access and diversification: 1) trade and policy barriers and 2) lack of awareness of Canada’s natural resource products. The objectives of this program activity are to break down those barriers and support natural resource markets by making information available to Canadians, supporting negotiations to reduce trade barriers, and ensuring that regulations are up-to-date. This helps maintain natural resource sectors’ access to existing markets and increases their access to new market segments.

Protection for Canadians and Natural Resources

Natural resource development and military activities, and changes in the environment pose risks to human, natural resource and infrastructure health. Without the appropriate coordination for and knowledge on the management of these risks, the impacts would be severe. The objective of this program activity is to enable other government departments, communities and the private sector to manage these risks to human, natural resource and infrastructure. This objective is achieved by providing regulation and knowledge, fulfilling legislated and regulatory responsibilities, and ensuring capacity.

In 2011-12, NRCan reported expenditures and revenues on the previous program activity architecture:

Economic Opportunities for Natural Resources

Economic opportunities for natural resources contains programs designed to promote innovation, investment, and the enhancement of the competitiveness of Canada’s natural resources and related products to industries through the provision of know-how and tools, along with trade promotion and market acceptance, at home and abroad.

Clean Energy

Clean energy include the development and delivery of energy science and technology, policies, programs, legislation and regulations to mitigate air emissions and to reduce other environmental impacts associated with energy production and use.

Ecosystem Risk Management

Ecosystem risk management includes programs that help to understand the risks to our environment and the protection of critical resources such as groundwater.

Natural Resources and Landmass Knowledge and Systems

Natural resources and landmass knowledge and systems carries out the Minister’s obligation to provide a property rights infrastructure on all lands for which the department has this responsibility, along with the provision and access to accurate and precise geographic information on the Canadian landmass.

Adapting to a Changing Climate and Hazard Risk Management

Adapting to a changing climate and hazard risk management provide geoscience and geospatial information that contributes to the reduction of risks from natural hazards, such as earthquakes, tsunamis and floods, as well as hazards arising from human activities, and works with front-line responders to provide geographical information in the event of an emergency.

Natural Resource-Based Communities

Natural resource-based communities is targeted to increasing Canada’s knowledge of the impacts of the natural resource sector evolution on communities that have substantial reliance on resource-based industries and to improve the capacity and knowledge for increasing the number of opportunities through value-added products and services.

The Geomatics Canada Revolving Fund

The Geomatics Canada Revolving Fund allows Geomatics Canada to shift the costs from taxpayers at large to specific users who benefit directly from the goods and services provided. These goods and services include aeronautical charts and publications which contribute to the safety and security of the traveling public and Canadians.

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:

  1. Parliamentary authorities – The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2012-13 Report on Plans and Priorities.
  2. Consolidation – These consolidated financial statements include the accounts of the sub-entities that are under the control of the Department. The accounts of the Geomatics Canada Revolving Fund have been consolidated with those of the Department, and all inter-organizational balances and transactions have been eliminated.
  3. Net Cash Provided by Government – The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF and all cash disbursements made by the Department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.
  4. 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 Department is entitled to draw from the CRF without further authorities to discharge its liabilities.
  5. Revenues:
    • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
    • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
    • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
    • Revenues that are non-respendable are not available to discharge the Department’s liabilities. While the Deputy Head is expected to maintain accounting control, he or she 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.
  6. 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. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
    • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
    • Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.
  7. Employee future benefits
    1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor.
    2. Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn those benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability employee severance benefits for the Government as a whole.
  8. Accounts and loans receivable are stated at the lower of cost and net recoverable value. However, when the terms of the loans are concessionary, such as those provided with a low or no interest clause, they are recorded at their estimated present value. A portion of the unamortized discount is recorded as revenue each year to reflect the change in the present value of the loans outstanding. Transfer payments that are unconditionally repayable are recognized as loans receivable. A valuation allowance is recorded for accounts and loans receivable where recovery is considered uncertain.
  9. Contingent liabilities – Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
  10. Environmental liabilities – Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management’s best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the Department becomes aware of the contamination and is obligated, or likely to be obligated to incur such costs. If the likelihood of NRCan’s obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes of the financial statements.
  11. Inventory – Inventory consists of parts, materials and supplies held for future program delivery and not intended for resale. Inventory is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.
  12. Foreign currency transactions - Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year end. Gains and losses resulting from foreign currency transactions are included in the Statement of Operations and Departmental Net Financial Position and note 19 in the operating expenses – other.
  13. Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more ($1,000 or more for the Geomatics Canada Revolving Fund) are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian reserves and museum collections.

    Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:
    Asset Class Amortization period
    Buildings 15 to 40 years
    Machinery and equipment 5 to 15 years
    Vehicles 3 to 10 years
    Leasehold improvements Lesser of the remaining term of lease or useful life of the improvement
    Leased tangible capital assets Over term of lease/useful life
    Assets under construction Once in service, in accordance with asset class


    Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.
  14. Measurement uncertainty – The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, the useful life of tangible capital assets, and the allowance for doubtful accounts. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables.

a) Reconciliation of net cost of operations to current year authorities used
2013 2012
(in thousands of dollars)
Net cost of operations before government funding and transfers $1,937,910 $3,450,131
Adjustments for items affecting net cost of operations but not affecting authorities
Add (Less):
NRCan's authorities
Refunds of prior years expenditures 37,426 10,969
Services provided without charge by other government departments (53,732) (59,361)
Non cash changes of tangible capital assets 25,079 20,331
Decrease in allowance for environmental liabilities 49,595 21,351
Amortization of tangible capital assets (17,533) (18,371)
Decrease in employee future benefits 13,810 11,239
Adjustments of prior year accounts payable 34,198 10,972
Increase in accrued liabilities not charged to authorities 14,218 (86,842)
Adjustments from prepayments (80,120) (163,872)
Respendable Revenues (25,969) (25,064)
Decrease in adjustments of previous years inventory (158) (96)
Decrease in vacation pay and compensatory leave 1,361 1,602
Gain on disposal of tangible capital assets (857) (640)
Other adjustments (1,948) 5,547
Total items affecting net cost of operations but not affecting authorities (4,630) (274,787)
Adjustments for items not affecting net cost of operations but affecting authorities:
Add (Less):
Receivables, Advances, and Prepayments 31 140,097
Acquisitions of tangible capital assets 31,375 34,679
Decrease (Increase) in lease obligations for tangible capital assets 2,125 2,053
Total items not affecting net cost of operations but affecting authorities 33,531 176,829
Current year authorities used $ 1,966,811 $ 3,352,173

b) Authorities provided and used
2013 2012
(in thousands of dollars)
Authorities Provided:
Vote 1 - Operating expenditures $ 860,552 $ 844,593
Vote 5 - Capital expenditures 31,957 23,758
Vote 10 - Transfer payments 742,019 1,716,488
Statutory amounts 756,439 1,297,037
Less:
Authorities available for future years (7,315) (7,553)
Lapsed - Operating (95,368) (89,175)
Lapsed - Capital (2,912) (2,396)
Lapsed - Transfer payment (318,562) (430,579)
Lapsed – Statutory amounts - -
Current year authorities used $ 1,966,811 $ 3,352,173

4. Accounts payable and accrued liabilities

The following table presents details of the Department's accounts payable and accrued liabilities:
2013 2012
(in thousands of dollars)
Accounts payable to other government departments and agencies $ 21,537 $ 12,575
Accounts payable to external parties 205,998 473,686
Total accounts payable 227,535 486,261
Accrued liabilities 343,182 604,390
Total $570,717 $1,090,651

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-13. As a result, the Department has recorded at March 31, 2013, an obligation for termination benefits for an amount of $4,092,000 ($20,387,000 in 2011-12) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Lease obligation for tangible capital assets

The Department has entered into agreements to lease a building under a capital lease with a cost of $90,953,000 and accumulated amortization of $8,676,000 as at March 31, 2013 ($5,038,000 as at March 31, 2012). The obligations related to the upcoming years include the following:
2013 2012
(in thousands of dollars)
2013 - 4,718
2014 4,718 4,718
2015 4,718 4,718
2016 4,718 4,718
2017 4,718 4,718
2018 and thereafter 87,831 87,831
Total future minimum lease payments 106,703 111,421
Less: imputed interest (3.45%) 32,691 35,284
Balance of obligations under leased tangible capital assets $ 74,012 $ 76,137

6. Employee future benefits

(a) Pension benefits: The Department’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

Both the employees and the department contribute to the cost of the plan. The 2012-13 expense amounts to $63,505,000 ($64,135,000 in 2011-12), which represents approximately 1.7 times (1.8 for 2011-12) the contributions by employees.

