Rescinded [2010-01-01] - Financial Systems and Controls

Departmental financial systems shall be designed, maintained, and operated so as to provide information to Public Works and Government Services on a timely and accurate basis.
Date modified: 1996-10-01

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1. Directives and Guidelines

1.1 Directives

  1. Departmental financial systems shall be designed, maintained, and operated so as to provide to Public Works and Government Services on a timely and accurate basis, the information required for the discharge of its Receiver General responsibilities relating to the Consolidated Revenue Fund and the accounts of Canada.
  2. Departments shall establish and maintain adequate controls within their systems to ensure the completeness, accuracy, and authority of all financial information and of all other information that forms the basis for calculation of financial information or is used for management control and accountability.
  3. Departments shall ensure that suitably qualified financial personnel are directly involved in all phases of development of financial administrative systems and in the definition of controls within program-related systems.
  4. Departments are required to reconcile on a monthly basis the cash accounting information in its principal accounting system with the Central Accounts kept by the Receiver General for Canada.

1.2 Guidelines

  1. Properly authorized journal vouchers or requisitions for payment by cheque, interdepartmental settlement advice, or other payment instrument should be forwarded promptly and directly to the appropriate office of Public Works and Government Services, thereby expediting the processing of transactions.
  2. Where cost-effective, departmental systems should be integrated with each other and interface with Receiver General systems to avoid duplication of effort and to ensure the completeness and consistency of all data reported.
  3. Departmental financial systems should be designed to permit the periodic entry and reporting of information on undischarged commitments so that officers exercising financial signing authorities may know the amounts of undischarged commitments and free balances for each appropriation and allotment.
  4. Departmental financial systems should be designed to provide timely, accurate, and meaningful information on the activity elements involved in carrying out departmental programs. Accrual information should be entered into financial systems where necessary, in order to meet this objective.
  5. Departments should investigate the use of existing financial systems of Public Works and Government Services, other government departments, or commercial suppliers before considering the development of new financial systems.
  6. Departments should ascertain, before any major revision to a financial system is implemented or before any major new financial application is made operational, that adequate security features exist and that the internal controls have been examined and found adequate by qualified auditors who are independent of the suppliers and users of the system.
  7. When a separate service organization is responsible for a departmental financial system, or an element of such a system, the department being serviced should take whatever steps necessary to ensure the adequacy of the system, its operating environment, and its products.
  8. For all significant systems projects, departments should apply the standards for management and control of EDP projects or their equivalent.

2. Introduction

  1. This chapter is devoted to the practical application of accounting principles and standards for control in departments and agencies and includes:
    • a description of accounting systems in the Government of Canada;
    • practices for accounting for expenditures on a cash, commitment, accrual, and cost basis;
    • practices to be applied in establishing and maintaining a chart of accounts; and
    • the controls required to ensure the completeness, accuracy, and authority of financial records.

2.1 Definitions

  1. For the purposes of this chapter the following terms are defined:

    Financial systems (systèmes financiers) - are systems through which financial information is used to account for the operations of an organization, to control its assets and liabilities, and to exercise management control and accountability. These systems encompass both financial administrative systems and program-related financial systems.

    Financial administrative systems (systèmes d'administration financière) - are those financial systems which the financial element of an organization uses to meet its responsibility for financial administration.

    Program-related financial systems (systèmes financiers à l'appui de programmes) - are those financial systems which the program managers of an organization use to meet their responsibilities as program managers.

    Program-related systems (systèmes à l'appui de programmes) - are those systems which are required for the operational or technical needs of a program and which are the primary responsibility of the program managers of an organization.

  2. Responsibility for accounting in the Government of Canada is divided. Some responsibilities are allocated to the Receiver General; others are allocated to individual departments and agencies; and Treasury Board has authority to prescribe the manner and form of the accounts of Canada and of departmental accounts.
  3. Departments are responsible for establishing and maintaining adequate systems to account for, control, and report on financial, human, and physical resources within their purview. These systems include not only the main departmental accounting system and related subsidiary systems but all systems directly or indirectly linked with the authorization and recording of expenditures, the collection and recording of revenue, the accounting for custody and use of physical assets and the collection, recording, and reporting of financial or related non-financial information used in evaluating the efficiency of departmental projects and programs.
  4. The adequacy of these systems is a matter of judgement, and therefore each situation should be assessed individually. Departments are expected to ascertain the adequacy of security and internal controls before any major new system is implemented and to periodically re-evaluate these systems as to their adequacy. Such appraisals should be performed by qualified persons independent of the suppliers and users of the system. As a minimum, a system must be maintained to satisfy the requirements of the Financial Administration Act and all other acts that may be applicable, the policies and regulations of Treasury Board, and the requirements of the Receiver General.

3. Financial Systems

This section describes the Receiver General systems, the central accounts, the departmental reporting services provided on a service basis by Public Works and Government Services, and departmental financial systems.

3.1 Receiver General Systems

  1. Public Works and Government Services maintains a central accounting system to discharge the Receiver General's responsibilities relating to receipts into and expenditures out of the Consolidated Revenue Fund and relating to the publication of the Public Accounts of Canada, as well as to enable it to provide accounting services to departments.
  2. In this central system, accounting data, both aggregate and detailed, are assembled at one central location, where information may be identified and extracted according to the diverse needs of individual users in departments and central agencies. Computers are used extensively to assist in assembling and processing the accounting detail, and the central pool of information, or data bank, is held on magnetic files. This system is supported by several subsystems that either assemble accounting data from various sources or process information extracted from the data bank.
  3. The data bank approach may best be illustrated by comparison with the alternative approach of consolidation accounting. Consolidation accounting requires that each department or operating unit maintain a completely independent set of accounting records, and that reports on the government as a whole be prepared by consolidating information generated and reported by the individual accounting systems. Consolidation accounting also requires that each independent set of records be reconcilable to the Central System. A few departments have developed accounting systems that are largely independent of the central system. These impose special problems and cause some duplication of effort because transactions must be separately input to the central system and to the departmental system, and departmental accounts must be reconciled with the central accounts. To avoid these problems, departments are encouraged to develop interfaces with the central system in order that data may be exchanged in machine-readable form.

3.1.1 Cheque issue system

  1. Public Works and Government Services maintains a network of services offices across Canada, each having the capacity and authority to issue cheques for the Receiver General. All departments must prepare, authorize, and submit payment requisitions to services offices in accordance with the Policy on Payment Requisitioning (Chapter 2-6) of the Comptrollership Volume, Treasury Board Manual. Technical specifications have been developed by Public Works and Government Services to permit machine-readable input of accounting data associated with payment requisitions.
  2. Services offices are located in the National Capital region, in close proximity to the departments that they serve, and in provincial capitals and other principal cities in Canada. Each office is assigned a unique series of cheques, and cheque requisitions are forwarded to a services office for processing through computerized cheque issue and accounting routines. However, cheques that are urgently required can be manually issued. The related cheque issue and accounting information is transmitted daily in machine-readable form by electronic means to the central data bank in Ottawa.
  3. Services offices are responsible for:
    • verifying the authority of cheque requisitions;
    • controlling unused cheques;
    • preparing, signing, and issuing cheques;
    • recording cheques issued; and
    • entering cheque issue information in the central accounting system.
  4. There are minor deviations to these generalized procedures for payroll cheques, payments in foreign currencies, cheque cancellations, payments by money order, and interdepartmental settlement advices.
  5. There are standard procedures for the redemption of all cheques issued by Public Works and Government Services. Chartered banks present all Receiver General cheques which they have honoured each day to the Bank of Canada and its agencies, and on the same day the bank reimburses the chartered banks. On the following day, the Receiver General reimburses the Bank of Canada and the paid cheques are delivered to Public Works and Government Services, where all Receiver General bank accounts are reconciled.

