Financial Consumer Agency of Canada

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Financial highlights

The Financial Consumer Agency of Canada is a federal government agency that is funded mostly through industry assessments paid by federally regulated financial entities.

In its 2008 budget, the Government of Canada had proposed to contribute to the Agency up to $2 million per year on an ongoing basis as of fiscal year 2008–09. FCAC is entitled to receive a parliamentary appropriation as authorized under section 13(3) of the Financial Consumer Agency of Canada Act. The funding is to support efforts to improve financial literacy in Canada.

Total expenses for fiscal year 2010–11 were $11,662,332, representing an increase of about $780,000 or 7.2 percent compared to fiscal year 2009–10. The following key points explain this increase:

Human resources costs were about $984,000 higher in 2010–11 than in the previous year. This rise was driven by normal economic increase and merit increases in employee compensation, the addition of new employees in 2010–11, and the full-year impact of new hires from 2009–10.

Professional services expenses decreased by approximately $455,000, primarily because in 2009–10 there was a larger number of marketing and communications activities and campaigns undertaken than in 2010–11.

Information technology costs increased by $187,000 due to contracting of resources for two key initiatives: Web renewal, and the Information Technology Strategic Direction and Implementation Roadmap.

Facilities costs increased by about $74,000, largely due to leasing of additional space on a temporary basis to accommodate a larger staff complement.

Travel costs decreased by approximately $47,000, due to more targeted travel activities. This in turn allowed FCAC to be well below the Treasury Board travel cap.

Interest charges increased by approximately $31,000 from 2009–10 because the lending rate in 2010–11 was approximately 1.2 percent higher. In addition, the Agency needed to borrow funds sooner in the year to fund operations expenditures.

From its inception, the Agency has been guided by the management principle that it should concentrate on delivering the programs called for in its legislation. We have therefore opted to use common and/or shared services to provide generic corporate services when it is cost-effective to do so. As a result, FCAC's cost structure may vary from that of other federal organizations. The expenses related to common and/or shared services are listed under Professional Services instead of Human Resources costs if the services were provided by internal staff.

Strategic management partnerships continue to give the Agency the flexibility needed to manage evolving programs as cost-effectively and efficiently as possible.

Future Accounting Changes

Transition to International Financial Reporting Standards

In February 2008, the Canadian Institute of Chartered Accountants' (CICA) Canadian Accounting Standards Board confirmed that publicly accountable entities will be required to adopt International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. In December 2009, the Public Sector Accounting Board provided guidance to other government organizations, such as FCAC, to determine their most appropriate basis of accounting between IFRS and the Public Sector Accounting Handbook.

Some of the primary users of FCAC's annual report and the general-purpose financial statements contained therein are regulated financial entities—that is, the paying stakeholders—and their respective industry associations. These institutions will adopt IFRS effective 2011. FCAC has therefore decided to adopt IFRS so that it may continue to provide relevant, reliable, comparable and understandable financial information to its paying stakeholders.

As part of its transition to IFRS, FCAC has established a formal project governance structure, with oversight by a steering committee consisting of management from the areas of accounting and finance, information technology, and business operations. Regular updates on the status and progress of the IFRS conversion plan are also presented to FCAC's Executive Committee and its Audit Committee.

FCAC has chosen to approach the conversion in five phases:

• diagnostic assessment;
• design and planning;
• assessment, design and development;
• implementation; and
• post-implementation review.

During fiscal year 2010–2011, FCAC completed Phase 4.

FCAC continues to monitor the development of standards as issued by the International Accounting Standards Board and CICA's Accounting Standards Board, as well as the Public Sector Accounting Board.

While the final quantitative impact of converting to IFRS cannot be confirmed at this time, the following section provides a preliminary assessment of how the adoption of IFRS will affect FCAC's Balance Sheet as at April 1, 2010 (FCAC's date of transition to IFRS).

Impact of adoption of International Financial Reporting Standards

FCAC's transition to IFRS is expected to result in a net decrease of $46,000 in its Equity of Canada. The key components of this amount and their respective impacts are as follows:

Employee benefits (FUTURE—SEVERANCE BENEFITS)

On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits, and is actuarially determined as at March 31 of each year.