The Department’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor.

(b) Severance benefits: The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, is as follows:

As part of the collective agreement negotiations with certain employee groups, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

2013 2012
Restated
(in thousands of dollars)
Accrued benefit obligation - Beginning of year $ 67,319 $ 78,558
Transferred to other government department, effective November 15, 2011 (Note 18) - (1,477)
Subtotal 67,319 77,081
Expense for the year 7,056 (2,753)
Benefits paid during the year (20,866) (7,009)
Accrued benefit obligation - End of year $ 53, 509 $ 67,319

7. Other Liabilities

April 1, 2012 Receipts and other credits Payments and other charges March 31, 2013
(in thousands of dollars)
Guarantee deposits - Oil and gas $ 4,610 $333,386 $ (333,290) $ 4,706
Shared costs projects 4,522 479 (4,020) 981
Market development and incentive payments - Alberta 4,585 - (1,078) 3,507
Shared costs agreements - Research 4,433 1,901 (2,278) 4,056
Total $ 18,150 $335,766 $ (340,666) $ 13,250

Guarantee deposits – Oil and gas: This account was established to record securities in the form of cash, promissory notes, and bonds which are required to be issued to, and held by the Government of Canada pursuant to an Exploration License in accordance with section 24 of the Canada Petroleum Resources Act. These securities are a performance guarantee that the agreed exploration will be performed in the manner and time frame specified. Interest is not paid on these deposits.

Shared-cost projects - This account was established to facilitate the retention and disbursement of moneys received from private organizations and other governments for cost-sharing scientific projects.

Market development incentive payments– Alberta: This account records money received from the Government of Alberta, to encourage the expansion of natural gas market in Alberta and provinces to the East, in accordance with an agreement between the Government of Canada and the Government of Alberta dated September 1, 1981 and pursuant to section 39 of the Energy Administration Act. The original term of the agreement was from November 1, 1981 to January 31, 1987. As a result of the Western Accord of March 25, 1985, payments from the Government of Alberta terminated as at April 30, 1986, however, payments are being made from the account for selected programs which encourage the use of natural gas for vehicles.

Shared-cost agreements– Research: This account was established to facilitate the retention and disbursement of moneys received from private industries and other governments for joint projects or shared-cost research agreements.

8. Accounts receivable and advances

The following presents details of the Department’s accounts receivable and advances balances:
2013 2012
(in thousands of dollars)
Receivables - Other government departments and agencies $ 12,245 $ 9,933
Receivables - External parties 191,753 197,594
Employee advances 104 77
Subtotal 204,102 207,604
Allowance for doubtful accounts on receivables from external parties (1,138) (855)
Gross accounts receivable 202,964 206,749
Accounts receivable held on behalf of Government (198,034) (203,487)
Net accounts receivable $ 4,930 $ 3,262

9. Loan receivable

The following table presents details of the Department’s loan balance:
2013 2012
(in thousands of dollars)
Loan to Nordion International Inc. $ 50,000 $ 54,000
Unamortized discounts (10,000) (13,333)
Gross Loan balance 40,000 40,667
Loans receivable held on behalf of government (40,000) (40,667)
Loan balance - -

Nordion International Inc. (loan)

Interest Free Loan Agreement; to be repaid over 30 semi-annual payments commencing October 1, 2000; fully secured by a financial instrument in Canada’s name which guarantees that the loan will be repaid. Balance remaining as of March 31, 2013 is $50,000,000. Due to the concessionary terms of this loan, the estimated present value is $40,000,000 as at March 31, 2013.

10. Prepayments

The following presents details of the Department’s prepayments:
2013 2012
(in thousands of dollars)
Prepaid expenses $ 10,241 $ 5,269
Prepaid transfer payments - 85,092
Total $ 10,241 $ 90,361

11. Inventory

The following table presents details of the inventory, measured at cost using the average cost method:
2013 2012
(in thousands of dollars)
Inventories held for consumption $ 1,606 $ 1,793
Inventories for re-sale 54 25
Total $ 1,660 $ 1,818

The cost of consumed inventory recognized as an expense in the Statement of Operations and Departmental Net Financial Position is $158,035 in 2012-13 ($175,605 in 2011-12).

