Policy on Commitment Control, Account Verification and Payment Requisitioning

For questions or comments, please contact us :
NC-CFOB-Financial_Policy_Questions_Politique_Financière-GD

Last revision: June 2011
This document last modified: January 2013

Table of Contents

Context

1. Policy Objective
2. Policy Statement
3. Application
4. Policy Requirements
   4.1 Expenditure Initiation
   4.2 Commitment Authority and Commitment Control
   4.3 Account Verification
   4.4 Payment Requisitioning
5. Roles and Responsibilities
   5.1 Expenditure Initiation
   5.2 Commitment Control
   5.3 Account Verification
   5.4 Payment Authority
6. Delegations of Authority
   6.1 Delegation of Authorities Instrument
   6.2 Training Requirements
7. Monitoring and Compliance
   7.1 Monitoring
   7.2 Duty to Accommodate
8. Definitions
9. References
10. Appendix A – Expenditure Management Practices and Controls
11. Appendix B - Guidelines and Best Practices

Context

Parliament and Canadians expect public funds to be well managed with the prudent stewardship of public spending, the safeguarding of public assets and the effective, efficient and economical use of public resources. They also expect integrity, accountability and transparency for how the government spends public funds to achieve results for Canadians.

To meet those expectations, the Treasury Board (TB) Policy on Internal Control requires that departments have in place an effective risk-based system of internal control. It assigns deputy heads and chief financial officers the responsibility for ensuring that risks relating to the stewardship of public resources are adequately managed. This encompasses the effectiveness and efficiency of programs, operations and resource management, including safeguarding of assets; the reliability of financial reporting; and compliance with legislation and delegated authorities.

The departmental Policy on Commitment Control, Account Verification and Payment Requisitioning supports the objective of the TB Policy on Internal Control by outlining the Chief Financial Officer role and responsibilities geared at ensuring that appropriate measures are in place to maintain an effective system of internal controls over financial management in the department. It also emphasizes the key principles of effective financial management provided in the TB Policy Framework for Financial Management, that is, value for money, accountability, transparency and risk management.

Overall, this policy ensures that managers exercise expenditure initiation and commitment controls; that responsible risk based account verification processes are in place; and that payments are properly authorized and legal in accordance with sections 32, 33 and 34 of the Financial Administration Act (FAA).

1. Policy Objective

To ensure that appropriate financial and operational management controls are applied in the spending of public funds, with clear accountabilities, effective commitment control, robust risk based account verification processes; and payments are made in an accurate, timely, properly authorized and legal manner.

2. Policy Statement

It is departmental policy to ensure that spending is managed appropriately, based on the right authority and to pay on the due date, and within approved levels of funding, accounts that have been verified as legitimate obligations of the department in accordance with sections 32, 34 and 33 of the FAA. This is done by ensuring that:

2.1

Spending authority is managed in a manner that maintains effective commitment control so that budget allocations or appropriations ceilings are not exceeded;

2.2

All accounts for payment and settlement are verified in a risk-based cost-effective and efficient manner and in accordance with section 34 of the FAA;

2.3

All payments, settlements and other charges against the Consolidated Revenue Fund are properly authorized, timely, accurate and fulfil legitimate obligations of the government in accordance with section 33 of the FAA;

2.4

Financial Systems information used for expenditure recording and decision making is readily available, accurate, reliable and timely; and

2.5

Accountabilities and responsibilities for financial management of departmental spending are clearly defined and exercised.

3. Application

This Policy applies to all accounts for payment and settlement subject to sections 32, 34 and 33 of the FAA within Human Resources and Skills Development Canada (hereinafter referred to as HRSDC, the “Department” or “Departmental”). Where accounts have their own legislation (Employment Insurance, Canada Pension Plan, Old Age Security), these legislations take precedence.

4. Policy Requirements

4.1 Expenditure Initiation

4.1.1

The TB Directive on Expenditure Initiation and Commitment Control requires that managers exercise expenditure initiation to ensure that the department does not exceed the appropriation authorized by Parliament or allotment limits approved by TB. Expenditure initiation is the authority to incur expenditure or make an obligation to obtain goods or services that will result in the eventual expenditure of funds.

4.1.2

Responsibility centre (RC) managers must be delegated expenditure initiation authority to ensure they have authority and accountability commensurate to their budgetary responsibility. In a centralized environment, expenditure initiation may be delegated to functional experts such as personnel officers or purchasing agents at RHQ, in processing centers or in cost managed pools. However functional experts may only exercise expenditure initiation authority on behalf of the manager with budgetary responsibility and at the manager’s request.

