Archived - Financial statements (unaudited)
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For the year ended March 31, 2010
Statement of Management Responsibility including Internal Control over Financial Reporting
Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2010, and all information contained in these statements rests with the management of the Department of Finance Canada. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.
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 the Deparment's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department's Departmental Performance Reportis 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 Actand 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 the Department; and through conducting an annual assessment of the effectiveness of the system of ICFR.
An assessment for the year ended March 31, 2010 was completed in accordance with the requirements of the Policy on Internal Controland the results and action plans are summarized in the Annex.
The system of ICFR is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.
Management is supported by the Departmental Audit and Evaluation Committee. The role of the Committee is to provide to the Deputy Minister objective advice and guidance. The Committee approves the departmental audit and evaluation plans and oversees the internal audit and evaluation activities in the Department. It also reviews the results of audits and evaluations as well as management responses and action plans developed to address audit and evaluation recommendations.
The financial statements of the Department of Finance Canada have not been audited.
Chief Financial Officer
August 20, 2010
|Expenses (Note 4)|
|Transfer and taxation payment programs||55,647,756||46,517,604|
|Treasury and financial affairs||27,017,080||30,068,575|
|Economic and fiscal policy framework||89,859||76,579|
|Revenues (Note 5)|
|Transfer and taxation payment programs||276,797||588,601|
|Treasury and financial affairs||4,811,525||4,850,205|
|Economic and fiscal policy framework||59||59|
|Net cost of operations||77,732,644||71,289,311|
|The accompanying notes form an integral part of these financial statements.|
|Accounts receivable and advances (Note 6)||653,604||401,609|
|Taxes receivable under tax collection agreements (Note 7)||3,984,613||11,090,789|
|Foreign exchange accounts (Note 8)||46,950,100||51,708,538|
|Investment in Crown corporations (Note 9)||3,570,578||401,578|
|Crown borrowings (Note 10)||96,467,906||76,422,196|
|Other loans, investments, and advances (Note 11)||3,362,009||3,865,989|
|Total financial assets||155,024,680||143,915,197|
|Tangible capital assets (Note 12)||179||4,044|
|Total non-financial assets||182,497||124,094|
|Accounts payable and accrued liabilities (Note 13)||7,419,869||1,128,905|
|Taxes payable under tax collection agreements (Note 14)||6,381,633||4,943,533|
|Interest payable (Note 15)||6,778,377||6,839,241|
|Notes payable to international organizations (Note 16)||411,901||420,414|
|Matured debt (Note 17)||74,327||80,130|
|Unmatured debt (Note 18)||555,137,686||510,197,055|
|Other liabilities (Note 21)||465,465||140,642|
|Employee severance benefits (Note 22)||15,124||16,096|
|Equity of Canada||(421,477,205)||(379,726,725)|
|Total liabilities and equity||155,207,177||144,039,291|
|Contingent liabilities (Note 23)|
|Contractual obligations (Note 24)|
|The accompanying notes form an integral part of these financial statements.|
|Equity of Canada, beginning of year||(379,726,725)||(344,784,788)|
|Net cost of operations||(77,732,644)||(71,289,311)|
|Transfer from other government department (Note 9)||3,223,964||-|
|Current year appropriations used (Note 3a)||198,179,663||210,800,076|
|Revenue not available for spending||(5,451,495)||(5,563,923)|
|Change in net position in the Consolidated Revenue Fund (Note 3c)||(159,988,641)||(168,906,535)|
|Services received without charge from other government departments (Note 25)||18,673||17,756|
|Equity of Canada, end of year||(421,477,205)||(379,726,725)|
|The accompanying notes form an integral part of these financial statements.|
|Net cost of operations||77,732,644||71,289,311|
|Amortization of tangible capital assets||(253)||(1,595)|
|Amortization of other loans, investments and advances||163,355||348,018|
|Amortization of discounts on unmatured debt||(2,951,350)||(5,095,970)|
|Concessionary portion of other loans, investments, and advances||(278,129)||(530,832)|
|Write-down of tangible capital assets||-||(3)|
|Unrealized foreign exchange gains (losses)||(184,490)||58,750|
|Services received without charge from other government departments||(18,673)||(17,756)|
|Variations in Statement of Financial Position:|
|Increase (decrease) in assets||(6,780,541)||4,733,248|
|Decrease (increase) in liabilities||(11,216,018)||3,023,934|
|Cash used by operating activities||56,466,545||73,807,105|
|Capital investment activities|
|Acquisition (disposition) of tangible capital assets||(3,612)||2,059|
|Cash used by capital investment activities||(3,612)||2,059|
|Net advances to the Exchange Fund Account||11,247,366||3,688,615|
|Issuance of notes payable to International Monetary Fund||(873,000)||(383,023)|
