• 1. Introduction
• 2. Departmental system of internal control over financial reporting
• 3. Departmental assessment results during fiscal year 2024–25
• 4. NSERC’s Action Plan

This document provides summary information on the measures taken by the Natural Sciences and Engineering Research Council of Canada (NSERC) to maintain an effective system of internal control over financial reporting (ICFR), including information on internal control management, assessment results and related action plans.

Detailed information on the department’s authority, mandate and program activities can be found in the 2024-25 Departmental Results Report and the 2025-26 Departmental Plan.

NSERC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the President and the CFO, is in place and includes:

• Organizational accountability structures as they relate to internal control management to support sound financial management including roles and responsibilities for senior managers in their areas of responsibility for control management;
• Through the annual Performance Management and Employee Assessment Agreements, all employees are to certify and attest that they have read the Value and Ethics Code for the Public Service. The Code outlines accountability for responsible conduct;
• Guidance to business process owners regarding impacts of changes on internal controls;
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
• Monitoring of, and regular updates on, internal control management, as well as the provision of relevant assessment results and action plans to the President, CFO and the Internal Audit Committee (IAC).

NSERC relies on other organizations for the processing of certain transactions or the provision of information, which impacts its financial statements as follows:

Common Arrangements

• Public Services and Procurement Canada, which administers the payments of salaries and the procurement of some goods and services in accordance with NSERC’s Delegation of Authority, and the provision of accommodation services;
• Department of Justice Canada provides legal advice and services with respect to potential liabilities and claims to which NSERC may be subject in the normal course of operations; and
• Treasury Board Secretariat (TBS), which provides information on public sector insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans. In addition, TBS has hosted NSERC’s financial system SAP and provides system support services since April 1^st 2023.

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.

Progress during the 2024-25 fiscal year:

The migration to a new financial system on April 1, 2023 has significantly impacted the existing control systems across various business cycles. As a result, most of the controls currently in place have been affected and require thorough review and potential modification. To ensure continued compliance and operational efficiency, these controls have been evaluated and adjusted as necessary during the organization's ongoing monitoring cycles since fiscal 2023-24. This proactive approach has helped maintain robust internal controls and support the integrity of our financial reporting and business processes.

Effective 2024-25, the Receiver General has required the CFO sign-off on the Public Accounts of Canada, with confirmation that departmental internal controls over financial reporting include processes for briefing deputy heads before departmental accounts are finalized, and that these internal controls were applied in the current fiscal year. The processes for briefing deputy heads were implemented during June 2025 for the 2024-25 Public Accounts.

As part of its rotational ongoing monitoring plan, the Agency completed its reassessment of the financial controls related to Purchases, Payments and Payables; Payroll/Salaries; Interdepartmental Settlements; and Forecasting and Budgeting. All these control assessments will be presented to the Internal Audit Committee (IAC) on August 21^st, 2025.

As per the Internal Control Ongoing Monitoring Plan, the Purchases, Payments and Payables Business Process which includes Accounts Payable and Procurement, was assessed for design and operating effectiveness. The period testing covered April 1, 2024 to March 31, 2025. A total of thirteen (13) key controls for Accounts Payable and seven (7) key controls for Procurement were assessed.

Overview of the findings:

• Accounts Payable – only one (1) control out of 13 was assessed as an opportunity for improvement and evaluated as low risk due to lack of a signed Specimen Signature Card (SSC) to validate exercising of certification authority (S.34); and exercising certification authority (S.34) before commitment authority (S.32).
• Procurement:
  • three (3) controls were assessed as ineffective since an error was found in at least one of the files selected but those observations were evaluated as one medium risk for one (1) of the controls and low risk for the other two (2). The medium risk observation was due to inadequate review of the consensus report of the technical proposal by the Evaluation Committee and Contracting Officer; and the low risk observations were due to lack of evidence for review of professional services checklist as part of S.32 verification, and lack of a signed SSC to validate exercising of transaction authority (S.41).
  • two (2) controls were assessed as opportunities for improvement and evaluated as low risk due to lack of a signed SSC to validate exercising of commitment authority (S.32) and lack of appropriate supporting documentation for the justification of acceptability of a non-competitive purchase.

A management action plan was developed, and all observations are to be remediated during 2025-26.

As per the Internal Control Ongoing Monitoring Plan, the Payroll/Salaries Business Process was assessed for operating effectiveness. The period testing covered April 1, 2024 to January 31, 2025. This process consists of thirty-one (31) key controls based on the TBS Guideline on Financial Management of Pay Administration.

Overview of the findings:

• Only two (2) controls out of 31 were assessed as ineffective and evaluated as low risk, due to the approval of a secondment letter of offer after the start date of the assignment, and lack of authorized approval for an acting assignment less than 4 months, both related to the internal transfers of employees between NSERC and SSHRC.

A management action plan was developed, and both (2) observations were remediated by April 2025.