4.1.3

When exercising expenditure initiation, the following requirements shall apply:

• Expenditure initiation must be authorized in writing and transmitted in a manner that allows for an appropriate audit trail back the originator.
• All contractual arrangements requiring a cash outlay must be authorized by an officer with delegated expenditure initiation authority prior to exercising transaction authority.
• Commitment amounts must be posted in the department management system prior to entering into contracts or other arrangements
• Exceptions to this process include unforeseeable events such as emergency health and paramedic services

4.2 Commitment Authority and Commitment Control

4.2.1

Commitment authority, pursuant to section 32(1) of the FAA, is exercised in accordance with the departmental Delegation of Authorities Instrument.

4.2.2

In accordance with section 32 of the FAA, contracts, requisitions, orders or other arrangements are entered into only if sufficient unencumbered balances are available in the relevant appropriation account (allotment) to discharge any debts incurred under such commitments.

4.2.3

Commitment control is an important management practice that is integral to sound budget control, forecasting and allocation and reallocation of program resources and is applied to all types of transactions governed by section 32 of the FAA such as operating, salary, grant and contribution and statutory transactions. This includes:

• Using the department financial system to record, maintain and report on commitment transactions.
• Recording hard commitments at the time of expenditure initiation unless soft commitments of the same amount were previously recorded for those transactions.
• Ensuring all payments have a corresponding commitment and are recorded promptly and accurately in the system. Commitment amounts of more than $200 must be posted in the department financial system before ordering goods and services or signing a contractual document. This $200 threshold applies to operating and maintenance expenses only and may not be exercised with respect to payments of grants and contributions.
• Updating changes of salary levels in the system as soon as practicable. Commitments related to transfers of salary expenditures between RCs such as secondments, deployments, assignments and transfers of positions/staff must be processed as soon as they become effective.

4.2.4

When applicable, commitments will be established for future years 1, 2 and 3 and will not exceed the most recently approved Annual Reference Level Update (ARLU) or responsibility centre manager’s budget or directorate level budget.

4.3 Account Verification

The TB Directive on Account Verification requires that departments establish responsible account verification processes that maintain sound stewardship of financial resources. It assigns to the Chief Financial Officer the responsibility to develop risk based management practices and controls over account verification. This provides a means to ensure, prior to payment issue, that the work has been performed, the goods supplied or the services rendered, relevant contract or agreement terms and conditions have been met, the transaction is accurate, and all authorities have been complied with. As required by theFAA, all payments and settlements are to be verified and certified pursuant to section 34.

4.3.1

Responsibility Centre managers or officers with delegated authority for section 34 of the FAA shall ensure that account verification is performed in accordance with the TB Directive on Account Verification by confirming and certifying the following:

• The work has been performed, the goods supplied or the services rendered;
• the terms and conditions of the contract or agreement have been met and the prices claimed are in accordance with the order or contract; or, if in an exceptional circumstance the price is not specified in the contract or agreement, that it is reasonable;
• Advance payments meet the requirements of the TB Directive on Payment Requisitioning and Cheque Control;
• The transaction is accurate and the payment is not a duplicate, discounts have been deducted and charges not payable removed;
• The payee is entitled to or eligible for the payment;
• The proper financial coding is identified on the requisition and is accurate;
• All relevant statutes, regulations, orders in council, policies and directives and other legal obligations have been complied with; and
• The supporting documentation is complete and allows maintenance of an audit trail.

4.3.2

Officers who have been delegated certification authority pursuant to section 34 of the FAA must certify the transactions which have met the requirements at 4.3.1 by signing the payment claim or requisition for payment with “Certified pursuant to section 34 of the Financial Administration Act”.

4.3.3

There may be exceptional circumstances where, in accordance with section 6.3.4 of TB Directive on Account Verification, account verification of transactions can be completed after the payment has been made. The application of this provision requires prior written approval of the Director General, Integrated Corporate Accounting & Accountability Directorate (ICAAD) and will only apply to specific types of recurring O&M transactions as determined by the DG ICAAD.

4.3.4

Section 6.3 of the TB Directive on Account Verification stipulates that quality assurance processes used to assess the adequacy of the account verification system must be tailored to reflect the risk level of the transactions and requires that high risk transactions be subjected to a review of all relevant aspects of the transaction. However a sample review of low and medium risk transactions is sufficient to determine the adequacy of the account verification process.

4.3.5

In accordance with 4.3.4, all high risk transactions must be subjected to a full review of the transaction. However medium and low risk transactions may be reviewed based on a sampling methodology but must be part of a formal departmental risk assessment framework.

4.4 Payment Requisitioning

The TB Directive on Payment Requisitioning and Cheque Control outlines the responsibilities of financial officers in administering all payments requisitioned against the Consolidated Revenue Fund and requires sound risk management and efficient processes based on clear accountabilities.