|Encashment of notes payable to International Monetary Fund||1,459,918||1,497,000|
|Loans receivable from International Monetary Fund||363,962||-|
|Investment in Canada Development Investment Corporation||3,169,000||-|
|Special drawing rights allocation||(8,860,537)||-|
|Issuance of loans receivable||120,246,717||132,244,113|
|Repayment of loans receivable||(100,372,853)||(60,873,044)|
|Cash used by investing activities||26,380,573||76,173,661|
|Encashment of notes payable to international organizations||385,918||321,266|
|Issuance of notes payable to international organizations||(384,280)||(384,280)|
|Net proceeds from cross-currency swaps||293,917||(561,706)|
|Issuance of debt||(565,971,207)||(539,569,672)|
|Repayment of debt||515,571,673||426,541,185|
|Net cash provided by the Government of Canada||(32,739,527)||(36,329,618)|
|Cash provided by financing activities||(82,843,506)||(149,982,825)|
|The accompanying notes form an integral part of these financial statements.|
1. Authority and Objectives
The Department of Finance Canada is established under the Financial Administration Actas a Department of the Government of Canada.
The goal of the Department of Finance Canada is to foster strong and sustainable economic growth, resulting in higher standards of living and an improved quality of life for Canadians. To achieve its strategic outcome and deliver results for Canadians, the Department of Finance Canada articulates its plans and priorities based on core program activities. These program activities were reviewed and updated for the 2009-2010 fiscal year, as approved by the Treasury Board, to better reflect the Department’s operations.
Transfer and taxation payment programs:The Financial Administration Actcreated the Department of Finance Canada with a mandate that includes the supervision, control and direction of all matters relating to the financial affairs of Canada not by law assigned to the Treasury Board or any other minister.This program activity administers transfer and taxation payments to provinces and territories in accordance with legislation and negotiated agreements to provide for fiscal equalization and support for health and social programs and other shared priorities. Also included are commitments and agreements with international financial institutions aimed at aiding in the economic advancement of developing countries. In addition, from time to time, the government will enter into agreements or enact legislation to respond to unforeseen pressures. These commitments can result in payments, generally statutory transfer payments, to a variety of recipients including individuals, organizations and other levels of government.
Treasury and financial affairs: Provides direction of Canada’s debt management activities, including the funding of interest costs for the debt and service costs for new borrowings. In addition, the program manages investments in financial assets needed to establish a prudent liquidity position. This program supports the ongoing refinancing of government debt coming to maturity, the execution of the budget plan and other financial operations of the government, including governance of the borrowing activities of major government backed entities such as Crown corporations. This program activity is also responsible for the system of circulating Canadian currency (bank notes and coins) to meet the needs of the economy.
Economic and fiscal policy framework: This program activity is the primary source of advice and recommendations to the Minister of Finance regarding issues, policies and programs of the Government of Canada related to the areas of economic and social policy, federal-provincial fiscal relations, financial affairs, tax matters and international trade and finance. The work conducted by this program activity involves extensive research, analysis, and consultation and collaboration with partners in both the public and private sectors including the government, Cabinet and Treasury Board, Parliament and parliamentary committees, the public and Canadian interest groups, departments, agencies and Crown corporations, provincial and territorial governments, financial market participants, the international economic and finance community and the international trade community. In addition, this program manages the negotiation of agreements, drafting of legislation and sponsoring of bills through the parliamentary process that are subsequently administered by other program activities within the departments and by other government departments and agencies. The aim of this program activity is to create a sound and sustainable fiscal and economic framework that will generate sufficient revenues and provide for the management of expenditures in line with the Budget Plan and financial operations of the Government of Canada.
Internal services: Internal services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. These groups are: Management and Oversight Services; Communication Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.
2. Summary of Significant Accounting Policies
The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.