12. Tangible capital assets

Capital asset class (in thousands of dollars)
Cost Accumulated amortization Net book value
Opening balance Acquisi-tions Adjust-ments (1) Disposals and write-offs Closing balance Opening balance Amortiza-tion Adjust-ments (1) Disposals and write-offs Closing balance 2013 2012
Net book value Net book value
Land 11,127 - - - 11,127 - - - - - 11,127 11,127
Buildings 194,389 153 947 463 195,026 136,571 3,083 - 406 139,248 55,778 57,818
Machinery and equipment 235,258 6,170 5,945 39,245 208,128 188,623 9,785 49 38,477 159,980 48,148 46,635
Vehicles 11,071 236 - 1,779 9,528 7,338 946 - 1,656 6,628 2,900 3,733
Leasehold improments 371 - 1,144 - 1,515 - 81 - - 81 1,434 371
Leased tangible capital assets 90,953 - - - 90,953 5,038 3,638 - - 8,676 82,277 85,915
Assets under construction 15,793 24,816 (6,589) 4 34,016 - - - - - 34,016 15,793
Total $ 558,962 $ 31,375 $ 1,447 $ 41,491 $ 550,293 $ 337,570 $ 17,533 $ 49 $ 40,539 $ 314,613 $ 235,680 $ 221,392

View larger tangible capital assets table

Note (1)

Adjustments include assets under construction of $6,589,000 that were transferred to other categories upon completion of the assets.

During the year, the Department transferred tangible capital assets with Other Government Departments with a net effect of $91,000 on the departmental net financial position.

13. Departmental net financial position

A portion of the Department’s net financial position is used for a specific purpose. Related revenues and expenses are included in the Statement of Operations and Departmental Net Financial Position.

The Environmental Studies Research Fund account was established pursuant to subsection 76(1) of the Canada Petroleum Resources Act. The purpose of the fund is to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration development and production activities on frontier land, authorized under this Act or any other Act of Parliament, should be conducted. Legislation required that the revenues of these accounts to be earmarked and that related payments and expenses be charged against such revenues. The transactions do not represent liabilities to third parties but are internally restricted for specified purposes.

2013 2012
(in thousands of dollars)
Environmental Studies Research Fund –
Restricted Departmental net financial position
Balance, beginning of year – Restricted $ 2,804 $ 3,381
Revenues 1,151 92
Expenses (495) (669)
Balance, end of year – Restricted 3,460 2,804
Unrestricted Departmental net financial position (1,063,729) (1,121,985)
Departmental net financial position – End of year $ (1,060,269) $ (1,119,181)

14. Contractual obligations

The nature of the Department’s activities can result in some large multi-year contracts and obligations whereby the Department will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:
(in thousands of dollars) 2014 2015 2016 2017 2018 and thereafter TOTAL
Transfer payments $412,115 329,133 215,027 162,000 372,442 $1,490,717

15. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

(a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs. The Department has identified approximately 6 sites (6 sites in 2012) where such action is possible and for which a liability of $1,035,415,000 ($1,085,010,000 in 2012) has been recorded. The Department has identified additional costs related to the contaminated sites of $3,108,000 ($3,077,000 in 2011-12) that are not accrued, as these are not considered likely to be incurred at this time. The Department’s ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the department in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $75,000 ($75,000 in 2011-12).

16. Contingent recoveries

NRCan issues conditionally repayable contributions that become repayable if conditions specified in the contribution agreement come into effect.

Lloydminster Bi-Provincial Upgrader- Canada sold its interests in the Lloydminster Bi-Provincial Upgrader to Husky Oil in 1995. The terms of sale included an upside interest provision whereby Canada would be eligible to receive additional payments for a period of up to 20 years if the differential between light and heavy crude oil reached a certain threshold. As a result of the increase in oil prices since the date of sale, the upside interest provision was triggered and eligible payments to Canada have increased. Canada's eligibility for upside interest payments ends in 2015.