3.1.2 Non cheque-issue accounting system

Non cheque-issue accounting transactions include receipts and transactions recorded on journal vouchers and interdepartmental settlement advices. The procedures for entering these transactions in the central accounting system are similar to the cheque issue procedures, except that they are input to the accounting routines only and not to the cheque issue routines. Each transaction must be properly authorized and submitted to a services office in accordance with appropriate control procedures for encoding and input to the main accounting system.

3.1.3 Government of Canada accounting data bank

  1. The data bank is a collection of magnetic files that includes all accounting transactions input to the central accounting system. These files are available for access by the central computers.
  2. Accounting information is received at the data bank by a variety of means. Regional services offices transmit data electronically; centralized cheque issue and pay systems provide magnetic tapes; and some special types of information, received directly from departments, may arrive on magnetic tapes, punched cards, or even on source documents requiring encoding. Transactions are assembled daily and merged weekly to produce cash statements.
  3. Each individual accounting transaction is recorded in the data bank and is identified by a series of code numbers that include departmental accounting codes on the original source document, code numbers assigned by accounting and local services offices during the batching process, and any coding imposed by computer routines. The coding structure is standard, but it can be adapted to meet the specific requirements of each department. Through a series of specially designed control files that interpret the coding attached to transactions, a user of the system, whether it is a department or a central agency, may specify what data are to be selected from the data bank and the format, sequence, amount of detail, and totals in which they are to be reported.

3.2 Central Accounts (Accounts of Canada)

  1. The central accounts are maintained by the Receiver General in accordance with statutory responsibilities, one account for each appropriation as voted by Parliament and one account for each asset, liability, and reserve. The accounts are prepared by extracting from the data bank all transactions with source codes that identify cash receipts, expenditures, and transfers between appropriations. They provide the information that is reported in the monthly Statement of Financial Operations and annually in the Public Accounts.
  2. Specialized accounting reports are prepared in the same way to meet the needs of such organizations as the Department of Finance, the Bank of Canada, and Statistics Canada for information on the government as a whole.

3.3 Departmental Reporting Services of Public Works and Government Services

  1. The departmental financial reporting services provided by Public Works and Government Services are a by-product of its cheque issue function and are based upon the data in the central accounting system data bank of the Government of Canada.
  2. Primary responsibility for using the available services rests with client departments. Public Works and Government Services is willing to advise client departments on their service needs and on accounting, reporting, and contracting practices.
  3. The financial reports produced by the central accounting system generally include only cash transactions. Many departments have therefore developed supplementary accounting systems to provide reports that include additional information, such as accruals, commitments, detailed cost information, budgets, or variance analysis. This information can then be submitted to Public Works and Government Services to be included on management reports designed for this purpose.
  4. Departmental financial officers must develop their own accounting controls on the basis of a thorough understanding of the services being provided to their departments by the departmental reporting services of Public Works and Government Services.

3.3.1 Interface with the central accounting system

Where computerized departmental accounting systems exist, every effort should be made to develop interfaces with the central accounting system. This involves submitting data to Public Works and Government Services on magnetic tape or some other machine-readable medium in a form that can be accepted by the central system. Conversely, data may be provided by Public Works and Government Services in a form acceptable to departmental systems.

3.3.2 Use of control accounts

  1. A control account is an account in one accounting system whose balance at any point in time is equal to the total of the balances of all the detailed accounts in a subsidiary system. In well-designed computer, mechanical, and manual accounting systems the accounting entries of a subsidiary system are simultaneously posted directly, or accumulated for subsequent posting in total, to the control account of the principal system. The use of the control account device provides a means of ensuring that the two systems are in agreement.
  2. The account maintained for each parliamentary appropriation in the central accounts of the government may be regarded as a control account that is supported by a number of detailed accounts in the departmental accounting system.
  3. Where there are subsidiary accounting systems for such items as accountable advances, inventories, accounts receivable, loans, interest, grants and contributions, securities on deposit, and imprest accounts, the principal accounting system should contain control accounts. For example, one account showing the value of inventories in stock that would be supported by detailed inventory records can be maintained in the departmental accounts. In some circumstances the subsidiary records may not be a normal accounting record but an open file of source documents, such as commitments or accounts receivable.

3.3.3 Reconciliation

  1. All control account balances should be independently and regularly agreed to the totals of balances in the subsidiary accounting systems. Specifically, each department is required to reconcile on a monthly basis the cash accounting information in its principal accounting system with the central accounts kept by the Receiver General for Canada. Generally, other control accounts should be reconciled monthly, but daily, weekly, quarterly, or even annual reconciliations may be appropriate in some circumstances. When the control accounts do not agree with the subsidiary system, the differences should be identified and corrected. Because reconciliations become increasingly difficult the longer they are postponed, they should all be regularly reviewed and approved by supervisory financial officers.
  2. Where computerized departmental accounting systems are used, each of the previously described machine-readable interchange available should be investigated to see if cost savings can be achieved through systems interface and integration.

3.3.4 Responsibility when service organizations are used

  1. When a departmental financial system, or some element of such a system, is designed or operated by a separate service organization, the department being serviced should take whatever steps are necessary to ensure the adequacy of the design, operating environment, and products of the system. This is not intended to be restrictive, because the use of common service organizations is frequently an efficient and economical alternative that should be encouraged. However, the department being serviced is ultimately responsible for the completeness, accuracy, and authority of its accounting records and must therefore assure itself that it has adequate means for assessing the reliability of the system and for performing the appropriate supplementary internal controls.
  2. When a department assigns elements of its accounting responsibilities to a service organization, such a delegation should be the subject of a written agreement, authorized by the senior financial officer of the department and specifying precisely what services are provided, at what cost, and what responsibilities are assumed by the service organization for accounting and internal control. Normally, the agreement should also specify the rights of the department being serviced to obtain information on:
    • the design and operation of the systems operated on its behalf by the servicing organization;
    • any amendments made to these systems; and
    • the results of independent audits of these systems.
  3. In some cases, it may be desirable for the department being serviced to insist on the right to conduct its own audit of systems operated by the servicing organization. For practical reasons, such a provision could not be included in agreements in which Public Works and Government Services is acting as the servicing organization. It should also be recognized that it may not be practical for Public Works and Government Services to obtain prior approval of clients for all systems amendments; nevertheless, client departments should be promptly informed of amendments as they occur, and they should be consulted before changes are made that may affect the content of the financial information they receive. It is the responsibility of senior financial officers in departments to take whatever steps are necessary, and retain a record of these, to satisfy themselves that agreements with servicing organizations are being adhered to and are adequate in relation to departmental systems and to the requirements of this volume.