Significant accounting policies are as follows:
a) Parliamentary appropriations
The Department of Finance Canada is financed by the Government of Canada through parliamentary appropriations. Appropriations provided to the Department of Finance Canada do not parallel financial reporting according to Canadian generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statements of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.
Investments in the Crown corporations are recorded at cost and are not consolidated.
c) Net cash provided by Government
The Department of Finance Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF, and all cash disbursements made by the Department are paid from the CRF. The net cash provided by the Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the federal government.
d) Change in net position in the CRF
Change in net position in the CRF is the difference between the net cash provided by the government and appropriations used in a year, excluding the amount of non respendable revenue recorded by the Department of Finance Canada. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.
Revenues are accounted for on the accrual basis:
- Investment income is recognized as revenue when earned and, in the case of transfers from the Bank of Canada and dividends from the Canada Development Investment Corporation, when declared.
- Sale of domestic coinage is recognized in the period that the sale took place.
- Interest on Receiver General bank deposits is recognized as revenue when earned.
- Uncashed Receiver General cheques and warrants and bank account cheques for all departments and agencies are recognized as revenue of the Department of Finance Canada if they remain outstanding 10 years after the date of issue.
- Unclaimed matured bonds are recognized as revenue if they remain unredeemed 15 years after the date of call or maturity, whichever is earlier.
- Unclaimed bank balances are recognized as revenue when there has been no owner activity in relation to the balance for a period of 40 years.
- Guarantee fees are recognized when earned and are determined by reference to the terms of the guarantee program.
- Foreign currency gains are determined by reference to prevailing exchange rates at the time of transaction and at the year-end date as applicable on foreign currency denominated items.
Expenses are recorded on the accrual basis:
- Transfer payments are recorded as expenses when the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement or, in the case of transactions that do not form part of an existing program, when the government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
- Public debt charges are recognized when incurred and include interest, amortization of debt discounts, premiums and commissions, and servicing and issue costs.
- Operating expenses are recognized as incurred.
- The cost of domestic coinage sold is recognized in the period in which the related sale took place.
- Net foreign currency losses are determined by reference to prevailing exchange rates at the time of transaction and at the year-end date as applicable on foreign currency denominated items.
- Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
- Services received without charge from other government departments for accommodation, the employer's contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.
g) Employee future benefits
Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer defined benefit pension plan administered by the Government of Canada. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the Department to make contributions for any actuarial deficiencies of the Plan.
Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
h) Coin inventory
Coin inventory is valued at the lower of cost and net realizable value. Cost is determined by the average cost method.
i) Accounts receivable and advances
Accounts receivable and advances are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.
j) Foreign exchange accounts
Short-term deposits, marketable securities, and special drawing rights held in the foreign exchange accounts are recorded at cost. Marketable securities are adjusted for amortization of purchase discounts and premiums. Purchases and sales of securities are recorded at the settlement date. Write-downs to reflect other than temporary impairment in the fair value of securities are included in foreign exchange revenues on the statement of operations.
Canada's subscriptions, notes payable to and loans receivable from the International Monetary Fund are recorded at cost.
k) Foreign currency transactions
Transactions involving foreign currencies are translated to Canadian dollars at the rates of exchange in effect at the date of those transactions. Assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the rate prevailing on March 31. The resulting gains and losses are included in revenue or expenses in Treasury and Financial Affairs and Transfer and Taxation Payment Programs in the statement of operations.
l) Other loans, investments, and advances
Subscriptions and contributions are recorded at cost net of allowances.
Loans and advances are initially recorded at cost and are adjusted to reflect the concessionary terms of those loans made on a long-term, low interest, or interest-free basis and the portion of the loans that are expected to be repaid from future appropriations. An allowance for valuation is further used to reduce the carrying value of loans, investments, and advances to amounts that approximate their net realizable value. For loans and advances to international organizations, an allowance is established based on their concessionary terms and their collectibility.
m) Derivative financial instruments
Derivative financial instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other financial measures. Derivative financial instruments that the Department of Finance Canada is currently party to include cross-currency swap agreements.
Cross-currency swaps are initially recorded at cost and are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. For cross-currency swaps where domestic debt has been converted into foreign debt, any exchange gains or losses are offset by the exchange gains or losses on foreign currency advances to the Exchange Fund Account. For cross-currency swaps where foreign debt has been converted into US dollar debt, any exchange gains or losses are offset by the exchange gains or losses on the applicable foreign debt.