Vancouver Island Pipeline Contribution- Canada provided $50 million in support of the construction of Vancouver Island Pipeline in the early 1990's. This support was provided in the form of a repayable contribution. Repayment was contingent upon the proponent meeting certain financial conditions. Full repayment is expected to be received by 2014.

The Ethanol Expansion Program (EEP) was launched in August 2003 with a budget of $100 million, as part of the Budget 2003 Climate Change measures. The purpose of the EEP was to contribute to the expansion of ethanol production and use in Canada and the reduction of transportation greenhouse gas emissions. Incentives were provided to enable the construction of new ethanol facilities or the expansion of existing ones. The support was provided in the form of repayable contributions. Repayments are to be made over a seven year period or until Canada has received repayments totalling an amount equal to the contribution, whichever comes first. Repayment is contingent upon the proponents meeting certain financial conditions. The final repayment reports will be received in 2017.

Other contingent recoveries relate to agreements entered into with proponents for early stage research and development (R&D) activities. Recoveries are contingent upon the successful commercialization of products generated by the R&D activities.

The Department has estimated the contingent recoverable amounts as $23,190,000 ($60,950,000 in 2012). Contingent recoveries are not recorded in the financial statements.

17. Related party transactions

The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, the Department received common services which were obtained without charge from other Government departments as presented in part (a).

(a) Common services provided without charge by other government departments:

During the year the Department received services without charge from certain common service organizations, related to accommodation, legal services, the employer’s contribution to the health and dental insurance plans, and workers’ compensation coverage. These services received without charge have been recorded in the Department’s Statement of Operations and Departmental Net Financial Position as follows:
2013 2012
(in thousands of dollars)
Employer's contribution to the health and dental insurance plans $35,131 $39,723
Accommodation 17,291 17,483
Legal services 1,063 1,898
Workers' compensation 247 257
Total $53,732 $59,361

The Government has centralized some of its administrative activities for efficiency and cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, which include payroll and check issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the Department’s Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties:
2013 2012
(in thousands of dollars)
Expenses - Other government departments and agencies 140,893 129,556
Revenues - Other government departments and agencies $ 3,104 $ 2,566

Expenses and revenues disclosed in (b) exclude common services provided without charge, which is already disclosed in (a).

18. Transfers from/to other government departments

Effective November 15, 2011, pursuant to an Order-in-Council (P.C.2011-1297), the Department transferred to Shared Services Canada the responsibility for providing email, data centre and network services including the stewardship responsibility for the assets and liabilities related to these services. Accordingly, the Department transferred $3,312 of net liabilities to Shared Services Canada on November 15, 2011. In addition, the 2012 comparative figures on the Statement of Operations and Departmental Net Financial Position include the expenses transferred to Shared Services Canada from April 1, 2012 to November 14, 2012.

During the year, the Department transferred tangible capital assets with Other Government Departments with a net effect of $91,000 (5,256,000 in 2012) on the departmental net financial position.