4.4.1

All requisitions for payment or settlement must be certified by a financial officer who has been delegated payment authority pursuant to section 33 of the FAA. Section 33 of the FAA pertains to the delegation of authority to requisition and charge payments to appropriations and requires assurance that a payment:

• Is a lawful charge against the appropriation;
• Will not result in an expenditure in excess of the appropriation;
• Will not reduce the balance in the appropriation to a level where there would not be sufficient funds left to meet previous commitments.

4.4.2

Section 33 may only be exercised after section 34 certification has been carried out.

4.4.3

Except for priority payments and pay transactions which may be completed in the regions, section 33 is carried out at NHQ by an authorized financial officer on batched requisition listings which are forwarded to PWGSC for cheque issuing.

4.4.4

Prior to certifying payment authority, financial officers with delegated payment authority pursuant to section 33 of the FAA are responsible for ensuring that transactions submitted for payment meet the requirements the TB Directive on Payment Requisitioning and Cheque Control. This includes ensuring that:

• The payment is a legal charge against the appropriation and there is a sufficient cash balance to discharge the payment and other commitments;
• Suppliers of good and services are paid on the due date in accordance with section 6.3. of the Directive;
• Interdepartmental settlements are processed accurately using the Receiver General Standard Payment System (SPS);
• Advance payments, refunds of revenues and repayments of receipts are verified and certified and recorded in accordance with sections 6.2 and 6.5 of the Directive.
• Assignment of crown debts are done in accordance with the Assignment of Crown Debt Regulations pursuant to sections 69 (1) of the FAA and with the Receiver General Directive 2009-3 - Procedures Respecting the Assignment of Crown Debts and their Subsequent Payment.
• Rigorous internal controls and safeguards are used at cheque print sites and applied when issuing priority payments;
• Section 34 certification has been carried out and the limits of delegated authorities have been respected; and
• There is auditable evidence demonstrating that account verification has taken place and has been certified by the appropriate delegated signing authority.

5. Roles and Responsibilities

In the Canadian federal government, Deputy heads, as accounting officers, have always had the responsibility to ensure that internal controls are regularly reviewed in the context of risk and that those internal controls are balanced against and proportional to the risks which they mitigate. In this context, the CFO supports the deputy head by establishing and maintaining a system of internal control related to financial management. Other senior departmental managers establish and maintain a system of internal control for their areas of responsibility and within the departmental system of internal control.

The TB Policy on Financial Management Governance sets out the responsibilities with respect to financial management governance and capabilities thereby providing deputy heads with a clear outline of what they can expect of their Chief Financial Officer (CFO) and senior departmental managers.

The CFO has overall responsibility for:

• Providing the deputy head with reasonable assurance that appropriate measures are taken to maintain an effective system of internal controls and that processes are in place to ensure the effectiveness of departmental financial management;
• Establishing risk-based management practices and communicating clear responsibilities for holders of positions with delegated financial authorities, and monitoring adherence to these responsibilities;
• Providing functional guidance and leadership, direction and advice to managers across the department on matters of financial management;
• Ensuring that robust risk-based account verification procedures are in place, in compliance with the FAA;
• Being the primary contact point with the Office of the Comptroller General of Canada and Treasury Board Secretariat on all departmental financial resource management matters, including all departmental financial information preparation, reporting and disclosure matters.

With regard to department expenditure management process the CFO is also responsible for:

• Establishing standardized procedures to ensure that commitments are controlled and accounted for and that records pertaining to them are maintained, according to section 32 of the FAA;
• Determining the extent of verification required by individuals responsible for certifying payments and settlements under section 33 and 34 of the FAA;
• Defining the responsibilities of financial officers for the quality assurance of the adequacy of the account verification process;
• Documenting and communicating account verification management practices and controls to individuals and financial officers responsible for certifying payments and settlements;
• Ensuring that persons exercising delegated authority for sections 33 and 34 of the FAA do so in accordance with the requirements on separation of duties found in the TB Directive on Delegation of Financial Authorities for Disbursement;
• Determining that the required training has been provided as specified in the TB Policy on Learning, Training and Development and in the Directive on the Administration of Required Training;
• Approving and reviewing on a regular basis sampling plans that have been selected by financial officers while conducting their quality assurance and verification responsibilities;
• Ensuring effective internal control over the financial management of payment requisitioning and cheque control; and
• Taking corrective measures with regard to gaps in performance or non-compliance.

5.1 Expenditure Initiation

5.1.1

The RC Manager or delegate is responsible for authorizing in writing all expenditures initiated to the RC budget.

5.1.2

The RC Manager is responsible for ensuring that commitments and expenditures do not exceed their approved budgetary authority.