Interest paid and payable, and interest received and receivable on all derivative financial instruments is included in interest on unmatured debt.
n) Tangible capital assets
All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more and that meet the criteria outlined in TBAS 3.1 Capital Assets, are recorded at their acquisition cost. The Department of Finance Canada does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections. Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:
|Asset class||Amortization Period|
|Machinery and equipment||Three to five years|
|Motor vehicles||Three years|
|Leasehold improvements||Lesser of the remaining term of the lease or useful life of the improvement|
o) Unmatured debt
Premiums and discounts on public debt are amortized on a straight line basis over the term to maturity of the respective debt instrument. The corresponding amortization is recorded as part of public debt charges.
p) Other liabilities
Deposits from Crown corporations that are repayable are recorded in "Other Liabilities" in the Statement of Financial Position.
q) Loan guarantees
Provisions for liabilities arising under the terms of a loan guarantee program are made when it is likely that a payment will be made and an amount can be estimated.
The allowance for losses on the guarantees of the Canadian Wheat Board and Export Development Canada is determined based on the government's identification and evaluation of countries that have formally applied for debt relief, estimated probable losses that exist on the remaining portfolio, and changes in the economic conditions of sovereign debtors.
r) 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 an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
s) Measurement uncertainty
The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. 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 contingent liabilities, valuation allowances for loans receivable, discounts on loans receivable, transfer payments to provinces and territories, accruals of taxes receivable and taxes payable under tax collection agreements, amounts payable to Ontario relating to General Motors and Chrysler, and the liability for employee severance benefits. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.
3. Parliamentary Appropriations
The Department of Finance Canada receives most of its funding through annual parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through parliamentary appropriations in prior, current or future years. Accordingly, the Department 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:
a) Reconciliation of net cost of operations to current year appropriations used
|Net cost of operations||77,732,644||71,289,311|
|Adjustments for items affecting net cost of operations but not affecting appropriations:|
|Revenue not available for spending||5,451,495||5,563,923|
|Employment Insurance enhancement measure||124,000||(124,000)|
|Allowance for bad debts||106,147||(213,432)|
|Allowance on loan guarantees||66,766||111,208|
|Inventory charged to program expense||11,372||(2,414)|
|Employee severance benefits||972||(3,296)|
|Amortization of tangible capital assets||(253)||(1,595)|
|Recoveries on prior year allowances||-||880|
|Services received without charge||(18,673)||(17,756)|
|Quebec Youth Allowances Recovery prepayment||-||336,000|
|Other expenses not being charged to appropriations:|
|Transitional assistance provided under sales tax harmonization agreements||(5,649,000)||-|
|Transfer payment pursuant to the Budget Implementation Act||95,100||1,466,300|
|Adjustments for items not affecting net cost of operations but affecting appropriations:|
|Advances and prepaid expenses||119,914,304||132,005,692|
|Issuance and encashment of notes payable||385,918||386,930|
|Acquisitions of tangible capital assets||-||1,530|
|Current year appropriations used||198,179,663||210,800,076|
b) Appropriations provided and used
|Vote 1 – Operating expenditures||135,165||123,392|
|Vote 5 – Grants and contributions||362,206||660,200|
|Appropriations available for future years||(68,573)||(68,574)|
|Vote 1 – Operating expenditures||(13,519)||(12,269)|
|Vote 5 – Grants and contributions||(144,874)||(88,166)|
|Spending of proceeds from disposal of surplus Crown assets||-||(6)|
|Current year appropriations used||198,179,663||210,800,076|
c) Reconciliation of net cash provided by Government to current year appropriations used
|Net cash provided by government||32,739,527||36,329,618|
|Revenue not available for spending||5,451,495||5,563,923|
|Change in net position in the Consolidated Revenue Fund:|
|Variation in assets and liabilities:|
|Unmatured and matured debt||44,934,828||123,408,643|
|Loans, investments, and advances||(22,710,730)||(71,369,370)|