As per the Internal Control Ongoing Monitoring Plan, the Interdepartmental Settlements Business Process was assessed for design effectiveness and operating effectiveness. The period testing covered April 1, 2024 to March 31, 2025. A total of five (5) key controls were assessed.

Overview of the findings:

• One (1) control out of 5 was assessed as an opportunity for improvement and evaluated as low risk, due to lack of a signed SSC to validate S.34 certification.

A management action plan was developed, and the observation was remediated by May 2025.

As per the Internal Control Ongoing Monitoring Plan, the Forecasting and Budgeting business process was assessed for design effectiveness and operating effectiveness. The period of testing covered April 1, 2023, to January 31, 2025. This process consists of eleven (11) key controls, developed in-house based on TBS’ Policy on Financial Management, Expenditure Management cycle, as well as previous years’ testing.

Overview of the findings:

• No weaknesses or gaps were noted during the design assessment.
• All controls were assessed as operating effectively.

From the assessments completed in prior fiscal years, there were no design weaknesses or gaps identified during the design assessments for Grants and Scholarships and Payroll/Salaries; and all recommendations have been completed for the design assessment of Period-End Reporting.

The outstanding recommendations are presented as follows:

• Period-End Reporting: Remedial actions for all five (5) observations related to lack of documented evidence and sign-off on the reconciliations and reviews completed by the financial operations team over the trial balance, capital assets, general and sub ledgers, and grants and scholarships payments, were fully implemented as of April 2024.

NSERC migrated from FreeBalance, the former financial system, to a new financial system, SAP, in April 2023.The Agencies joined a cluster of other government departments and agencies that are hosted and serviced on SAP by the Treasury Board Secretariat (TBS).

Business processes identified in the multi-year testing plan have all, to some extent, been impacted by the implementation of SAP. As such, a design and operating effectiveness assessment of business cycles is being performed post-implementation to ensure that all controls are operating as intended and to identify any potential control gaps as a result of the system change.

When reviewing the detailed business processes and the potential impact on controls, the following factors are considered:

• Leveraging the capabilities of the new system
• Minimizing the impact on operations
• Minimizing cost
• Enabling future business value

To assess the global risks, the Multi-Year Ongoing Monitoring Plan was revised to perform a design assessment and Operating effectiveness assessment of all business processes over three (3) fiscal years following SAP implementation based on their risk elements, and while considering the impact of the new financial system.

The Agencies’ rotational ongoing monitoring plan over the next three fiscal years, is shown in the following table. An internal controls assessment on the SAP system is not necessary as TBS, in their role as the host department, completes a regular assessment over IT General Controls related to SAP, and provides the Agencies with an annual report presenting the results of the assessment. The CASD finance team determined that there was no need to add the CFO attestations Business Process to the rotational ongoing monitoring plan, as ISED performs this assessment on behalf of its agencies. Finally, due to the upcoming migration to the Tri-Agency Grants Management Solution (TGMS) and in alignment with the Treasury Board Secretariat’s budget compression measures, it was determined that no internal controls testing—specifically, IT General Controls (ITGC)—would be performed over the legacy systems CRM, NAMIS, and AMIS. This decision reflects a risk-based approach focused on optimizing resource allocation during the transition period, while acknowledging that these systems are being phased out and will no longer serve as critical platforms for grants and awards management in the near future.

X* Only Design Assessment
X Design Assessment and Operating Effectiveness
X** Only Operating Effectiveness

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2025, and all information contained in these statements rests with the management of the Natural Sciences and Engineering Research Council (NSERC). These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of NSERC’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in NSERC's Departmental Results Reports, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout NSERC and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2025, was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

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

Alejandro Adem, FRSC
President

Dominique Osterrath
Chief Financial Officer

Ottawa, Canada

August 29, 2025

Contractual obligations and commitments [Note 8]

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

Alejandro Adem, FRSC
President

Dominique Osterrath
Chief Financial Officer

Ottawa, Canada
August 29, 2025

Segmented information [Note 10]

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

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

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

The Natural Sciences and Engineering Research Council (NSERC) was established in 1978 by the Natural Sciences and Engineering Research Council Act, and is a departmental corporation named in Schedule II to the Financial Administration Act. NSERC’s purpose is to help make Canada a country of discoverers and innovators for the benefit of all Canadians, by supporting students, postdoctoral fellows, university & college professors and university/college-industry research partnerships. NSERC’s grants, scholarships and operating expenditures are funded by budgetary lapsing authorities. Employee benefits are funded by statutory authorities. NSERC delivers its objectives through the following programs:

a) Funding Natural Sciences and Engineering Research and Training

NSERC, through grants, fellowships and scholarships, promotes and supports research and research training in the natural sciences and engineering to develop talent, generate discoveries, and support innovation in pursuit of economic, environmental and social outcomes for Canadians.

b) Internal Services

NSERC and Social Sciences and Humanities Research Council (SSHRC) share internal services for general administration, human resources, finance, contract & procurement, awards administration, information management & technology, security, program evaluation and audit services. This common administrative services model has proven highly efficient for the two federal granting agencies. In addition, NSERC has its own corporate services to address the agency’s distinct needs in terms of governance, policy, planning, statistics, performance measurement, communications and international relations. Internal Services provide support to the organization as a whole in the form of operations and maintenance funds. They are necessary to support the delivery of programs and other corporate obligations and include activities that apply across the organization, rather than those that support a specific program.