5.1.3

The RC Manager or a delegate with expenditure initiation authority is responsible for exercising expenditure initiation on all O&M contracts for the RC in accordance with the departmental Delegation of Authority Instrument.

5.1.4

Program officials with the required level of delegated authority for approving proposals and signing agreements must approve and sign transfer payments entered into by the department.

5.1.5

Functional experts such as human resources officers, purchasing agents with transaction authority, or finance officers with expenditure initiation authority in cost managed pools and centers of excellence may initiate expenditures against a manager’s RC. However, they can only exercise this authority at the request of and on behalf of the responsibility centre manager unless they are managing their own budget.

5.2 Commitment Control

5.2.1

The Chief Financial Officer is responsible for the development, implementation and maintenance of the systems used to effect commitment control.

5.2.2

The Regional Senior Financial officer is responsible for the development and promulgation of regional commitment control procedures and practices.

5.2.3

The responsibility for ensuring that all expenditures charged against commitments in the RC budget are initiated processed and closed in a timely and accurate manner lies with the RC Manager. This includes:

• Verifying funding availability in RC and Transfer Payments Programs budgets prior to submitting projects for approval;
• Committing funds within the approved budgetary limits and recording commitments in the system in a timely manner; and
• Reviewing RC commitments periodically and regularly to confirm that the recorded value of the outstanding commitments is still valid.

5.3 Account Verification

5.3.1

Officers with delegated authority to certify price and performance under section 34 the FAA must ensure that all expenses are verified prior to their certification. As such they are personally responsible for the quality of work done (either by themselves or by designated staff on their behalf) on the verification of each individual account rendered for payment.

5.3.2

They have an ongoing responsibility for ensuring that the account verification process provides auditable evidence of verification, including identification of the various employees who performed each verification.

5.3.3

RC and Processing Centre Managers must ensure that account verification officers have the appropriate training for the task, and that their work is properly supervised and periodically checked.

5.4 Payment Authority

5.4.1

Responsibility for ensuring the system of account verification is adequate and meets the departmental internal and financial controls requirements rests with financial officers who have delegated payment authority pursuant to section 33 of the FAA.

5.4.2

Integrated Accounting & Accountability Directorate (ICAAD) at NHQ is responsible for ensuring the overall quality, efficiency and effectiveness of the departmental account verification processes in support of section 33 of the FAA. This includes establishing sound sampling plans and cost-effective practices based on the risk level of payment transactions.

5.4.3

As part of their obligations, and in accordance with the requirements of the TB Directive on Account Verification, Integrated Accounting & Accountability Directorate (ICAAD) have overall responsibility for the certification of payments issued pursuant to section 33 of the FAA. This includes:

• Establishment of cost effective and efficient accounting procedures and processes for accounts payable;
• When exercising payment authority, ensuring that all high risk transactions are subjected to a full review of the transaction;
• Maintenance of records to ensure that appropriation limits are not exceeded; and
• Ensuring that the system for Section 34 account verification is adequate and that the frequency and magnitude of errors are within acceptable tolerance levels.

6. Delegations of Authority

The TB Directive on Delegation of Financial Authorities for Disbursements sets out specific requirements for the delegation of financial authorities under sections 33 and 34 of the FAA and the Chief Financial Officer's responsibilities for establishing internal controls for delegations of financial authority regarding the expenditure process. These requirements are outlined in the departmental Policy on the Delegation of Financial Signing Authorities and Specimen Signatures.The following requirements apply:

6.1 Delegation of Authorities Instrument

6.1.1

Financial authorities for sections 32, 34 and 33 must be assigned and managed in a manner that clearly demonstrates responsibility and accountability, in accordance with the department Delegation of Authorities Instrument.

6.1.2

Persons who are delegated authority to make decisions may be delegated either spending or payment authority, but usually not both. However, in small establishments, this distinction is not always possible, especially when an officer is assigned responsibilities as an alternate for another officer or when a financial officer administers a budget. In such circumstances, it may be necessary to delegate both types of authority to a single officer. Whenever this is done, the officer will never exercise both types of authority on the same payment.

6.1.3

Where applicable, both O&M and Grants and Contributions (G&C) sections on the department specimen signature card must be completed prior to exercising any financial signing authority. This includes any restrictions to the authority areas and dollar levels indicated for a given position in the Delegation of Authority Instrument. Further information on the completion of specimen signature card is provided in Appendix D of the departmental Policy on the Delegation of Financial Signing Authorities and Specimen Signatures.

6.2 Training Requirements

6.2.1

The TB Policy on Learning, Training and Development and accompanying Directive on the Administration of Required Training require that before any individual exercises a delegated authority, they must have successfully completed the assessments and training commensurate with their responsibilities to ensure they have the knowledge, skills and competencies needed to effectively exercise delegated signing authorities and carry out their duties.