|Payables and accrued liabilities||7,984,510||(2,957,495)|
|Foreign exchange accounts||4,758,438||(9,409,429)|
|Tangible capital assets||3,865||(460)|
|Employee severance benefits||(972)||3,296|
|Advances - Crown Borrowing Program||119,840,611||131,881,631|
|Transfer from other government department||3,223,964||-|
|Issuance of notes payable for subscriptions||384,280||384,280|
|Other expenses not being charged to appropriation at the same time||(5,383,607)||1,800,032|
|Total change in net position in the Consolidated Revenue Fund||159,988,641||168,906,535|
|Current year appropriations used||198,179,663||210,800,076|
The following table presents details of expenses by category:
|Provinces and territories (Note 4a)||55,344,072||45,756,464|
|Allowances on loan guarantees (recovery of)||(66,766)||(111,208)|
|Employment insurance enhancement measures (recovery of)||(124,000)||124,000|
|Non-profit institutions and organizations||70,102||91|
|Total transfer payments||55,586,499||46,518,553|
|Public debt charges:|
|Interest on unmatured debt (Note 4b)||16,535,376||18,301,808|
|Interest on superannuation and other accounts (Note 4c)||10,342,737||11,610,137|
|Other public debt charges||31,537||27,849|
|Total public debt charges||26,909,650||29,939,794|
|Operating expenses (Note 4d)||151,494||142,036|
|Cost of domestic coinage sold||121,829||128,782|
|Net foreign currency loss||46,171||-|
|Other expenses (recovery of)||5,440||(796)|
a) Transfer payments to provinces and territories
Transfer payments to provinces and territories are paid pursuant to the Federal-Provincial Fiscal Relations Act, Budget Implementation Acts, and other statutory authorities.
For the period ending March 31, transfer payments to provinces and territories includes the following:
|Canada Health Transfer||24,081,039||22,759,016|
|Canada Health Transfer - Wait Times Reduction||250,000||-|
|Canada Social Transfer||10,857,853||10,567,868|
|Alternative payments for standing programs (recovery of)||(2,702,590)||(2,973,912)|
|Youth Allowances Recovery||(596,259)||(668,659)|
|Crown Share Adjustment||79,400||95,100|
|Bill C-10 (An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009):|
|Canada Health Transfer - special payment to Ontario||489,058||-|
|Payment to Nova Scotia||74,188||-|
|Bill C-50 (An Act to implement certain provisions of the budget tabled in Parliament on February 26, 2008):|
|Canada Social Transfer Transition Protection Payments||-||(91)|
|Bill C-52 (An Act to implement certain provisions of the budget tabled in Parliament on March 19,2007):|
|Incentive for the elimination of capital taxes||163,400||170,000|
|Transitional assistance provided under sales tax harmonization agreements||5,899,000||-|
|Obligation to Ontario-General Motors and Chrysler||33,900||-|
|Total transfer payments to provinces and territories||55,344,072||45,756,464|
b) Interest on unmatured debt
Interest on unmatured debt includes interest incurred, amortization of debt discounts, premiums and net interest on cross-currency and interest rate swaps.
For the period ending March 31, interest on unmatured debt includes the following:
|Interest on domestic debt:|
|Bonds for Canada Pension Plan||51,896||67,453|
|Interest on foreign debt:|
|Marketable bonds (US and euro)||61,073||104,331|
|Canada bills (US)||24,026||56,516|
|Euro medium-term notes (euro)||1,674||74,657|
|Canada notes (yen)||-||10,548|
|Total interest on unmatured debt||16,535,376||18,301,808|
c) Interest on superannuation and other accounts
For the period ending March 31, interest on superannuation and other accounts includes the following:
|Other specified purpose accounts||268,227||285,165|
|Retirement compensation arrangement accounts||119,812||118,379|
|Employment Insurance Fund (recovery of)||(93,980)||950,223|
|Special drawing rights allocations||16,383||26,348|
|Canada Pension Plan account||736||5,603|
|Total interest on superannuation and other accounts||10,342,737||11,610,137|
The Department of Finance Canada funds interest on interest-bearing specified purpose accounts established by all departments and agencies, including superannuation accounts and retirement compensation arrangement accounts established for the benefit of public service employees and members of the Royal Canadian Mounted Police and the Canadian Forces, the CPP Account, the Employment Insurance Fund, and other accounts.
Pursuant to Jobs and Economic Growth Act, as of January 1, 2009 the Department of Finance Canada is no longer required to pay interest on the balance of the Employment Insurance Account. In 2010, the Department of Finance Canada, recovered all interest charged to the Employment Insurance Fund for the period of January 1 to March 31, 2009.