4. Timing of Recording of Transactions

  1. In government, there are four basic methods of accounting that affect the time at which a transaction is recorded in the accounting system:
    • cash accounting. Accounting entries are made when funds are paid or received, or internal transactions are recorded.
    • commitment accounting. Accounting entries are made when a contract is entered into or an order is placed for goods or services; the entries record the amount to be reserved out of the unencumbered balance remaining in an allotment in order to honour the commitment.
    • accrual accounting. Accounting entries are made when goods or services are received; the entries record the receipt of the asset or service and the liability of the government to pay for these goods and services.
    • cost-based accounting. Accounting entries are made when goods or services are consumed; the entries record the cost of resources consumed in the accounting period in which the benefits are received.
  2. Both commitment and cash accounting are required by statute and form the basis of the traditional system of government accounting. Commitment accounting is required to ensure that departments anticipate their expenditures so as not to exceed appropriation and allotment ceilings, and cash accounting is required to meet Parliament's needs for complete, accurate, and informative data on the cash transactions of government.
  3. Though there is no statutory requirement that accrual and cost-based accounting be practised in government, departments should recognize that these methods of accounting may result in more useful reports for management than reports produced on a cash basis. Most definitions of accrual accounting incorporate the concept of cost-based accounting as it is described above. The distinction made in this guide between cost-based and accrual accounting is useful for government purposes because it separates conceptually the recording of accurate costs of resources consumed from the recording of assets and liabilities. The latter has less significance in government than in industry because a government's statement of assets and liabilities is not used to the same extent for financing purposes. Nevertheless, the recording of costs in a cost-based system is facilitated by accrual accounting because accrual accounting ensures that all transactions that have taken place in the period are reflected in the accounting system for inclusion in the period's costs when the related goods or services are consumed.

4.1 Cash Accounting

  1. Cash accounting is the principal method of accounting in the Government of Canada because it provides financial information in a form that is most appropriate for requirements of parliamentary control. For certain administrative agencies it also provides information that satisfies most requirements of managerial control. Since the appropriations of the Government of Canada are provided on a cash basis, departmental accounts must be maintained in the first instance on a cash basis.
  2. Because the Receiver General is responsible for receipts into and payments out of the Consolidated Revenue Fund, cash accounting information is readily available from the central accounting records of Public Works and Government Services. It is important for cash transactions to be processed promptly if the information obtained from these records is to reflect all transactions that have taken place in a department. Public Works and Government Services has offices accessible to most responsibility centres; transactions should go directly from the nearest financial office that has authority to requisition payments on behalf of the departmental responsibility centre to the nearest services office. This will result in more timely and useful financial reports, as well as in the prompt settlement of amounts owing to persons or companies rendering services to the government.
  3. When management has limited short-term control over costs, and unit costs do not need to be computed on a periodic basis, cash accounting systems will meet most managerial requirements, providing the system is functioning efficiently.

4.2 Commitment Accounting

  1. Deputy heads have a statutory responsibility to establish commitment control systems. Departments with excess commitment authority also have a responsibility for ensuring that total commitments for current and future fiscal years do not, at any point in time during the fiscal year, exceed the limit imposed by Parliament.
  2. While commitment accounting systems may be independent of the principal departmental accounting system, period-end data on commitments should normally be input for purposes of financial reporting. For departments that are using the departmental financial reporting services of Public Works and Government Services, totals of commitments can be input to the departmental reporting system and automatically reversed in the following month. Commitment information can then be included or excluded from any reports prepared according to specifications set by each department.
  3. The system may consist of an open file of commitment documents. One open file should be maintained for each subdivision for which allotment control is to be exercised. The total value of outstanding commitments in this file can be determined at any time by aggregating the documents in the files. There should be adequate accounting controls, such as sequential control of commitment documents or summary cards, to ensure the completeness, accuracy, and authority of the files.
  4. When particular commitments are outstanding for an extended period of time or when a continuing total of commitments is essential, as in the case of capital projects, it is normally preferable to supplement an open-file system with a simple ledger or journal that identifies the balance of each undischarged commitment and the total value of outstanding commitments.
  5. Commitment information must be readily available to officers who have spending authority and who take actions that will subsequently result in charges against the appropriation. The officers must be able to call for this information if there is any reason to believe that there is a possibility of reaching full commitment for any allotment.
  6. (f) The standards of completeness, accuracy, and authority applicable to all information in commitment records are the same as those applicable to any accounting system. Control procedures should be documented in the departmental financial manual accompanied by specific departmental policies on the timing and methods of recording particular types of commitments, such as operating expenses, salaries, capital expenditures, multi-year commitments, expenditures out of imprest accounts, advances, and grants and contributions.

4.3 Accrual Accounting

  1. Departmental accounting systems should be designed to permit accrual information to be entered into the accounting records wherever it is necessary to satisfy requirements for cost-based accounting.
  2. As explained previously, accrual accounting involves recording the receipt of an asset or service to identify the liability of the government. As usually defined, it also includes the deferring of expenses to obtain accurate identification of costs consumed during an accounting period. This aspect of accrual accounting is discussed separately in the next section under the heading of cost-based accounting.
  3. Accrual accounting lays the basis for an accurate matching, with respect to time, of accounting information with non-accounting information and of costs against output, performance data, or revenues. Its purpose is to record all transactions that have taken place during a specific period of time, regardless of the timing of cash payments or receipts.
  4. Because of the geographical dispersion of some departmental programs, prompt disbursement of cash is not always possible, and input of non-cash transactions may be required to record transactions pending cheque issue. Moreover, some accounts may be delayed because of discrepancies or because the information necessary for the payment to be approved is incomplete. Through accrual entries, the accounts can be adjusted to input transactions that would otherwise not have been reported through the normal cash accounting system. The extent to which accrual accounting is practised in any department must be determined by considering the additional cost of accrual practices as compared with potential benefits in terms of better cost data.
  5. Accrual accounting must be practised in a manner that does not interfere with the operation of the cash accounting system, since financial managers at both the central and departmental levels in government need complete, accurate, and current cash information if they are to manage cash appropriations effectively. This limitation should not be restrictive, because with the effective use of accounting techniques and financial reporting systems, departments are able to provide both cash accounting and accrual accounting information without conflict, duplication, or misinterpretation. The departmental reporting services of Public Works and Government Services enable financial reports to be prepared on both a cash and accrual basis, according to the needs of the client.
  6. Departmental accounting systems should be designed to ensure that accounting transactions that have received managerial approval as at the date of an accounting report are included in that report. This is a minimum standard for accrual accounting. If accounting or financial reports do not reflect transactions that an operating manager knows have taken place and have been reported to an accounting office, then the financial reports will not have credibility for the manager and, with some justification, will not be used. If there is a delay in obtaining financial authorization or if the transaction cannot be processed through the cheque issue system in sufficient time, an accrual entry is required and should be input by financial staff as soon as the delay is recognized.
  7. Departmental accounting systems should be designed to enable accruals to be recorded for goods or services that have been received or provided by the department and for which payment will occur in the future, even though an invoice or statement may not have been issued. This standard should be applied to those individual responsibility centres in a department where the result of a time difference between the date on which the goods or services are received and the date on which managerial approval is granted is likely to have a significant effect on the content or usefulness of financial reports. If one transaction is significant in amount the standard may be applied on an exception basis; if an accumulation of routine transactions is significant in amount it should be applied on a continuing basis to ensure the completeness and accuracy of the information reported.
  8. Techniques for accrual accounting are described in Appendix A.

4.4 Cost-based Accounting

  1. Departmental accounting systems should be designed to provide accurate, periodic cost information on the various activity elements involved in carrying out departmental programs. A cost-based accounting system must be integrated with the primary cash accounting system of a department to ensure the completeness of the cost information and to minimize duplication.
  2. Costs cannot be overlooked in arriving at decisions in government. With the increasing delegation of financial authority to managers at lower levels and the growing emphasis on performance of managers in attaining program objectives, there is need for consistently prepared, reliable, and timely cost information to account for the consequences of decisions. Cost information can also be used as a basis for preparing future plans and budgets; as a means of controlling, measuring, or comparing current operations; as a basis for benefit-cost analysis and make or buy decisions; and as a means of determining revenue charges. To monitor the performance of managers, periodic cost information should be available on the basic components of departmental operations, such as individual projects, tasks, services, and products.
  3. Cost-based accounting involves choosing from among a combination of accounting techniques and methods within the constraints of certain conventions to produce cost information that is useful to management. There are many ways of computing costs, and the term accurate cost has meaning only when the selected techniques, methods, and conventions are known. Those who are responsible for preparing cost information must understand the uses to which the data may be put to ensure that the cost information is not misleading. Similarly, those who use cost information must have a knowledge of the basis on which it was computed. Costs have no intrinsic value; their usefulness depends wholly upon the action that management is able to take in the light of the information they reveal. For example, if cost information is to be used to support a make or buy decision involving an entirely new operation of government, it is desirable to include all appropriate overhead in the costs, whereas if the make or buy decision involves an existing government operation, sunk costs should be ignored. It is important to include only those costs which are relevant to management decisions or to actions which may result.
  4. Consistent application of accounting conventions is of prime importance and is essential when cost information is to be used for comparing costs over a period of time or for comparing two or more alternatives at a given point in time. Frequently, a record of costs over a period of time, if established consistently, may be an extremely useful indicator to management even though, in absolute terms, the costs may not be complete.
  5. It is primarily the responsibility of financial officers to identify the needs for cost information in their departments, to suggest techniques that will satisfy these needs, and, with the concurrence of management, to implement those techniques. Operating managers will often recognize the need for cost information or its potential benefits and usefulness but they should not be expected to determine or apply the various techniques to obtain the information they require. However, no cost data should be developed without the full concurrence of the appropriate manager, who must know what costs are included, how accurately they are computed, the degree to which they can be meaningfully matched with non-financial information such as performance indicators, and any limitations. Moreover, the financial officer should normally seek to provide data that have the confidence of line management, and this can only be done by utilizing techniques that are based on sound, observable, objective data, most of which originate with the line manager.
  6. It is also the responsibility of the financial officer to support management by analyzing and interpreting cost information. This includes explaining variances in terms of price, volume, and efficiency, when this is practical.
  7. Techniques for allocating and identifying costs are described in Appendix B.

5. Mechanics of Coding Systems

  1. All departments must establish a chart of accounts that will enable financial information to be analysed in accordance with the object, authority, purpose, and responsibility structures of the department; with the needs of operating and financial managers for supplementary cost, asset, liability, or other financial information; and with the requirements of the central accounts or of central agencies. Other codes are also required to meet the needs of those responsible for processing accounting transactions. Public Works and Government Services Canada can provide better services to departments if the departments they service establish chart of accounts that follow a consistent pattern.
  2. The chart of accounts is the means by which each specific transaction is identified, with the accounting codes used to accumulate aggregate data in the accounting system. It therefore determines the information that can be obtained from the accounting records.

5.1 Description of Input Requirements

  1. The code required for input to the Central Accounts System include a portion that is set by Public Works and Government Services Canada and a portion that is set by individual departments.
  2. Certain standard codes are assigned on each accounting transaction through the batch control procedures of Public Works and Government Services Canada to ensure that cash and non-cash transactions are separately identified and that accounting trails are maintained on all transactions in the system. These codes identify the department, the local services office, the batch, and the source.
  3. Codes related to the chart of accounts are assigned by departments, which have each developed their own chart of accounts, with the numbering system and block format that they consider most appropriate, subject to the following restrictions:
    • the central accounting system must be able to identify the parliamentary appropriation, revenue, asset, or liability account (central account number) to which a transaction is to be charged or credited in the Accounts of Canada;
    • the departmental line objects or resource codes, which are the lowest level of analysis by object in each department, should be compatible with the economic, source, or class objects, which are the lowest level of analysis by object for the government as a whole;
    • the activity element shall be compatible with;
    • the coding fields must be arranged in a prescribed sequence;
    • the total number of digits in any one field must not exceed 9; and
    • the total number of digits in the coding block must not exceed 25.
  4. Within these limits, each department has developed a chart of accounts and a coding block that normally identify the following (see Chapter 5-1 of the Comptrollership volume of the Treasury Board Manual):
    • the parliamentary appropriation, Treasury Board allotment, or revenue, asset, or liability account (the authority);
    • the organizational unit to which the transaction should properly be charged or credited (the responsibility centre or the cost centre);
    • the activity element or the lowest level of sub-activity to which the transaction should properly be charged or credited (the purpose);
    • the nature of the goods or services acquired or transfer payments made, the source of revenue received, or the cause of increase or decrease to financial claims and obligations (the object); and
    • the cost element, cost account, operation, project, process, element, task, item, job, committee, geographical region, consumer or product group, individual, or any other particular analysis that may be appropriate and that does not constitute an activity, a responsibility or cost centre, or an object of expenditure (optional codes).

5.2 Use of Collator Codes

  1. The use of collator numbers is a useful method of simplifying the task of coding accounting documents, increasing the flexibility of the coding system, and reducing the possibility for error. Within any single responsibility centre, most of the digits in the expenditure coding classification tend to be the same for all transactions. For example, all expenditures generally have the same codes for the program, parliamentary vote, responsibility centre, activity, and first level of sub-activity. Any one of these fields of information can be up to 9 digits in length, but they collectively total 12 digits for most departments. If a collator code is used, one collator number of 4 or 5 digits can be substituted for the 12 digits when coding transactions. Later, during electronic processing, the collator code can be interpreted to impose the full chart of accounts on each transaction exactly as if the detailed coding were assigned on each input document.
  2. There are many advantages to using collator codes:
    • The amount of manual coding required on each source document is reduced and simplified; errors are less likely to occur in departments when the codes are assigned to source documents, and in computer centres when data are converted by encoding to computer input.
    • Certain inconsistencies that frequently arise through undetected coding errors are eliminated, as for example, when activity totals do not agree with responsibility totals within the same responsibility centre.
    • Collator codes can be established in a sequence that facilitates use by clerical personnel and operating managers in a responsibility centre and frees them from any need to acquire a knowledge of the complete departmental chart of accounts.
    • Collator codes facilitate the editing of input data during computer processing because if a collator is valid, the imposed coding will also be valid, and the majority of invalid items will be rejected at the first stage in the processing rather than at several stages as a transaction is processed through a variety of computer routines.
    • The departmental coding that may be input to Public Works and Government Services Canada is restricted to a maximum of 25 digits. Where necessary, with the use of collators, this can be increased during processing by at least 50 digits. This facility permits a substantial amount of special financial or cost analysis to be performed.
  3. If collators are used, each responsibility centre will usually require one collator for each of the lowest levels of sub-activity in which it participates and when required, one collator for each revenue, asset, and liability account.