6.2.2

Contact information pertaining to required training on financial delegations is provided in the department Policy on the Delegation of Financial Signing Authorities and Specimen Signatures.

7. Monitoring and Compliance

7.1 Monitoring

The TB Policy on Financial Management Governance assigns to the CFO the responsibility for providing leadership and oversight on the proper application and monitoring of financial management across the department. To ensure continued accountability, appropriate control measures and risk management, monitoring functions are assigned as follows.

7.1.1

To support the financial officer’s responsibility for certification in accordance with section 33 of the FAA, the Regional Financial Services Director / Manager is responsible for ensuring that budget management control is performed in RHQ;

7.1.2

To ensure the adequacy of the account verification procedures, both Regions and NHQ are required to conduct periodical reviews of system transactions (including on site reviews of reference source documents against data in the system);

7.1.3

The Quality Assurance Monitoring Unit at NHQ is responsible for assessing the overall program integrity of grant and contribution (G&C) activities by performing quality assurance reviews and financial monitoring of G&C projects;

7.1.4

Financial Policy and Training at NHQ is responsible for monitoring departmental compliance to this policy and providing policy support to managers.

7.2 Duty to Accommodate

This policy must be applied in conjunction with the Treasury Board Policy on the Duty to Accommodate Persons with Disabilities in the Federal Public Service.

8. Definitions

Advance payment - A payment made by or on behalf of Her Majesty under the terms of a contract before the completion of the work, delivery of the goods or rendering of the service.

Allotment - Divisions of appropriations authorized by the Treasury Board for control purposes.

Annual Reference Level Update (ARLU) - Updates the department’s approved levels of resources for the upcoming fiscal year and two subsequent years by document departmental resource reallocations and other budget decisions, such as TB submissions.

Appropriation – (in reference to commitment control) - Is defined in section 2 of the FAA as any authority of Parliament to pay money out of the Consolidated Revenue Fund (CRF).

Certification authority - Is the authority, according to section 34 of the FAA to certify, before payment, contract performance and price, entitlement or eligibility for the payment.

Commitment - Is a pledge or agreement to pay a sum of money at a future date.

Commitment authority - Is the authority to carry out one or more specific functions related to the control of financial commitments as required in the Directive on Expenditure Initiation and Commitment Control.

Commitment Control - Is an established procedures that prevent an organization from entering into a contract or any other arrangement that provides for a payment unless there is enough money available in that year's appropriation to discharge the debt that is incurred during that fiscal year.

Commitment Document: A document such as a purchase order, purchase requisition, service contract, service order, travel authority and advance, or a detail of estimated commitments, used to record the details and amounts of individual commitments.

Commitment Verification: A review process undertaken to ensure that commitment documents meet all commitment control requirements. The process occurs prior to Local Office Approval for input to the CMS.

Continuing commitments - Are commitments that will require a series of payments or settlement actions over an indeterminate period of time. An example is the obligation to make monthly payments for telephone service.

Contract – “government contract" means a contract, other than a contract for government employment as defined in Article 23 of the Agreement, between the Government and a party other than Government or any other government for procurement of goods or services, and includes contracts for the supply of goods, construction contracts, contracts for the supply of services, and leases.

Contribution - a conditional transfer payment to an individual or organization for a specified purpose pursuant to a contribution agreement that is subject to being accounted for and audited.

Contractual Arrangements - Requisitions or procurement instruments (PIs), Call-ups against a Standing Offer, Local Purchase Orders, Tasking raised against a contract, goods and services contracts, Interdepartmental Agreements, Interdepartmental Letter of Agreement (ILAs), Memorandum of Understanding (MOUs) - Grants and contributions agreements and loans arrangements; employment letters of offer, etc.

Expenditures - Charges to budgetary appropriations which affect the deficit or surplus of the Government. Such charges include operational and capital expenditures for work performed, goods received, services rendered, transfer (grants and contributions and statutory) payments incurred, and expenditures internal to the Government.

Expenditure Initiation Authority: - Is the authority to incur an expenditure or to make an obligation to obtain goods or services that will result in the eventual expenditure of funds. This includes the decision to hire staff, to order supplies or services, to authorize travel, relocation or hospitality or to enter into some other arrangement for program purposes.

Expenditure Pre-Audit - A series of analytic and survey actions that must be undertaken by Financial Services to ensure compliance with requirements and financial control mechanisms prior to payment of the claim or requisition.

Financial Officer – A person who has been trained and appointed to administer financial functions and duties, above the clerical level, regardless of his or her formal job classification. For example, a person that is classified in personnel administration (PE) can carry out the role of a financial officer if he or she has the requisite education and training.