Interest on other liabilities includes interest incurred on specified purpose accounts and interest on special drawing rights allocations.
d) Operating expenses
The following table presents details of operating expenses by category:
|Salaries and wages||82,615||84,128|
|Professional and special services||19,004||17,041|
|Contributions to employee benefit plans||12,962||11,431|
|Transportation and telecommunications||5,683||5,338|
|Machinery and equipment||3,703||1,423|
|Repairs and maintenance||609||274|
|Amortization of tangible capital assets||253||1,595|
|Total operating expenses||151,494||142,036|
The following table presents details of revenues by category:
|Canada Mortgage and Housing Corporation - interest||1,743,979||525,657|
|Exchange Fund Account (Note 8)||1,455,539||1,852,821|
|Transfers from the Bank of Canada||1,251,937||1,757,122|
|Other loan interest||145,673||173,045|
|Dividends from Canada Development Investment Corporation||100,700||217,000|
|Farm Credit Canada - interest||89,747||168,510|
|Business Development Bank of Canada - interest||34,063||105,817|
|Interest on International Monetary Fund (IMF) balances||4,993||8,386|
|Loan interest - Canada Lands Company Ltd.||1,785||2,886|
|Total investment income||4,828,416||4,811,244|
|Sale of domestic coinage||115,498||171,195|
|Interest on bank deposits||82,908||346,700|
|Net foreign currency gain||-||57,610|
6. Accounts Receivable and Advances
The following table presents details of accounts receivable and advances:
|Accrued investment income||311,381||278,020|
|Accrued interest income - Crown borrowings||136,754||117,394|
|Receivables - other federal government departments and agencies||205,351||6,019|
|Receivables - external||118||108|
|Deposits in transit to the Receiver General||-||68|
|Total accounts receivable and advances||653,604||401,609|
7. Taxes Receivable under Tax Collection Agreements
The following table presents the details of taxes receivable under tax collection agreements:
|Corporate income taxes||3,198,342||3,999,676|
|Personal income taxes||697,278||7,033,653|
|Harmonized Sales Tax||265,923||130,030|
|First Nations Goods and Services Tax||931||870|
|First Nations Sales Tax||526||417|
|Various provincial benefits||(178,387)||(73,857)|
|Total taxes receivable under tax collection agreements||3,984,613||11,090,789|
Taxes receivable include taxes collectible by the CRA on behalf of provincial, territorial or Aboriginal governments that have not yet been remitted to the Department of Finance Canada.
The Department of Finance Canada ultimately transfers these amounts directly to the participating provinces in accordance with established payment schedules. Amounts payable are described at Note 14.
Various provincial benefits include benefit amounts paid by CRA directly to recipients on behalf of provincial governments. Transfers to the provincial governments are ultimately reduced by these amounts.
8. Foreign Exchange Accounts
The foreign exchange accounts represent the largest component of the official international reserves of the Government of Canada and consist of the following:
|Investments held in the Exchange Fund Account||52,245,773||49,341,250|
|Accrued net revenue from the Exchange Fund Account||1,455,539||1,852,821|
|Total investments held in Exchange Fund Account (Note 8a)||53,701,312||51,194,071|
|Subscriptions to the International Monetary Fund (Note 8b)||9,822,771||12,010,592|
|Loans receivable from the International Monetary Fund (Note 8c)||337,054||-|
|Notes payable to the International Monetary Fund (Note 8d)||(7,676,040)||(10,026,594)|
|Special drawing rights allocations (Note 8e)||(9,234,997)||(1,469,531)|
|Total foreign exchange accounts||46,950,100||51,708,538|
a) Investments held in Exchange Fund Account
This account records the moneys advanced from the Government to the Exchange Fund Account, in Canadian and other currencies, for the purchase of gold, foreign currencies and securities, and special drawing rights (SDRs). The Exchange Fund Account is operated under the provisions of the Currency Act. The advances are limited to $100 billion by order of the Minister of Finance dated September 2009.