These financial statements have been prepared using the Government’s accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Parliamentary authorities

NSERC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the agency do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2024-25 Departmental Plan. Planned results are not presented in the “Government funding and transfers” section of the Statement of Operations and Departmental net Financial Position and in the Statement of Change in Departmental net Debt because these amounts were not included in NSERC’s 2024-25 Departmental Plan.

b) Net cash provided by Government of Canada

NSERC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by NSERC is deposited to the CRF, and all cash disbursements made by NSERC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between other departments of the Government.

c) Amounts due from the CRF

Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that NSERC is entitled to draw from the CRF without further authorities, to discharge its liabilities.

d) Revenues

Miscellaneous revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. Revenues are then recognized in the period in which the related expenses are incurred.

Included in miscellaneous revenue are revenues that are respendable and non-respendable. Non-respendable revenues are not available to discharge NSERC’s liabilities. While the President is expected to maintain accounting control, they have no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the agency’s gross revenues.

e) Expenses

Expenses are recorded on an accrual basis.

Grants and scholarships (transfer payments) are recorded as expenses when authorization for the payment exists, and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program.

Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.

Services provided without charge by other government departments for accommodation, and employer contributions to the health and dental insurance plans are recorded as operating expenses at their estimated cost. These amounts are also presented as government funding.

f) Employee future benefits

1. Pension benefits: Eligible employees participate in the Public Service Pension Plan (the Plan), a multiemployer pension plan administered by the Government. NSERC’s contributions to the Plan are charged to expenses in the year incurred and represent NSERC’s total obligation to the Plan. NSERC’s responsibility regarding the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government, the Plan’s sponsor.
2. Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

g) Accounts receivable and advances

Accounts receivable and advances are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable and advances where recovery is considered uncertain.

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. NSERC is not exposed to significant credit risk. Accounts receivable and advances are due on demand. Most accounts receivable and advances are due from other government departments and agencies where there is minimal potential risk of loss. The maximum exposure NSERC has on credit risk is equal to the carrying value of its accounts receivable and advances.

h) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

i) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes at March 31. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are the liability for employee future benefits and the useful life and valuation of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, are recorded in the financial statements in the year in which they become known.

j) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

1. Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
2. Certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount. Other related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

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

Accounts payable and accrued liabilities are measured at cost. The following table presents details of NSERC’s accounts payable and accrued liabilities:

a) Pension benefits

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

Both the employees and NSERC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2024-2025 expense amounts to $5,117,288 ($4,902,700 in 2023-2024). NSERC’s responsibility regarding the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the Consolidated Financial Statements of the Government of Canada, the Plan’s sponsor.

b) Severance benefits

Severance benefits provided to the employees of NSERC were previously based on an employee’s eligibility, years of service and salary at termination of employment. However, since 2011, the accumulation of severance benefits for voluntary departures has progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2025, all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

The following table presents details of NSERC’s balance of accounts receivable and advances:

All tangible capital assets and leasehold improvements having an individual initial cost of $5,000 or more are recorded at their acquisition cost. NSERC does not capitalize intangibles.

Amortization of tangible capital assets is performed on a straight-line basis over the estimated useful life of the asset as follows:

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

*Adjustments are related to transferring the leasehold improvements in Zibi building to ECCC and PSPC

Payments of grants and scholarships extending into future years are subject to the provision of funds by Parliament.

The nature of NSERC’s operating activities can result in some large multi-year contracts and obligations whereby NSERC will be obligated to make future payments to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

NSERC is related because of common ownership to all government departments, agencies and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

NSERC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, NSERC received common services that were obtained without charge by other government departments as disclosed below.

a) Services provided without charge by other government departments

During the year, NSERC received services without charge from certain common service organizations related to accommodations, and the employer’s contribution to the health and dental insurance plans. These services provided without charge have been recorded in NSERC’s Statement of Operations and Departmental Net Financial Position as follows:

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

b) Other transfers of assets from other government departments

During 2024-2025 NSERC received a transfer of a receivable nature for transactions related to salary overpayments, from other government departments, within the scope of Phoenix interdepartmental adjustments. These overpayments are recovered in the context of the Agencies’ established salary payment process.

Presentation by segment is based on NSERC’s Departmental Results Framework. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in Note 2. The following table presents the expenses incurred for the main programs, by major object of expenses and by major type of revenue. The segment results for the period are as follows: