Accounts receivable are classified as current assets of the Department and are generally created and recovered during the same fiscal period. They include trade accounts receivable (amounts owed by customers for goods or services rendered as part of normal business operations) and non-trade accounts receivable (amounts related to various transactions, such as interest income, refund of overpayments and recoveries).2
As shown in Table 1, on March 31, 2008, the balance of Environment Canada’s accounts receivable was $7.6 million. Accounts receivable from external parties (excluding those with other federal departments and organizations) accounted for $3.3 million of that amount.
Amount (thousands of dollars) |
% | |
---|---|---|
External | ||
Cash in Hands of Departments Awaiting Deposit to the Receiver General | 420 | 5.6 |
Other revenue | 2,917 | 38.6 |
Internal | ||
Goods and Services Tax and Harmonized Sales Tax | 2,459 | 32.5 |
Other Government Department | 1,762 | 23.3 |
Total | 7,558 | 100.0 |
Source: Departmental financial system
Close to $80 million were generated in revenue during the 2007–2008 fiscal year. Approximately half of that amount was generated by the Ontario Region. Table 2 shows the types of revenue.
Amount (thousands of dollars) |
% | |
---|---|---|
Sales of Goods and Information Products | 43,561 | 54.40 |
Services of a Non-Regulatory Nature | 17,749 | 22.17 |
Services of a Regulatory Nature | 5,141 | 6.42 |
Lease and Use of Public Property | 4,615 | 5.76 |
Other revenues | 3,811 | 4.76 |
Revenue from Joint Project and Cost Sharing Agreements | 2,988 | 3.73 |
Environmental Damages Fund | 649 | 0.81 |
Rights and Privileges | 616 | 0.77 |
Gain on Disposal of Assets and Foreign Exchange Valuations | 485 | 0.61 |
Found Assets Credited to Revenue | 411 | 0.51 |
Interest on Overdue Accounts Receivable (net of write offs and cancellations) | 33 | 0.04 |
Other Fees and Charges | 9 | 0.01 |
Fines | 3 | 0.00 |
Total | 79,794 | 100.00 |
Source: Departmental financial system
Departmental Requirements
The roles and responsibilities of Environment Canada as they pertain to the management of accounts receivable are defined by the Treasury Board of Canada Secretariat Policy on Receivables Management. That policy stipulates that:
In situations where the Department determines that a debt is uncollectible, it is responsible for writing off that debt, and it must comply with the levels of approval required by the Delegation of Financial Signing Authorities that it has set up. The write-offs must appear in the financial statements as expenses in the statement of operations.
Financial Information Strategy
Since the implementation of the Financial Information Strategy in 2001, departments are required to record their revenues on an accrual accounting basis, i.e., when the sale of goods or the provision of services takes place. Previously, departments recorded revenues on a cash basis, i.e., when the deposit was made.
Financial System
Accounts receivable are recorded in the accounts receivable module in the MERLIN financial system. The system is used for invoicing, monitoring suspense accounts, entering payments, adjustments and interest, and also for writing off debts, when necessary.
During the planning of the audit, a risk analysis was carried out to identify, evaluate and prioritize the risks associated with the management of accounts receivable. This analysis was based upon an examination of the accounting policies, manuals and standards that govern the management of accounts receivable and on an analysis of the data contained in the Department’s financial system. Key personnel in the management of accounts receivable were also interviewed.
The identified risks were then evaluated in terms of the probability of their becoming a reality and of their impact on the Department’s activities. As shown in Table 3, the risk evaluation activity did not reveal any high-level risks associated with the management of accounts receivable.
|
|
Low |
Medium |
High |
---|---|---|---|---|
Impact |
High |
|
|
|
Medium |
|
|
|
|
Low |
|
|
|
|
|
|
Probability |
Annex 1 sets out the auditing criteria that were developed following the risk analysis.
The purpose of this audit was to ensure that Environment Canada’s accounts receivable are managed fairly, efficiently and effectively to recover such receivables and minimize the risk of loss. The audit objectives were to assess:
The audit dealt with internal accounts receivable (with other federal departments and organizations) and external accounts receivable created during the 2007–2008 fiscal year and with accounts receivable as at April 1, 2008. Other analyses were carried out on subsequent dates for specific requirements, as certain reports could not be produced retroactively.
In order to meet its objectives, this audit combined data analysis with a review of relevant documentation and interviews with various accounts receivable specialists.
Review of the Documentation
Although the management of accounts receivable is largely governed by the Treasury Board of Canada Secretariat Policy on Receivables Management, other regulations and policies are also directly involved. The list of documents that were consulted during the audit is attached in Annex 2.
Interviews
Interviews with specialists from Departmental Accounting, the regional accounting offices, and financial systems were conducted in order to identify and evaluate current practices, the controls that are in place, and the difficulties that are being encountered.
Data Analysis
The conclusions of the audit are also based on an analysis of data contained in the Department’s financial system. No review of files was conducted at the accounting offices. All of the transactions concerning accounts receivable for the 2007–2008 fiscal year were downloaded from the financial system so that an analysis using computer-assisted techniques and tools could be completed.
This audit has been conducted in accordance with the International Standards for the Professional Practice of Internal Auditing and the Policy on Internal Audit of the Treasury Board of Canada.
In our professional judgement, sufficient and appropriate audit procedures were completed and evidence gathered to support the accuracy of the conclusions reached and contained in this report. The conclusions are based on a comparison of the situations as they existed at the time of the audit with the established criteria.
2 Financial Information Strategy Accounting Manual, Treasury Board of Canada Secretariat, section 3.2.