19. Segmented information

Presentation by segment is based on the Department’s program alignment architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main program, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars)
Statutory Programs - Atlantic Offshore Energy-efficient Practices and Lower-carbon Energy Sources Responsible Natural Resource Management Internal Services Technology Innovation Innovation for New Products and Processes Landmass Information Investment in natural resource sectors Market Access and Diversification Protection for Canadians and Natural Resources Grand Total 2012 Total
Transfer payments
Industry - 304,012 945 30 25,215 35,900 - (64) (21,015) - 345,023 985,954
International - 133 3,678 146 335 103 1 29 291 29 4,745 2,883
Non-profit organization - 1,284 1,006 326 13,584 63,419 349 3,997 29,353 762 114,080 96,742
Other levels of government 632,456 2,125 1,324 - 430 140 - - 2,089 394 638,958 1,288,859
Individuals - (27,157) (53) (6) (1,407) - (38) (77) (41) (187) (28,966) 196,755
Total transfer payments 632,456 280,397 6,900 496 38,157 99,562 312 3,885 10,677 998 1,073,840 2,571,193
Operating Expenses
Salaries and employee benefits - 38,516 32,254 109,574 81,069 33,452 57,097 56,288 32,130 52,966 493,346 524,449
Environmental expenses - - - (49,595) - - - - - - (49,595) (21,351)
Information - 404 492 11,862 374 75 59 595 123 109 14,093 10,754
Professional and special services - 15,038 166,615 31,797 13,524 3,487 13,221 10,455 6,539 3,914 264,590 275,771
Rentals - 294 504 4,643 9,731 971 11,430 1,920 317 1,500 31,310 31,664
Transportation - 1,001 1,159 1,859 2,284 1,409 3,430 2,615 1,027 2,186 16,970 18,720
Utilities, material and supplies - 256 483 12,209 5,046 1,819 2,350 1,170 329 1,975 25,637 18,931
Purchased repairs and upkeep - 8 138 2,407 1,461 192 293 202 1 284 4,986 6,301
Acquisitions - 270 685 4,065 3,733 3,059 19,769 954 86 1,043 33,664 23,124
Amortization - - - 17,533 - - - - - - 17,533 18,370
Other - (432) 27,483 32,801 6,253 (933) (26,317) (805) (95) (450) 37,505 (17,562)
Total Operating Expenses - 55,355 229,813 179,155 123,475 43,531 81,332 73,394 40,457 63,527 890,039 889,171
Total Expenses 632,456 335,752 236,713 179,651 161,632 143,093 81,644 77,279 51,134 64,525 1,963,879 3,460,364
Revenues
Rights and privileges 540,934 - - - - 35 4 - 1,977 134 543,084 1,150,865
Miscellaneous Revenue 91 10 3 1,526 1,625 2 29 - 465,881 1,760 470,927 589,520
Revenue from services of a non-regulatory nature - 364 678 - 14,938 1,480 1,848 113 3 2,038 21,462 20,514
Proceeds from sales of goods and information products - 1 2 - 1 1,390 544 - 49 525 2,512 2,773
Revenue from services of a regulatory nature - - - - - - - - - 1,464 1,464 1,370
Services to other government departments as per Section 29.2 of the Financial Administration Financial Administration Act - - - 111 - - - - - - 111 -
Revenues earned on behalf of Government (541,025) (43) (3) (1,514) (3,168) (14) 176 52 (467,878) (174) (1,013,591) (1,739,978)
Total Revenues - 332 680 123 13,396 2,893 2,601 165 32 5,747 25,969 25,064
Net cost from operations $ 632,456 $ 335,420 $ 236,033 $ 179,528 $ 148,236 $ 140,200 $ 79,043 $ 77,114 $ 51,102 $ 58,778 $ 1,937,910 $ 3,435,300

View larger segmented information table

20. Accounting changes

The department adopted the revised Treasury Board accounting policy, TBAS 3.2 – Transfer Payments, which has become effective for the Department in the 2012-13 fiscal year. The major change in the accounting policies of the Department required by the adoption of the new TBAS 3.2 is, given the non-exchange nature of government transfer payments, the Department is either not acquiring an asset or have a liability extinguished by providing a transfer payment and therefore not recognizing a prepayment in its 2012-13 Statement of Financial Position. The adoption of the revised TBAS 3.2 has been applied prospectively. In fiscal year 2012-13, the Department has expensed $85,092,000 in transfer payments prepayments that were reported in the 2011-12 financial statements.

21. Comparative information

Comparative figures have been reclassified to conform to the current year’s presentation.

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Natural Resources Canada for fiscal year 2012-2013 (unaudited)

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

1. Introduction

This document provides summary information on the measures taken by Natural Resources Canada (NRCan) 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 NRCan’s authority, mandate, and program activities can be found in the Departmental Performance Report and the Report on Plans and Priorities.

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.

The NRCan Framework for Internal Control over Financial Reporting, approved by the Deputy Minister, includes:

  • requirements for the maintenance of an effective risk-based system of ICFR;
  • risk-based approach for the assessment of the system of ICFR;
  • roles and responsibilities for the maintenance and assessment of the system of ICFR for the Chief Financial Officer (CFO), Chief Information Officer, senior departmental managers, process owners and all NRCan employees;
  • sign-offs on the maintenance of a system of financial management and internal control by the Deputy Minister, the CFO and Assistant Deputy Ministers;
  • expectation for corrective actions, where required;
  • reporting on the assessment process and results.

During fiscal year 2012-2013, the NRCan Framework for Internal Control over Financial Reporting was communicated to all NRCan employees and was presented to various senior management committees.