Actuarial gains or losses arise as a result of changes in the value of the accrued benefit obligation due to differences between expectations and actual experience, as well as because of changes in actuarial assumptions. Upon transition to IFRS on April 1, 2010, FCAC plans to immediately recognize in Comprehensive Income all actuarial gains or losses as they occur. The impact of this policy change is twofold:

• Recognition, as a part of opening Equity of Canada, of all unrecognized actuarial gains and losses as at April 1, 2010. It is expected that this change will reduce FCAC's Employee Future Benefits balance by approximately $24,000.
  
  
• Thereafter, recognition into Comprehensive Income of actuarial gains or losses as they occur.

Employee benefits (OTHER—SICK Leave)

An FCAC employee earns sick leave credits at a rate of 1.25 days for each calendar month in which the employee receives pay for at least 75 hours. An employee's unused sick leave balance is carried forward until the employee departs from FCAC, at which point any unused balance cannot be redeemed for pay and FCAC's liability lapses. The plan is an accumulating, non-vesting benefit under IFRS. Accordingly, FCAC is required to record a liability for the portion of the unused sick leave that it estimates, based on experience, will be used in the future. As at April 1, 2010, this liability was estimated to be $70,000.

Financial Instruments

Adoption of IFRS requires changes to the way FCAC calculates its provision for doubtful accounts. As at April 1, 2010, this new methodology was estimated to result in no change to FCAC's Allowance for Doubtful Accounts because of the minimal receivable balance at that date.

Estimated Impact on 2011–2012 Operating Results

The above-noted changes to FCAC's accounting policies will affect FCAC's 2011–2012 operating results. However, the overall impact is not expected to be material.

Future changes to IFRS

International Financial Reporting Standard 1 requires that the accounting policies used by FCAC in the opening IFRS balance sheet be based upon IFRS, effective as at March 31, 2012. FCAC will monitor International Accounting Standards Board developments to ensure that the impacts of any potential or actual changes to IFRS are appropriately considered in its changeover plan.

Training and communications requirements

FCAC has informed external stakeholders and key internal staff of the relevant modifications to the accounting and reporting of financial results ensuing from its transition to IFRS. Training seminars on relevant IFRS standards and their potential impact were provided to key FCAC personnel and will continue to be provided as changes to IFRS occur.

FCAC's IFRS Changeover Plan: Assessment as at March 31, 2011

Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting (UNAUDITED)

Fiscal Year 2010–2011

Preface

With the new 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 systems of ICFR, establish action plans to address any necessary adjustments, and attach to their Statements of Management Responsibility a summary of their assessment results and action plans.

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; and
  
  
• applicable laws, regulations and policies are complied with.

It is important to note that the system of ICFR is not designed to eliminate all risks, but rather to mitigate risk 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 ongoing process to identify key risks, to assess the effectiveness of associated key controls and adjust as required, as well as to monitor the system in support of continuous improvement. As a result, the scope, pace and status of those departmental assessments of the effectiveness of their system of ICFR will vary from one organization to another based on risks and their unique circumstances.

1. Introduction

1.1. Authority, Mandate and Program Activities

The Financial Consumer Agency of Canada (FCAC) was established to consolidate and strengthen oversight of consumer protection measures in the federally regulated financial sector, and to expand consumer education and financial literacy activities so that Canadians have the appropriate information and financial skills they need to make informed financial decisions and actively participate in and strengthen the financial sector. In July 2010, FCAC was also tasked with the oversight of payment card network operators and their commercial practices.

As a federal regulatory agency, FCAC is responsible for:

• ensuring that the market conduct of federally regulated financial entities complies with federal legislation and regulations;
  
  
• promoting the adoption of policies and procedures designed to implement legislation, regulations, voluntary codes of conduct and public commitments by federally regulated financial entities;
  
  
• monitoring federally regulated financial entities' compliance with voluntary codes of conduct and their own public commitments;
  
  
• informing consumers about their rights and responsibilities when dealing with financial entities and about the obligations of payment card network operators to consumers and merchants;
  
  
• providing timely and objective information and tools to help consumers understand, and shop for, a variety of financial products and services; and
  
  
• monitoring and evaluating trends and emerging issues that may have an impact on consumers of financial products and services.

FCAC's mandate supports a fair and secure marketplace.