The following table shows international reserves held in and advances to the Exchange Fund Account:
|US dollar cash on deposit||225,673||547,664|
|US dollar marketable securities||24,478,068||27,404,794|
|Euro cash on deposit||175,549||272,496|
|Euro marketable securities||19,441,744||21,640,775|
|Japanese yen cash on deposit||90,685||105,834|
|Japanese yen marketable securities||217,220||-|
|Special drawing rights||9,066,489||1,215,313|
|Total investments held in the Exchange Fund Account||53,701,312||51,194,071|
b) Subscriptions to the International Monetary Fund
This account records the value of Canada’s subscription (“quota”) to the capital of the International Monetary Fund (IMF). The IMF is an international organization of 186 member countries that operates in accordance with its Articles of Agreement. It has a large pool of liquid assets, or resources, comprising convertible national currencies, special drawing rights, and other widely used international currencies provided by its members that it makes available to help members finance temporary balance of payments problems.
Upon joining the IMF and following periodic quota reviews, member countries are assigned a quota, based broadly on their relative size in the world economy.
c) Loans receivable from the International Monetary Fund
On July 6, 2009, the Government of Canada entered into a two-year, bi-lateral borrowing agreement with the IMF. The maximum borrowings of the IMF under this agreement are limited to the equivalent of USD $10 billion. The purpose of the agreement is to provide temporary resources for member countries requiring balance of payment assistance during the global economic crisis.
Each drawing under the agreement has a term to maturity of three months and bears interest at the SDR rate. Amounts advanced under this agreement are considered part of the Official International Reserves of Canada.
d) Notes payable to the International Monetary Fund
This account records non-marketable, non-interest bearing notes issued by the Government to the IMF. These notes are payable on demand and are subject to redemption or re-issue, depending on the needs of the IMF for Canadian currency.
At least 25 per cent of Canada’s quota is held by the IMF in a Canadian dollar cash deposit at the Bank of Canada. The IMF’s remaining Canadian-dollar holdings are in the form of non-negotiable, non-interest bearing demand notes that are cashed by the IMF subject to its requirements for Canadian currency.
e) Special drawing rights allocations
This account records the value of special drawing rights (SDRs) allocated to Canada by the IMF. A SDR is an international reserve asset created by the IMF to supplement existing official international reserves of member countries. It represents a liability of Canada, as circumstances could arise whereby Canada could be called upon to repay these allocations, in part or in total.
SDR allocations are repayable to the IMF if they are cancelled by the IMF’s Board of Governors, the Special Drawing Rights Department is liquidated, the IMF is liquidated, or if Canada chooses to withdraw from the IMF or terminate its participation in the Special Drawing Rights Department.
In August and September of 2009, the IMF completed allocations of Special Drawing Rights (SDRs) in an effort to boost global liquidity. Canada’s share of these allocations was approximately SDR 5.2 billion.
Canada’s cumulative SDR allocations at March 31, 2010 are SDR 5,988 million. The Canadian dollar equivalent of this amount is $9,235 million.
f) Notional cost
For the year ended March 31, 2010, the notional cost of funds advanced by the CRF to the Exchange Fund Account is $1,357 million ($1,630 million for the year ended March 31, 2009). The notional cost of advanced funds is comprised of the actual interest costs on foreign denominated debt and cross currency swaps for foreign currency advances, and an imputed interest cost calculated using the average funding rate of outstanding Government of Canada market debt, applicable to the net of Canadian dollar and SDR currency advances.
9. Investment in Crown Corporations
At March 31, the investment, at cost, is as follows:
|Canada Development Investment Corporation (CDIC)||3,564,658||395,658|
| 101 common shares without a par value. The remaining balance of the investment
represents the contributed surplus of the corporation.
|Bank of Canada||5,920||5,920|
| 100,000 shares with a par value of $50 each and $920,000 of premiums paid
in respect of the acquisition of shares held by the public.
|Canada Pension Plan Investment Board (CPPIB)|
| 10 shares of the CPPIB at $10 per share, which represents 100 per cent
of the outstanding shares.
|Total investment in Crown corporations||3,570,578||401,578|
During the year, the contributed surplus of CDIC increased by $3,169 million as a result of loans transferred to it by the Government of Canada. The loans represented a component of the total assistance provided by the Government of Canada and Ontario to General Motors and Chrysler. The carrying value of the loans at the time of transfer was $3,169 million. The consideration paid by CDIC was $nil.