Grant – a transfer payment made to an individual or organization which is not subject to being accounted for or audited but for which eligibility and entitlement may be verified or for which the recipient may need to meet pre-conditions

Hard commitment - Is a commitment recorded once expenditure initiation has occurred but before a contract is signed.

Interdepartmental settlement (IS) - A transfer of funds between any two departments or agencies that operate within the Consolidated Revenue Fund. An IS is commonly used as settlement for the transfer of goods or services, funding of a department to operate a program on behalf of another department, the transfer of employee payroll deductions to the Canada Revenue Agency, or for employees transferred or loaned to another department.

Management practices and controls - Are policies, processes, procedures and systems that enable a department to operate its programs and activities, use its resources effectively, exercise sound stewardship, fulfill its obligations and achieve its objectives.

Payment on due date - Suppliers of goods and services must be paid on the due date, in accordance with the contract, as specified by a standard payment term, 30 days from receipt of an invoice or acceptance of the goods or service, whichever is later. Exceptions include those granted under section 6.3 of TB Directive on Payment Requisitioning and Cheque Control.

Post Payment Verification - Process under which account verification may be completed after the payment has been made, providing the claim for payment is considered reasonable; pursuant to section 6.3.4 of the TB Directive on Account Verification. The requirement to certify section 34 prior to the certification of section 33 remains.

Processing Centre - Any central location where accounts payable transactions are forwarded by local offices for centralized processing E.g. RHQ or cost processing pool.

RC Manager - An individual with delegated authority to initiate budgetary expenditures against a specific allocation within an appropriation and responsible for taking ownership of all related commitments, including following through with their processing, adjusting, and closing.

Requisition for Payment: finance forms used to request issuance of payment - in Canadian or foreign funds - to suppliers (e.g. FIN 2865, advance and payment claim).

Risk – the element of uncertainty in an undertaking measured by its potential impact and its likelihood of happening:
High Risk: includes highly sensitive transactions, that are considered highly error prone and where an error in payment is non-recoverable, or payments which are subject to interpretation or which involve payments of very large dollar amounts.
Low Risk: transactions with the following characteristics would be considered low risk: transactions that are not sensitive in nature, have little or no potential financial loss associated with them, or have a low error rate with a low dollar value impact of error (typically low to medium dollar value and recoverable).
Medium Risk: transactions not considered either high risk or low risk. These transactions are less sensitive in nature and have less significant financial impact, but they may still cause problems and inconvenience in the short tem and potential consequences are sufficiently serious to warrant appropriate consideration.

Soft commitment - Is a commitment recorded, prior to expenditure initiation, based on foreseen or forecasted expenditures.

Spending authority - Consists of three elements: expenditure initiation authority, commitment authority and transaction authority.

Standard payment system (SPS) - The PWGSC system for processing Receiver General payments including payments issued by cheque and by electronic methodologies such as direct deposit.

Transfer payment - Is a monetary payment, or a transfer of goods, services or assets made, on the basis of an appropriation, to a third party, including a Crown corporation, that does not result in the acquisition by the Government of Canada of any goods, services or assets. Transfer payments are categorized as grants, contributions and other transfer payments. Transfer payments do not include investments, loans or loan guarantees.

Transaction authority - Is the authority to enter into contracts, including acquisition card purchases, or sign-off on legal entitlements (e.g. employment insurance payments.

9. References

HRSDC:

• Delegations of Authority Manual, Special Financial Authorities, Operating and Maintenance (O&M), Grants and Contributions
• Policy on the Delegation of Financial Signing Authorities and Specimen Signatures
• Chief Financial Officer Grants and Contributions Policy
• Financial Records Retention Policy
• Payment Instruments Policy

Legislation

• Financial Administration Act, Sections 32, 33, 34
• Payments and Settlements Requisitioning Regulations
• Government Contracts Regulations
• Repayment of Receipts Regulations
• Assignment of Crown Debt Regulations

Treasury Board:

• Policy Framework for Financial Management
• Policy on Internal Control
• Policy on Financial Management Governance
• Contracting Policy
• Policy on Electronic Authorization and Authentication
• Policy on Learning, Training, and Development
• Directive on Account Verification
• Directive on Delegation of Financial Authorities for Disbursements
• Directive on Expenditure Initiation and Commitment Control
• Directive on Payment Requisitioning and Cheque Control
• Directive on the Stewardship of Financial Management Systems
• Directive on the Administration of Required Training
• Directive on Financial Management of Pay Administration
• Policy on the Duty to Accommodate Persons with Disabilities in the Federal Public Service

10. Appendix A – Expenditure Management Practices and Controls

A sound system of internal controls requires that financial information input and output from program and central systems provide accurate, reliable, accessible and timely financial information. To that aim, paper based expenditure transactions are entered into the system for validation of the commitment, verification and pre-audit data, and system approval before financial authorities are exercised.

10.1 System access

The RC manager or designated delegate is responsible for requesting system access for the RC employees. Access to the departmental systems is managed by the Information Services and Project Unit, CFOB at NHQ and by the security coordinator or equivalent in the regions.

10.2 Data Capture

Data entry and system approval of transactions can be decentralized to individual RCs or centralized at RHQ /NHQ. Auditable evidence of the identification of the individuals performing data input must always be available (e.g. user code / password / disk for electronic trail or initial / signature on hardcopy of payment document).

10.3 Expenditure Pre-Audit

10.3.1

Expenditure pre-audit is an internal process which provides further assurance that a payment transaction is in compliance with the TB Directive on Account Verification and departmental policies before a payment claim or expenditure document is approved in the departmental systems. As such, pre-audit constitutes the last step of the account verification process and is performed after certification of section 34, but before system approval. At this stage, a transaction is reviewed to ensure that:

• It is mathematically correct;
• Data inputted into the system corresponds to the hardcopy document on file;
• The required supporting documentation was provided and is complete; and
• There is auditable evidence of verification and section 34 certification appears on the payment document

10.3.2

The designated officer in the RC or processing centre must sign the approved payment claim to indicate that the pre-audit has been performed and is accurate.

10.4 System Approval and Regional Financial Verification (RHQ)

10.4.1

System approval provides the opportunity for a last quality assurance review of a transaction before forwarding it to Accounting Operations for batch certification pursuant to section 33 of the FAA. Officers responsible for approving the transaction in the system must ensure that their user code and password are properly safeguarded, that the account verification process has been adequately documented and that a clear trail exists for audit or post-payment verification purposes.

10.4.2

Regional Financial Officers are responsible for reviewing payment transactions for reasonableness and for budgetary control. System functionality permits regional staff to flag, review and approve individual transactions based on pre-set criteria or to allow transactions to proceed without individual review (e.g. dollar value, payment type, limits of delegation authority).

10.5 Supporting Documentation

The TB Directive on Account Verification requires the provision of auditable evidence of verification and completeness of documentation provided in support of requisitions for payments.

10.5.1

For the purpose of verification and record retention, both original invoices and invoices sent by electronic means (i.e. via e-mails or faxes) are acceptable. Where a contract or other arrangement is silent on whether an invoice could be faxed or not, and if there is no reason to believe that the invoice has not been sent by the contractor, an electronic invoice should be treated as valid.

10.5.2

Faxed documents with section 34 certification are also acceptable for payment processing, provided the original is retained at the originating office or in a central office in the event of a court proceeding or an audit.

10.5.3

Terms and conditions of contracts issued pursuant to the Government Contracts Regulations and TB Contracting Policyshould be formulated in writing, but may either be provided in the form of hard copy documents, facsimile copies or other electronic means in accordance with section 12.1.2 of TB Contracting Policy.

10.5.4

Grants and contributions payment claims, signed agreements and other supporting documentation that have been sent electronically constitute an acceptable form of documentation.

10.5.5

Where the requirements of the individual policies or regulations dictate the use of originals, their requirements shall take precedence over this policy.

10.5.6

Financial records shall be retained and kept for a minimum period of six fiscal years in accordance with the department Financial Records Retention Policy.

10.6 Reconciliation

Each month a reconciliation of financial reports must be performed and all necessary corrections reflected in the departmental management system.

10.6.1

Regional office budgets must be reconciled to corporate budget authorizations on a monthly basis.

10.6.2

Cash ceilings in the system must be reconciled to NHQ cash releases on a monthly basis.

10.6.3

All corrective action must be inputted to the corporate system.

10.7 Segregation of Duties

10.7.1

To ensure an adequate internal control mechanism, section 6.3.1 of the TB Directive on Delegation of Financial Authorities for Disbursements specifies that the four following functions should be kept separate when responsibility is assigned to individuals involved in the expenditure process; or alternate controls need to be implemented and documented:

• Authority to enter into a contract (transaction authority);
• Certification of the receipt of goods and provision of services and the provision of services pursuant to section 34 of the Financial Administration Act (certification authority);
• Determination of entitlement, verification of accounts and preparation of requisitions for payment or settlement according to section 34 of the Financial Administration Act (certification authority); and
• Certification of requisitions for payment or settlement pursuant to section 33 of the Financial Administration Act (payment authority).