5.3 Circulation of Chart of Accounts

  1. All departments should fully document the chart of accounts in a comprehensive coding manual that should be a part of the departmental financial manual. The manual should explain the use and significance of each field in the departmental coding block; should explain any special action or unusual treatment required with any contra, asset, or suspense account; and should list all the valid codes for the department, with adequate narrative descriptions of each code so that the manual may serve as an authoritative reference for all financial and other officers using the chart of accounts. At least one copy of this manual should be available for reference in each office where coding is performed.
  2. The manual should be supplemented with a chart of accounts tailored to each responsibility centre to provide a simple and ready reference of all codes likely to be required by each responsibility centre manager and clerk performing a coding function. All supplementary lists should refer to the manual for advice on unusual transactions.
  3. Special procedures are required to ensure that the departmental coding manual and the list of other codes are up to date and that participants, including personnel and purchasing units, are advised of all amendments. Each page of the coding manual and the list should be given an effective date, and the coding manual should be updated at least annually.

5.4 Uniform Departmental Coding Block

While there is no requirement that all departments use a uniform coding block, departments should cooperate with Public Works and Government Services Canada in eliminating unnecessary variations. By using collator codes effectively, each department should be able to fulfil its own requirements for a unique chart of accounts, but within a standard coding structure.

6. Controls in Financial Systems

  1. All systems that collect, record, and report financial or related non-financial information must include controls to ensure the integrity of the information in the system.
  2. Controls must be an integral part of a system to ensure that all transactions are entered and processed accurately, and that only properly authorized information will be accepted by the system. The standards of accuracy and authority required for financial transaction data apply equally to operational data.
  3. To determine the adequacy of the controls a thorough assessment must be made of the contribution and significance of each control operating within the complete system, and in accordance with the significance of the information being processed, the potential for error, the materiality of errors that may ensue, and the cost of maintaining the required control.
  4. There are a number of well-established techniques of control that should be understood by all financial officers and personnel involved in developing and operating financial systems, for it is their responsibility to select the most suitable combination of controls for each system. Where part of the financial system is computerized, manual controls must be designed to complement electronic controls to ensure that there are no gaps, to avoid unnecessary duplication, and to maintain control as economically as possible.
  5. Evidence of the performance of each control is the only practical basis on which to ensure that controls are being maintained. A signature is the most desirable form of evidence of work performed, because it clearly designates who is assuming responsibility for each control function and is suitable at all levels of responsibility. A transaction should not be processed through one point in the system unless evidence is available that it has been processed through the previous stage. For example, evidence may be required that a transaction has been recorded in a subsidiary account, that the arithmetical accuracy has been checked, that certain data have been matched to another source, or that particular approvals have been obtained. Evidence should also be provided to supervisors and managers that certain of the non-processing controls are being maintained, or example, that required reconciliations and balancing procedures are being performed. Controls established electronically by a computer should also be evidenced through a combination of special print-outs to operators or users, and by periodic confirmation or testing of the programs involved.
  6. Errors can occur at all stages in a financial system. The types of errors that are likely to arise out of manual operations include errors in transcription of information from one document to another, errors in additions and calculations, errors in assigning accounting or other reference codes, omission or loss of transactions or of significant data on a transaction, and duplications. The types of errors which are likely to arise in a computer environment include mechanical errors, errors from electrical malfunctions, errors in computer programming, inaccuracies, duplication, or omissions of data in processing, and loss or damage to files containing financial information.
  7. With the growth of responsibility accounting on a decentralized basis and the maximum use of common services, it is increasingly necessary to have controls to ensure that transactions chargeable to one responsibility centre, to one accounting office, or to one department cannot be charged to another, either intentionally or in error.
  8. In any system, controls should be established as early as is practicable in the system, and once established, should be maintained through all stages of manual, mechanical, and electronic processing. In most systems this will require combinations of control techniques performed manually and electronically.
  9. In simpler systems, it may be practical to establish a verifiable value on data at the time of input, and to confirm this value at the time of output. However, in most systems, an integrated combination of manually or electronically performed controls will be required. As a transaction is processed through the system, an established control condition should not be dropped before a complementary control condition has been established, thereby ensuring that integrity is maintained at all times.
  10. Techniques for control in a computer systems environment are set out in Appendix C. Many of these techniques for control are equally applicable to manual systems.

6.1 Responsibility of the Financial Officer in Systems Development

  1. Financial officers should be involved in the development of systems to ensure that financial expertise is made available to systems development projects and that proper financial controls are included in systems being developed.
  2. The objectives of the system being developed will determine the degree of financial officer responsibility in that development. The level of involvement necessary in order to exercise this responsibility will vary according to the financial expertise of others involved in the project. In some program-related systems development projects, it may be possible for the financial officer to exercise this responsibility by relying on the work of financial control specialists in the program.

6.1.1 Senior financial officer responsibility

As a member of the department senior management team, the senior financial officer will usually be involved in management's review and approval of each phase of a systems development project.

6.1.2 Limited responsibility

In the case of program-related financial systems of the department, the financial officer's role is limited to that of financial specialist. To exercise this limited responsibility, the financial officer assumes a dual role: to be satisfied that financial controls are adequately dealt with and will function as financial management adviser to the project on such matters as cost-benefit analysis and post-installation evaluation.

6.1.3 Comprehensive responsibility

  1. In the case of financial administrative systems the financial officer is both the financial specialist and the user of the system, and must exercise comprehensive responsibility for systems development. To this end, the financial officer must approve (sign off) documentation of all phases of the project, after ensuring compliance with the functional responsibilities of the senior financial officer.
  2. Issues which should be addressed by a financial officer in reviewing documentation of a financial system are described in Appendix D.

7. Enquiries

Enquiries concerning this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:

Financial and Contract Management Sector
Comptroller General Branch
Treasury Board Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5

Telephone: (613) 957-7233
Facsimile: (613) 952-9613

Appendix A - Techniques for Accrual Accounting

1. Introduction

This appendix describes some techniques appropriate for introduction at responsibility centres for accruing costs with respect to goods or services. It also draws attention to the need to ascertain the adequacy of present automatic payroll accruals.

2. Principles

  1. Accounting records should be kept primarily on a cash basis, with month-end accruals being entered when the usefulness of the reports is thereby improved. A full accrual accounting system as is frequently found in industry, where most transactions are entered into the accounting records when the goods or services are received, will not normally be necessary for most government departments.
  2. Month-end accrual entries should be automatically reversed in the following month. In this way, all cash payments can be processed as direct charges to the responsibility centre, and there is no need to be concerned whether the individual transaction was recorded previously as an accrual. In addition, minor inaccuracies or omissions in determining accruals will cancel out and thereby not create any difficulties in subsequent periods.

3. Communication

  1. Managers of responsibility centres should be responsible for originating accruals and should be provided with a document for communicating their accruals to accounting offices at the end of each month. This document should be suitable for direct input to the accounting system after approval of the manager concerned.
  2. Procedures should be established in accounting offices to ensure that all responsibility centres submit an accrual report, even a nil accrual report, at the end of each month.
  3. For those departments using the departmental reporting services of Public Works and Government Services, accruals may be input to the system and will be reversed automatically in the following month.

4. Sources of Accrual Information with Respect to Goods or Services

  1. The basis for establishing month-end accruals can be satisfied through the use of an open file of accrual documents. In the case of goods received, there will generally be a shipment and/or receiving document and a purchase order available on which to base an accrual.
  2. When there is a high volume of transactions, as would be the case for a major stores location or a warehouse, these documents should be subject to sequential or other accounting controls. It may be appropriate in such cases to maintain a control record, with a continuing balance of accruals outstanding supported by the source documents.
  3. When there is no documentation specifically identifying the amount to be accrued in the month-end, estimates of significant amounts owing should be made, particularly in the case of purchased services. Types of accruals that should be estimated include significant charges for professional services, rentals, and travel costs.