NRCan has a Corporate Risk Profile (CRP) in place. The CRP communicates to all staff key operational and strategic risks and risk mitigation measures, with the view of ensuring that risks are being managed sufficiently, consistently and comprehensively. The Department reports on significant financial risks in the Quarterly Financial Reports, including changes to risks and newly identified risks.

The Department's control environment also includes:

  • A departmental Integrated Risk Management Policy Framework.
  • A departmental Values and Ethics Code and a Values and Ethics Centre of Expertise.
  • A dedicated unit under the CFO to conduct risk-based assessments of the system of ICFR.
  • Senior managers’ performance agreements with clear commitments to sound financial management.
  • Mandatory training for financial officers.
  • A multi-year risk-based internal audit plan, reviewed by the Departmental Audit Committee (DAC).

The DAC is an advisory committee to the Deputy Minister. It provides objective advice and recommendations to the Deputy Minister regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the department's risk management, control and governance frameworks and processes. Other areas of focus for the DAC are values and ethics, internal and external audits, Quarterly Financial Reports, departmental financial statements and public accounts, and assessments of ICFR.

The DAC is composed of the Deputy Minister, Associate Deputy Minister and three members who are external to the federal government. NRCan’s Chief Financial Officer (CFO) and Chief Audit Executive (CAE) attend all meetings of the DAC. The Chair may request the attendance of other departmental officials, or invite representatives from external assurance providers.

The DAC meets in person at least four times a year, and may convene additional meetings as circumstances require.

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:

  • Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries. In 2012-2013, the Public Service Pay Centre within PWGSC also provided pay administration services for some NRCan employees, as part of the gradual transfer of pay administration services from NRCan to PWGSC, which should be completed in 2013-2014;
  • PWGSC centrally administers the procurement of goods and services, as per an established delegation of authorities, 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 NRCan; and
  • Shared Services Canada (SSC) provides Information Technology infrastructure services to NRCan in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and NRCan.

Specific arrangement:

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

3. Departmental assessment results during fiscal year 2012-2013

During 2012-2013, the Department completed all remaining operating effectiveness testing of key control areas, and also conducted on-going monitoring activities.

3.1 Design effectiveness testing of key controls

All design effectiveness testing had been completed prior to fiscal year 2012-2013.

3.2 Operating effectiveness testing of key controls

In 2012-2013, the Department completed operating effectiveness testing of the following business processes:

  • Operating expenditures,
  • Capital assets,
  • Revenues and accounts receivable.

Required remediation is in progress for capital assets and revenues and accounts receivable, and remediation is planned for operating expenditures.

In 2012-2013, the Department also completed operating effectiveness testing of the SAP access control processes managed by NRCan; required remediation actions are planned.

As a result of the operating effectiveness testing, the Department identified the following new remediation actions required:

Operating expenditures:

  • Ensure all Payable at Year End (PAYE) transactions are approved under Section 34 of the Financial Administration Act.
  • Conduct follow-up activities when managers do not provide confirmation of their review of delegation documents by the due date.

Capital assets:

  • Perform annual reconciliations between SAP and other related databases.
  • Update procedures for the recording of capital assets under construction.
  • Clarify the delegated authorities for disposals of assets.
  • Monitor asset disposal transactions recorded in SAP.
  • Request email confirmation that labels have been affixed to assets in instances where Asset Management employees cannot themselves affix the labels due to the location of the assets.

Revenues and accounts receivable:

  • Amend departmental policy instruments, procedures and templates by adding clarifications to the requirements for the granting of credit to customers, and indicate when revenue agreements are required.
  • Issue additional procedures for the recording of sales orders in SAP.
  • Monitor the reversal of accounts receivable in SAP.
  • Issue reminders regarding the level of authority required for approving revenue agreements.
  • Improve segregation of duties.
  • Ensure that aging reports are reviewed consistently.

SAP access control processes under NRCan’s management:

  • Revise the procedure for checking SAP Segregation of Duties violations on user accounts.
  • Strengthen the process for ensuring that contractors’ accounts in SAP are cancelled at the end of their contracts.

As a result of testing segregation of duties in the context of various processes above, a need was identified for a review of the SAP configuration for the automated Segregation of Duties rules.