10.7.2

Persons with delegated authority may not exercise certification authority and payment authority on the same payment;

10.7.3

Persons with delegated authority may not exercise spending, certification or payment authority for an expenditure from which they can directly or indirectly benefit (e.g., when the payee is the individual with financial signing authority or when the expenditure is incurred for the benefit of that individual).

10.7.4

Whenever feasible, the same person should not recommend and approve a new grant or contribution agreement, or renew an existing one. This minimizes the potential for bias which may arise from having a single individual select, approve and sign an agreement. To avoid real or perceived conflicts of interest, there must be an arm's-length relationship between the individuals involved in the recommendation, approval and signing processes.

10.7.5

System functionality prevents the same person from inputting and approving the same transaction i.e. two different persons/user codes are needed. To ensure the integrity of the verification process, officers responsible for data entry and approval in the system must maintain this division of responsibilities and keep their access codes private.

11. Appendix B - Guidelines and Best Practices

11.1 Expenditure adjustments between Responsibility Centers

Pursuant to Section 34 of the FAA, the TB Directive on Account Verification requires that no payment must be issued unless a person with delegated authority certifies contract performance and price.

11.1.1

Budgetary transfers of funds or expenditure adjustments between RCs (which do not need the issuance of a payment or for which a payment has previously been made) do not require a new certification under section 34 of the FAA because the related operation is an administrative accounting entry to adjust a budget or an expense which has previously received a section 34 certification. Examples include the correction of data entry errors or salary adjustments where the salary expense has already been paid to an employee. However, the following requirements apply:

• To maintain accountability, RC managers should approve transfers of funds for their respective RC budgets;
• Approval from the RC manager, or designate with expenditure initiation delegation, in the RC which budget is being debited should be provided to ensure the RC manager has authorized the deduction from his/her budget;
• The receiving RC should acknowledge the transaction in writing; and
• Both RCs need to keep a copy of the documents on file to maintain records of funds received and issued, and related commitment adjustments.

11.1.2

This process does not apply to permanent budgetary reallocations, loans between RCs or to transfers from non-salary to salary. At the minimum those transfers should be authorized by the roll-up RC and are processed through Financial Management Advisory Services in accordance with the Branch ADM approval process.

11.1.3

This section also does not apply to transfers between appropriations which are subject to parliamentary approval via the Main or Supplementary Estimates.

11.1.4

To ensure adequate budget control and the completeness of budgetary information, all budgetary adjustments should be made against the related commitments. Where necessary a manual commitment may be created to that effect.

11.2 Recording Commitments

The departmental financial system is used to centrally record commitment transactions and to ensure that commitments are made within the approved limits. Officers with delegated payment authority use these records to meet their responsibility, under Section 33(3) (c) of the FAA, to ensure that the balance of an appropriation will not be reduced to the point where it is insufficient to meet all the commitments charged against it. CMS transaction approval of a financial commitment indicates that sufficient funds are available. CMS also generates a unique commitment identifier, maintains and archives accurate records, and creates an audit trail.

11.2.1

Commitments should be established individually in the system. Bulk or continuing commitments may be created for recurring expenditures which it is administratively inefficient to commit on an individual basis. This type of commitment is often adjusted during the course of the year as specific requirements become known. Bulk commitments include items such as telephone charges, paging systems and Government Telecommunications Agency services.

11.2.2

For grants and contributions, prior to submitting a project proposal for approval, Program management must ensure there are sufficient funds available in the free balance of the Transfer Payment Program to discharge the project expenses expected to be incurred during the current fiscal year.

11.3 Reviewing and Adjusting Commitments – Manager’s role

11.3.1

Responsibility Centre Managers are encouraged to maximize the use of the commitment accounting system. However, to ensure the flexibility of budgetary re-allocations between RCs, managers should not allocate their entire budget at the start of the fiscal year. intentions to enter into arrangements at some future unknown date should not be recorded as commitment as this may reduce the quality and usefulness of the commitment accounting information used to support the decision making process.

11.3.2

Good business practices mandate that outstanding commitments are reviewed periodically and regularly throughout the year to verify that the recorded value of outstanding commitments is still valid and accurate. Amounts no longer required should be de-committed as soon as known.

11.3.3

Responsibility centre managers should be aware that outstanding current year commitment amounts, in conjunction with identified future year amounts, will be carried over automatically as part of year-end system processing. Prudent management practice suggests that responsibility managers should review carried over amounts prior to the closing of the old year accounting period in accordance with regional or NHQ year-end procedures and schedules.

11.4 Use of Standard Forms

RC Managers should ensure that transactions are processed in accordance with departmental procedures and documented on the appropriate forms (e.g. hospitality, training, memberships, G&Cs). This serves to preserve the consistency and transparency of the processes.