5. Accruals with Respect to Payroll Costs

  1. In accordance with the procedures outlined in Treasury Board Circular MI-1-69, dealing with monthly financial reporting of pay, a month-end accrual/deferral accounting entry is input to departmental accounting systems, operated by Public Works and Government Services Canada, automatically through the pay system. At the end of Period 12, this accrual is also input to the Central Agencies Information System and the Central Accounts of Canada. This accrual, which is based on the gross cost of the most recent bi-weekly salary payroll and on the number of remaining working days in the month, is incomplete and, depending on a department's requirements, may be inadequate because:
    • the accrual applies only to the regular salary of indeterminate, full-time, salaried employees and does not include the pay of casual and hourly employees, which, if required, must be computed by individual departments;
    • the accrual does not include all adjustments, such as overtime, leave without pay, new employees, terminations, or other changes in status that occur subsequent to the payroll date;
    • the actual payrolls on which the accrual is based must be prepared several days in advance of issue and therefore do not include all adjustments effective prior to the pay date; and
    • an accrual based on the normal working days in a month may not be as useful as one based on a weekly or hourly time-distribution system or on the working days in the month, particularly if periodic financial data are to be matched with non-financial data, such as performance measurements, for management information purposes.
  2. When these shortcomings are considered significant, particularly at year-end when the accrual impacts on the department's appropriation(s), departments should establish alternative means of accrual accounting for payrolls by introducing accruals that are accurately computed at the end of each month, combined with whatever cost-allocation techniques are necessary.

Appendix B - Techniques for Allocating and Identifying Costs

1. Introduction

  1. This appendix describes some techniques for deferring or redistributing expenditures to achieve more accurate cost identification. It should be emphasized that considerations of parliamentary control limit a department's freedom to redistribute costs among votes, and when funds are provided for a purpose in a vote, such costs cannot be reallocated to other votes except on a memorandum basis.
  2. Within a vote, departments can achieve more accurate costing by using suspense and contra accounts or memorandum allocation systems to pick up costs chargeable to other votes or fiscal years. These two alternatives are discussed first, and then techniques of standing percentage cost allocations and standard costing are described.

2. Suspense and Contra Accounts

  1. Through the use of these accounts actual costs can be recorded in the accounting system at the normal time of cheque issue, and a redistribution of these costs in a more meaningful way can be achieved through supplementary accounting entries. The difference between suspense and contra accounts is illustrated as follows:
    • Suspense accounts are charged with actual costs arising out of cheque issue. They are credited, and the appropriate expense accounts are charged when the cost allocation is computed.
    • Contra accounts are charged with actual costs arising out of cheque issue. Other contra accounts are credited and the appropriate expense accounts are charged when the cost allocation is computed.
  2. The main advantages of these alternatives are that the accounting office has full control over the amounts charged to the expense accounts, which are reported to a manager as his costs; the allocation of costs is fully integrated with the principal accounting and reporting system; and the cash basis of accounting is not significantly disrupted.
  3. A further advantage of using contra accounts is that the gross amounts of the transactions entered into the contra accounts remain intact for subsequent reference or serve as control accounts for subsidiary ledgers.
  4. The use of a suspense account emphasizes variances, as any amount that remains in a suspense account represents the difference between the actual costs and the computed cost allocation. If this difference is significant, there may be a major error in either the actual costs or the computed cost allocation. If the amount is not significant, the balance in the suspense account may be carried forward and eventually be disposed of at the end of the fiscal year.
  5. The operation of suspense and contra accounts does not alter the total costs charged to responsibility centres, because the costs allocated are the same as the actual expenditures made. It is normally desirable to record the suspense and contra accounts on a separate report, used only by the accounting office, so as not to involve line management in accounting details with which they need not be concerned.
  6. The examples that follow show the variety of uses to which suspense and contra accounts can be put in allocating costs.

2.1 Stores and materiel

A central stores responsibility centre is charged initially with the costs of materiel purchased. Other responsibility centres are charged with the cost of materiel when it is issued to them, and the stores responsibility centre is credited In this case, the net amount in the materiel account, which in effect has become a suspense account of the responsibility centre, will represent the value of stock levels, and each responsibility centre will be charged only with the cost of materiel consumed.

2.2 Personnel costs

A suspense account in the accounting office is charged with the cost of payrolls; the account is credited when responsibility centres are charged with a computed allocation of personnel costs. The salary rates used in the cost allocation could be based on standards, averages, or estimates. The allocation could be based on time, production, or any other acceptable basis. The practice could be adopted for the department as a whole, for a group of responsibility centres, or for any individual responsibility centre that wanted to allocate pay costs.

2.3 Common services

The responsibility centre providing the service is charged with the actual costs of operating the service; other responsibility centres are charged with the computed value of services provided, and the centre providing the service is credited with the same amounts. In this instance, using a contra account would be more appropriate than using a suspense account, because both the gross costs and the allocated costs are significant information on the management reports of the service organization.

2.4 Objects of expenditure

A suspense account is charged for actual amounts paid with respect to an object of expenditure that is paid irregularly, whereas responsibility centres are charged and the suspense account is credited with a regular monthly cost allocation. This application can be used to allocate evenly costs that may be subject to uneven and uncertain periodic payments.

3. Memorandum Cost Allocation

  1. Memorandum cost allocation enables an organization to achieve full costing by including in reports such items as accommodation costs, depreciation of equipment or buildings, and common service costs financed by other votes or departments. Memorandum entries are not input to the principal system for accounting for appropriations and allotments but are supplied for entry on the internal management reports or for analytical procedures, as required.
  2. The following situations may be appropriate for the use of memorandum allocations:
    • to record fixed assets that are not included in the Accounts of Canada;
    • to record liabilities or reserves, such as provisions for declining values in inventories, depreciation, or doubtful accounts;
    • to charge depreciation to responsibility centres; and
    • to record costs charged to other appropriations or fiscal years.

4. Standing Percentage Cost Allocation

  1. This is a useful technique, particularly when precise allocation of costs for activities, projects, and objects is not feasible. Selected costs are identified manually or by computer as they are processed by the accounting system and are automatically allocated on the basis of predetermined percentages. When this takes place there must be established procedures for ensuring that the standing percentages are realistic and have received management approval at the time of implementation, and that the reliability of the percentages is tested at least annually. Care should be taken to allocate in this way only those costs which cannot be specifically identified.
  2. In coding economic objects whose amounts are not significant and for which analysis by detailed economic object is impractical, expenditures can be charged to one line object and reallocated by a predetermined percentage to detailed economic objects. Food purchased for cafeterias is an example of an object that may be appropriate for allocating costs on the basis of percentages to the many component economic objects.

5. Standard Costing

  1. The basic idea behind standard costing is that the accounting system will measure costs on the basis of predetermined standards and on actual costs incurred. By measuring what should be, as well as what is, more useful information is provided to management. Standard costing is particularly useful for measuring high-volume, repetitive operations in a labour-intensive organization where a significant proportion of the costs are controllable. However, the principles can frequently be applied simply, effectively, and with significant benefits in other organizations.
  2. Standard costs should be computed by building up what the cost should be, based on a study of the individual operations, materiel components, and overhead costs. Standard costs should be realistically established so that deviations from the standard have significance; they should not be based on optimum performance under unrealistic working conditions.
  3. If certain costs of goods and services are of particular importance to a responsibility centre and are also subject to significant price fluctuations, it may be beneficial to identify the effect of these price variances at the time of input to the accounting system. This can be done without difficulty by establishing separate accounts to record the standard cost and any variances.
  4. The price variance is identified on the source document; the standard price is allocated to one account; and the price differential is coded to the variance account. An illustration might be a stores location whose inventory records are being maintained on a standard cost basis. The cumulative price variances are useful information for materiel management, and better financial control is achieved if the physical inventory records and the principal accounting records are both maintained on a standard cost basis, because significant differences between these records can only represent physical shortages or overages, once the price variance has been eliminated.

Appendix C - Techniques for Control in a Computer Systems Environment

1. Introduction

  1. The control techniques that follow give guidance to financial and EDP personnel involved in the development and maintenance of financial systems. Computer Control Guidelines, published by the Canadian Institute of Chartered Accountants, and the volume on control of the Systems Auditability and Control Study of the Institute of Internal Auditors, provide further information.
  2. Techniques for control include project management practices such as phased development, economic justification, and full documentation. These practices are required by Treasury Board directives and guidelines contained in the Project Management Policy (Chapter 2-2) of the Capital Projects and Procurement Volume, Treasury Board Manual, and are not repeated here.

2. Authorization and Data Preparation

  1. The authorization of transactions should not be performed by personnel who have custody of assets or access to records.
  2. Instructions for the preparation of source documents should be documented.
  3. Time frames should be established for the processing of source documents from the point of receipt to the input-preparation stage.
  4. Transmittal documents should be used to control the flow of documents from the originating source to the input-preparation stage.
  5. A quality review of source documents should be provided for.
  6. Retention time periods for original source documents should allow sufficient time for the detection and correction of errors.
  7. The authority to initiate source documents should be limited.
  8. Each source document should be assigned a number for identification purposes, preferably through preprinted sequential numbers.
  9. Special-purpose forms should be used to present data in the format required for data entry.
  10. The authorized use of source documents and input forms should be restricted.
  11. Separation of duties should be maintained in the following areas:
    • separation of the data processing department from its functional users,
    • segregation of duties within the data processing department, and
    • separation in the user department between source data generation and other functions.
  12. Approval signatures on source documents should be used for providing evidence of proper transaction authorization and for audit trail purposes.
  13. A manual review of source documents should be performed by user personnel to ensure completeness and accuracy of input.
  14. Source document logs should be maintained by each user organization to record the flow of transactions and batches in order to identify missing items and maintain accountability.
  15. Record-handling procedures that provide user personnel with instructions for error detection, correction, and re-submission of source documents should be reassessed periodically.
  16. Error logs should be used to follow up unresolved errors and to ensure their correction and timely re-entry into a system. Such error logs should not be maintained in the data processing area.

3. Data Input

3.1 Data validation

  1. Independent verification of data input.
  2. Predefined and stored formats to ensure that data are recorded in the proper fields, formats, and characters.
  3. Data input transactions, edited and validated close to source to minimize processing of erroneous data.
  4. Use of controls to verify input as being received from an authorized source.

3.2 Batch balancing

  1. Use of processing schedules to determine that all transactions have been received and entered on time.
  2. Use of turnaround documents such as payment advices for accounts receivable.
  3. Use of record logs to show the receipt and disposition of data, to account for all batches received, and to establish an audit trail within the system.
  4. Use of a batch header record as a control document for the individual source documents in that batch. Information on the batch header record (such as batch total, transactions count, and batch number) is used in verifying the completeness and accuracy of the batch.
  5. Automated balancing to batch header control totals, with procedures for reconciling differences and authorizing corrections.

3.3 Error Handling

  1. Interactive error correction in the case of input terminal systems, to permit immediate detection, display, and correction of errors.
  2. Issuance of edit error listings prior to processing, in the case of batch-oriented systems, with correction prior to processing of data.
  3. Error messages indicating the suggested corrective action to be taken for each data field that is in error.
  4. Editing of corrected data using the same data validation, batch balancing, and error-handling routines as for the original data.
  5. Production of control totals for rejects as well as for accepted data.
  6. Statistics on all errors, with corrective action on repeated occurrences.
  7. An input control function that is independent from source data preparation, to control error handling and ensure correction of data.

3.4 General

  1. Steps should be taken to ensure that there will be no further processing of source documents following input preparation.
  2. Procedures should provide for returning illegible or incomplete source documents.
  3. Dual custody of accountable forms should be maintained. A member of the data processing organization and a member of the user department should jointly authorize the release of prenumbered forms from storage.

4. Data Transmittal

4.1 Delivery

  1. Couriers should be bonded.
  2. Back-up copies should be kept of all magnetic tapes, cards, or other media used for data transmittal.
  3. Record counts and batch totals should be used to ensure no data have been lost in transmittal.
  4. Access to the data should be limited to authorized personnel.

4.2 Telecommunications

  1. Internal control totals should be used during transmission.
  2. Re-transmission by the transmitting unit of transaction data that are detected by the receiving unit to be in error.
  3. All incoming and outgoing messages should be validated.
  4. Line usage records and statistics for audit trail purposes should be kept.
  5. Message sequence numbers should be assigned to all input and output messages and recorded on an input/output message log to assist in system recovery or to restart and trace messages.
  6. All errors and re-transmission of messages should be logged and statistics of re-transmissions should be maintained.
  7. The user manual should include error-correction procedures of transmissions.

4.3 Processing

  1. Computer-generated transactions should be monitored through programs that print these transactions, thereby enabling users to perform a manual check on the computer-generated transactions. Computer generated transactions may include balance controls between programs in the system, which may take the form of reasonableness checks or run-to-run control totals.
  2. A system of automated control totals for balancing the entire system and for balancing between systems should be developed and should be adequately explained in the technical documentation.
  3. Anticipation controls such as sequence checking may be used within the system to anticipate each transaction and detect missing transactions.
  4. Exception reports should be prepared each time a program control is overridden or bypassed.
  5. Computer files should be balanced by reconciling the number of records on the opening of a file and changes made during processing with the closing balance. Control records should contain totals of amounts and record counts for each critical data field on the file.
  6. Rejects should be logged by the system, to show that all rejects have been corrected and re-submitted.
  7. Automated suspense files should be generated by the system for all rejected transactions. These error suspense files should be maintained by the data processing organization to follow up corrected transactions that are rejected.
  8. Discrepancy reports from the error suspense file should be printed periodically and provided to users of the system to ensure that the handling of errors results in their correction and re-entry in a timely manner.

4.4 Data Access

  1. A formal library system should be developed for the handling of all application system data files.
  2. External and internal labels should be used to prevent the misuse of files.
  3. Access to records and files should be restricted to authorized users by security-classification level.
  4. All system enquiries should be recorded on an independent file, and an enquiry report should be produced for review by data processing management.
  5. Access authorization tables should be updated regularly and only on the basis of authorization by those with designated authority.
  6. Procedures should provide for formal authorization of any program modification. Such modifications should be authorized only by the user.
  7. Steps should be taken to ensure that the master file can be reconstructed by maintaining independent copies of it and the intervening transactions. Access to file copies should also be restricted to authorized users.
  8. Systems should be designed to report on an exception basis those records and fields which exhibit no activity for a significant period of time.
  9. Systems should be designed to report on an exception basis those records and fields which exhibit excessive activity.
  10. Critical files should be scanned periodically by an audit program to report illogical or incorrect file content.
  11. Back-up procedures should exist for all critical files. These procedures should provide for off-site data, program back-up, and hardware back-up.
  12. Recovery and restart procedures should exist for all critical application systems.
  13. A disaster plan should be in place in case of loss of application data or system software, or of equipment or key personnel.