3.3 On-going monitoring of key controls

During 2012-2013, the Department completed the following monitoring activities:

Financial close and reporting business process:

  • Update to the internal control documentation to reflect the change of financial system that occurred in 2011-2012.

Information Technology (IT) general controls under departmental management:

  • Determine which legacy systems should be subject to on-going monitoring of internal controls under the new SAP environment.
  • Update to the documentation to reflect changes resulting from the transfer of responsibilities to Shared Services Canada (SSC).
  • Update to the documentation to incorporate key controls specific to the SAP compatible Specimen Signature Record (SSR) application, and conduct of design effectiveness testing. Required remediation is in progress.

As a result of the above on-going monitoring, the Department identified the following new remediation actions required:

  • Implement procedures to ensure administrator and corporate user access to the SSR application is appropriate and remains current when users change position.
  • Ensure that all changes to the SSR application are properly approved and tested in a testing environment prior to being moved to the production environment.
  • Resolve the accountability issue surrounding the use of database generic accounts.

4. Departmental Action Plan

4.1 Progress during fiscal year 2012-2013

During 2012-2013, the Department continued to make significant progress in assessing and improving its key controls. Below is a summary of the main progress made by the Department based on the plans identified in the previous fiscal year’s annex:
Element in previous year’s action plan Status as of March 31, 2013
Determine which legacy systems should be subject to on-going monitoring of internal controls under the new SAP environment. Completed.
Update internal control documentation in the context of the new financial system (SAP) for the Financial close and reporting process. Completed.

Conduct operating effectiveness testing for the following processes:

  • Operating expenditures
  • Capital assets
  • Revenue and accounts receivable
  • SAP access control processes which are under NRCan’s management

Address new remediation actions identified.

Operating effectiveness testing completed and required remediation in progress for the following processes:

  • Capital assets
  • Revenues and receivables

Operating effectiveness testing completed and required remediation planned for the following processes:

  • Operating expenditures
  • SAP access control processes which are under NRCan’s management
Implement remediation actions resulting from assessments in previous fiscal years. Substantially completed.
Update the multi-year plan for on-going monitoring, as may be required. Completed.
Not applicable (not in the previous year’s action plan).

On-going monitoring activities for IT general controls:

  • Update to the documentation to reflect changes resulting from the transfer of responsibilities to SSC is completed.
  • Update to the documentation to incorporate key controls specific to the SAP compatible SSR application and design effectiveness testing are completed; required remediation is in progress.

4.2 Action plan for the next fiscal year and subsequent fiscal years

In 2012-2013, the Department completed operating effectiveness testing of its key control areas. The Department’s on-going monitoring plan, as shown in Tables 1 and 2 below, is based on risk and reviewed each year to take into account process changes and new risks.

Table 1: On-going monitoring – Rotational Operating Effectiveness Testing Plan
Key control areas Note 1 2013-2014 2014-2015 2015-2016
Financial close and reporting.
Repayable contributions.
Grants and Contributions (standard).
Operating expenditures.
Payroll and benefits (see also table 2).
Capital assets.
Entity level controls.
Revenues and accounts receivable.
IT general controls under departmental management (see also table 2).
Environmental liabilities.
Loans (see also table 2).
Offshore royalty revenues and corresponding statutory transfers (see also table 2).
Testing of remediation actions that consist of reviews and which were implemented in the previous fiscal year.
Table 2: Other on-going monitoring activities planned for fiscal year 2013-2014
Key control areas Activity
Payroll and Benefits Update the internal control documentation to reflect the transfer of pay services to the Public Service Pay Centre of PWGSC.
IT general controls under departmental management Update documentation and design effectiveness testing to reflect new controls relevant to ICFR (e.g. pay interface between PeopleSoft and the Regional Pay System, legacy systems remaining under the SAP environment and new application).
Loans Update the internal control documentation to add further details and reflect changes in program responsibilities.
Offshore royalty revenues and corresponding statutory transfers Update internal control documentation to add new controls.
Remediation actions Implement required remediation actions.

Note 1: The business process and IT General Controls specific to the ecoENERGY RETROFIT – Homes grant program are no longer in scope; the program was not renewed past fiscal year 2011-2012.

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