Primary to FCAC's mandate and central to its contribution to Canada's financial marketplace are two strategic outcomes:

1. The rights and interests of financial consumers are respected.
   
   
2. Financial consumers understand their rights and responsibilities and make informed financial decisions.

Further details regarding FCAC's strategic outcomes, strategic priorities and Program Activity Architecture are available in the Annual Report and the Business Plan.

1.2. Financial Highlights

Below is key financial information for fiscal year 2010–2011. FCAC's audited financial statements for fiscal year 2010–2011.

• FCAC fully recovered all of its expenses for the fiscal year 2010–2011 through various revenue streams.
  
  
• Total expenses were $11.7 million, representing an increase of $780,200 or 7.2% from 2009–2010, which includes expenditures of $1.8 million related to the Financial Literacy Program. The Financial Literacy Program is funded through appropriations.
  
  
• Human resources costs rose by $983,600 or 17.2% as a result of staffing related to FCAC's expanded mandate (i.e. research function), vacant positions that were filled, and normal economic and merit increases. This was partly offset by a reduction of $454,900 in professional services.

1.3. Service Arrangements Relevant to Financial Statements

FCAC relies on other organizations for the processing of certain transactions that are recorded in its financial statements:

Common Arrangements

• Public Works and Government Services Canada (PWGSC) centrally administers the payment of salaries and the procurement of some goods and services, as per FCAC's delegation of authority. In addition, several service-level agreements with PWGSC are in place for information technology and information management services.
  
  
• Treasury Board of Canada Secretariat (TBS) provides FCAC with information used to calculate various accruals and allowances, such as FCAC employee benefits.
  
  
• The Department of Justice Canada provides legal services to FCAC.

Specific Arrangements

• The Office of the Superintendent of Financial Institutions (OSFI) provides financial, human resources, internal audit and research services to FCAC.
  
  
• The Canada Deposit Insurance Corporation provides call centre administration services to FCAC.
  

1.4. Material Changes in Fiscal Year 2010–2011

No significant agency changes that are relevant to the financial statements occurred in 2010–2011.

2. FCAC's Control Environment Relevant to ICFR

FCAC recognizes the importance of setting the tone from the top to help ensure that staff at all levels understand their roles in maintaining effective systems and processes of ICFR. FCAC's focus is to ensure risks are managed well through a proactive and responsive, risk-based control environment that enables continuous improvement and innovation.

Through its memoranda of understanding with the Office of the Superintendent of Financial Institutions with respect to financial services and audit services, FCAC is supported in the development and implementation of ICFR. Accordingly, the Director, Internal Audit Services of OSFI or a designate will attend Audit Committee meetings. In addition, the Director of Finance of OSFI and a representative from the Office of the Auditor General of Canada are also present, as pertinent.

FCAC's main entity-level controls currently in place and relevant to ICFR are set out below.

2.1. Governance

Commissioner (Deputy Head)—As the Accounting Officer, the Commissioner assumes overall responsibility and leadership for the stewardship, management and oversight of the Agency's resources and for the measures taken to maintain an effective system and processes of internal control. In this role, the Commissioner chairs the Management Committee and the Audit Committee.

Deputy Commissioner—FCAC's Deputy Commissioner supports the Commissioner in delivering FCAC's mandate, and is responsible for maintaining and reviewing effectiveness of systems and processes of ICFR falling within FCAC.

The Deputy Commissioner is FCAC's Chief Financial Officer (CFO). The CFO is responsible for financial matters, including risk assessment over financial reporting. The CFO is supported by the Director of Corporate Services, who is Deputy Chief Financial Officer. The latter holds a professional accounting designation.

Audit Committee—FCAC established its Departmental Audit Committee (AC) in January 2005. The AC is chaired by the Commissioner. The Management Committee meets to fulfill the Audit Committee mandate on a quarterly basis, with authority to convene additional meetings, as circumstances require.

In 2010–2011, the AC met three times, providing advice on governance, risk management and control.

In December 2009, the Commissioner indicated her intent to work with the Small Departments and Agencies (SDA) Audit Committee (AC) once the SDA AC Committee felt it would be ready to do so.