4.5 Output

  1. Output control totals should be reconciled with input totals before reports are released.
  2. Statistical records of output reports should be maintained on the system and printed, summarizing the number of application reports generated, number of pages per report, cost per report, and number of lines per report.
  3. In on-line systems the number of transactions per period should be balanced against output control totals. Variances between input and output quantities should be monitored.
  4. Output reports should be scheduled so that users know when to anticipate them, and follow-up action should be initiated when reports are delayed.
  5. Output reports should be delivered only to authorized recipients.
  6. Report distribution should be limited to the authorized number of report copies.
  7. Users should be furnished with a report that reconciles manually maintained batch totals with totals accumulated by the computer system for the particular application.
  8. Sampling and other quality-control techniques should be used for checking the accuracy and completeness of reports.
  9. Negotiable documents should be moved from the storage area to the computer operations area and back, under the dual custody of members from data processing and the user organization.
  10. An independent history file of errors should be kept independently of processing files to analyze report error trends and statistics by type, source, and frequency.
  11. Provision should be made for feedback from output recipients as to the timeliness, accuracy, and suitability of system reports.

Appendix D - The Financial Officer's Responsibility in Financial Systems Development Projects

1. Introduction

  1. This appendix identifies issues which should be addressed by a financial officer in reviewing documentation of a financial systems development project. The nature of the system being developed will determine the degree of responsibility which should be exercised by the financial services organization in dealing with those issues.
  2. The appendix is organized by phases of a system development project, as defined in Treasury Board EDP policy. For each phase it indicates the documentation that a financial officer should review for adequacy of coverage.

2. Review of Systems Project Documentation by Financial Officer

2.1 Project Initiation

  1. This phase of a project includes a definition of management's requirements and an authorization to carry out the project.
  2. The documentation should include:
    1. a statement of the problem, authorized by the managers who initiated the project, including:
      • identification of client;
      • identification of resources available for the project;
      • summary of problems to be solved;
      • impact of the problems if not corrected; and
      • summary of benefits to be realized.
    2. formal terms of reference for the project including:
      • identification of the project methodology; and
      • identification of project responsibility and management reporting requirements and relationships, including project team members and their responsibilities.
    3. a description of the problem area and nature of changes desirable, as disclosed by preliminary analysis, including:
      • outline of the current system;
      • identification of areas to be changed;
      • scope and objectives of changes;
      • probable range of costs for system development and operation; and
      • plan for initial steps of the project.

2.2 Feasibility Study

This phase of a project is to present an analysis of practical alternatives and, based on this analysis, to recommend the most appropriate solution. The documentation should include:

  1. the specific terms of reference for the feasibility study;
  2. identification of alternative approaches to address the need, and analysis leading to determination of feasible alternatives, including:
    • retention of the current process with modification;
    • alternative types of technology (e.g. micrographics, computers);
    • alternative methods of obtaining the service (e.g. "in-house" versus outside);
    • broad, conceptual design of system for each alternative; and
    • rational, objective documentation of reasons for excluding certain alternatives.
  3. the costs and benefits addressed by the study, including:
    • quantification of costs and benefits of the current system as well as all feasible alternatives; and
    • declaration of any cost or benefit factors that were not quantified, and explanation of how they were addressed.
  4. the conclusion of the study, including:
    • the basis on which the most appropriate solution was chosen;
    • the additional person-years and financial resources required to implement the recommended solution (both development and operation resources); and
    • the specific milestones requiring management decision through the remaining project phases.

2.3 General Design

This phase includes the definition of system objectives and analysis of system requirements, building an overview of the basic structure of the new system in terms of data collection and processing requirements, information flows, and reporting requirements. The documentation should include:

  1. the general specification of requirements, including:
    • purpose and objectives of the system;
    • all legislative and regulatory requirements affecting the system;
    • Treasury Board directives and guidelines relevant to the system;
    • departmental management requirements;
    • needs of the users of the system;
    • financial control objectives specific to the system; and
    • auditability objectives for the system (to minimize cost of system review and audit).
  2. an overview of the system design, including:
    • system flow charts showing the conceptual design;
    • information collection, processing and reporting requirements;
    • a design framework for internal control, addressing:
      • pre-and post-processing control requirements;
      • concurrent processing control requirements, where post-processing controls are incapable of ensuring accuracy and integrity; and
      • design features to facilitate audit and evaluation of system integrity and efficiency of operation.
  3. reports or minutes of meetings or discussions with management and the user(s) of the system; and
  4. explanation of all unresolved matters arising from the general design phase.

2.4 Detailed Design

  1. During this stage of development a system design will be produced to the point where it will reflect all financial controls, and the details of data collection, storage and processing, and information enquiry and reporting.
  2. The documentation should include:
    1. evidence that control features designed address fully:
      • legislative and regulatory requirements;
      • Treasury Board policies;
      • departmental financial control requirements; and
      • specific control requirements of the individual application.
    2. a detailed description of the system design, including flow charts and narratives of:
      • data collection, processing and storage details;
      • logic of all operations and calculations; and
      • pre-processing, post-processing and concurrent control processing.
    3. The project working papers should include:
      • minutes and correspondence relating to the project; and
      • reference to all unresolved matters in the detailed design phase and the method by which these will be handled.

2.5 Implementation (Development)

  1. This phase includes development activities such as computer programming, system testing, development of procedural and other documentation, and training. In a large part the financial officer's role will be covered with that of the other participants in the system development project. In most cases the financial officer will not be involved in the programming aspect of the implementation phase unless significant changes are being made to the detailed design, in which case the points addressed in detail design should be reviewed in the light of new information. Normally, emphasis by the financial officer will be on the documentation from which the programming will be done, on the testing procedures for programmed routines and, later, on the validation of test results.
  2. The documentation should be thoroughly reviewed for all internal control aspects and significant mathematical operations in the system.
  3. The documentation should include:
    1. those programmed accounting procedures which are considered to be important from a control point of view and their scheduled testing;
    2. the testing procedures;
    3. test data for critical calculations;
    4. test results compared with predetermined results;
    5. procedures for complete system implementation, including detailed documentation of training procedures, and processing procedures such as data capture, validation and correction; and
    6. all outstanding matters, with proposed resolutions.

2.6 Installation

  1. In this phase the financial officer will ensure that procedures as outlined in the detailed design phase have been implemented and are operating as intended. In the installation of a new system, a conversion process may be required to bridge the gap between the new system and its predecessor, in which case the conversion process will be a critical factor as to accuracy of the data upon which the new system will depend.
  2. The documentation should include:
    1. procedures for data and file conversion; and
    2. details of all problem areas encountered in the installation phase and their resolution.

2.7 Post-Installation Review

  1. This final phase of the development project is concerned with ensuring that the management-approved objectives for the system have been met, the financial controls are reassessed and adjusted, and the system is successfully in operation and maintenance mode.
  2. The documentation should include:
    1. the post-installation review procedures and their results;
    2. the unresolved issues and their proposed resolution; and
    3. revised system documentation, training materials and control procedures, adjusted to reflect the findings in the post-installation review.
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