2.2. Key Measures Taken by FCAC

The control environment is an important factor for ICFR. FCAC's control environment incorporates a series of measures to equip its staff to manage risks through raising awareness, providing appropriate knowledge and tools, as well as developing skills. Key measures taken include:

• a Statement of Values and a Code of Conduct;
  
  
• a Conflict of Interest Policy;
  
  
• participation in the OSFI–FCAC joint ICFR Steering Committee to remain abreast of key ICFR issues;
  
  
• training programs and communications in core areas of financial management;
  
  
• a regularly updated matrix of delegated financial authorities; and
  
  
• documentation of main business processes and related key risks and control points to support the management and oversight of FCAC's system of ICFR.

3. Assessment of FCAC's System of ICFR

3.1. Assessment Baseline

Since March 31, 2002, FCAC's financial statements are audited annually by the Office of the Auditor General. To enable control-based audits rather than substantive audits, FCAC, through its financial services provider, has undertaken a program of documentation of business processes, information flows and internal controls. In 2009, Treasury Board issued the Policy on Internal Control. As a result, FCAC has further formalized its approach to managing its systems of ICFR.

Whether it is to support the control-based audit requirements or those of the Policy on Internal Control, an effective system of ICFR has the objectives to provide reasonable assurance that:

• transactions are appropriately authorized;
  
  
• financial records are properly maintained;
  
  
• assets are safeguarded; and
  
  
• applicable laws, regulations and policies are complied with.

Over time, this includes assessments of design and operating effectiveness of the system of ICFR, ensuring the ongoing monitoring and continuous improvement of the Agency's system of ICFR.

Design effectiveness means that key control points are identified, documented and in place, and are aligned with the risks (i.e. controls are balanced with and proportionate to the risks they aim to mitigate) and that any remediation is addressed.This includes the mapping of key processes and IT systems to the main accounts by location as applicable.[¹]

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

3.2. Assessment Method at FCAC

Due to the size of FCAC, the nature of its business and risks, and building on business cycle / internal control documentation already completed for audited financial statements, FCAC determined that the major business cycles driving the financial statement accounts include:

• Revenue (Base Assessments, Appropriations);
  
  
• Expenses;
  
  
• Payroll;
  
  
• Financial Reporting; and
  
  
• Budgeting and Forecasting.

For each cycle, where OSFI is the service provider, the following steps have been completed:

• gathering information pertaining to processes and locations, risks and controls relevant to ICFR, including appropriate policies and procedures;
  
  
• mapping key processes, with the identification and documentation of key risks and control points on the basis of materiality, volumes, linkage to compliance documents, complexity, and susceptibility to losses/frauds; and
  
  
• testing the effectiveness of the design of the system of ICFR.

FCAC also documented and assessed its entity (corporate) level controls.

4. FCAC's Assessment Results

In assessing its key controls, FCAC focused on design effectiveness, which is the prerequisite to testing operating effectiveness.

4.1. Design Effectiveness of Entity-Level Controls

As at year end 2010–2011, FCAC completed the design assessment and operational effectiveness of the entity-level controls. The following recommendations were provided to improve the entity-level controls.

• Employees should annually confirm their compliance with FCAC policies.
  
  
• FCAC should document the risk of fraud at a more detailed level, which would identify the specific areas of risk and related mitigating strategies.
  
  
• FCAC should document annually the ongoing review of the existing service-level agreements with PWGSC and memoranda of understanding with OSFI.
  
  
• FCAC should complete the assessment and documentation of key business processes as a tool to document, identify and monitor key risks and related controls.

5. FCAC's Action Plan

5.1. Progress as at March 31, 2011

During 2010–2011, FCAC continued to make significant progress in assessing and improving its key controls. Below is a summary of the major progress made:

FCAC has completed work to address the following items:

• A financial risk assessment for internal controls over financial reporting.
  
  
• A review and documentation of entity-level controls concerning the control environment, risk assessment, information and communications, and monitoring activities.
  
  
• An operational assessment of FCAC's entity-level controls.

5.2. Action Plan for the Next Fiscal Year and Future Years

By the end of fiscal year 2011–2012, FCAC plans to:

• develop and implement an action plan to address the recommendations stemming from the entity-level design control assessment;
  
  
• complete the design assessment of FCAC's specific key controls surrounding FCAC's transactional key business processes (FCAC will rely on OSFI for the common controls surrounding key transactional business processes); and
  
  
• develop its multi-year risk-based monitoring strategy.

Date Modified:

2011-10-11