10. Crown Borrowings
The following table presents details of the Crown borrowings:
|Face value||Unamortized (discounts) premium||Net book value2010||Net book value2009|
|Canada Mortgage and Housing Corporation1||68,284,695||(226)||68,284,469||57,680,475|
|Farm Credit Canada||15,931,450||6,987||15,938,437||11,458,121|
|Business Development Bank of Canada2||12,245,010||(10)||12,245,000||7,283,600|
|Total Crown borrowings||96,461,155||6,751||96,467,906||76,422,196|
1 Includes loans of $63,437,339 as of March 31, 2010 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities.
Contractual maturities of unmatured loans by Crown corporations over the next five years, at face value, are as follows:
|Maturing year||Farm Credit Canada||Business Development Bank||Canada Mortgage and Housing Corporation||Total|
|2016 and thereafter||285,000||15,000||957,850||1,257,850|
The effective average annual interest rates are as follows:
|Farm Credit Canada||Business Development Bank||Canada Mortgage and Housing Corporation|
|Short Term fix||0.174%||0.143%||0.175%|
|Long Term fix||2.933%||1.556%||3.251%|
|Short Term floating||-%||0.183%||-%|
|Long Term floating||0.188%||0.175%||1.302%|
11. Other Loans, Investments, and Advances
The following table presents details of other loans, investments, and advances by category:
|Face value||Unamortized discounts||Net book value 2010||Net book value 2009|
|Government business enterprises|
|Notes receivable from Canada Lands Company Ltd. (Note 11a)||49,261||7,967||41,294||36,979|
|Note receivable from Parc Downsview Park Inc. (Note 11b)||19,000||16,966||2,034||1,895|
|Provincial and territorial governments|
|Recoverable overpayments of transfer payments (Note 11c)||2,750,226||313,771||2,436,455||2,917,517|
|Recoverable overpayments of taxes payable under tax collection agreements (Note 11d)||568,365||71,579||496,786||604,937|
|Loans to Municipal Development and Loan Board (Note 11e)||315||-||315||315|
|Loans to the Winter Capital Projects Fund (Note 11f)||2,900||-||2,900||2,900|
|International and other organizations|
|Subscriptions and contributions to the International Development Association (Note 11g)||8,580,218||-||8,580,218||8,195,938|
|Subscriptions to the European Bank for Reconstruction and Development (Note 11h)||219,614||-||219,614||272,690|
|Subscriptions to the International Bank for Reconstruction and Development (Note 11i)||341,088||-||341,088||419,558|
|Loans to the International Monetary Fund’s Poverty Reduction and Growth Trust (Note 11j)||181,965||-||181,965||304,346|
|Subscriptions to the International Finance Corporation (Note 11k)||82,627||-||82,627||102,597|
|International Finance Corporation Global Trade Liquidity Program (Note 11l)||203,160||-||203,160||-|
|International Finance Corporation Global Agriculture and Food Securities Program (Note 11m)||48,000||-||48,000||-|
|Subscriptions to the Multilateral Investment Guarantee Agency (Note 11n)||10,902||-||10,902||13,537|
|Advances to the Global Environment Facility (Note 11o)||10,000||-||10,000||10,000|
|Investment in loan portfolio acquired from Canadian Commercial Bank (Note 11p)||42,252||-||42,252||42,252|
|Less: Valuation allowance||9,337,601||-||9,337,601||9,059,472|
|Total other loans, investments, and advances||3,772,292||410,283||3,362,009||3,865,989|
Government business enterprises
a) Canada Lands Company Ltd. (CLC)
CLC has acquired an interest in a number of real properties from the government in consideration for the issuance of promissory notes, which bear no interest and are repayable from the proceeds of the sale of the properties in respect of which they were issued. The notes were discounted using the Consolidated Revenue Fund lending rate applicable to Crown corporations and recorded at their discounted value.
b) Parc Downsview Park Inc.
The promissory note is non-interest bearing and is repayable in full on July 31, 2050.
Provincial and territorial governments
c) Recoverable overpayments of transfer payments
The overpayments are non interest bearing and are recovered in subsequent years.
d) Recoverable overpayments of taxes payable under tax collection agreements
Recoveries are non interest bearing and will take place over a 10 year period, which started in 2004–05.
e) Municipal Development and Loan Board
The loans bear interest at rates from 5.25 to 5.375 per cent per annum and are repayable in annual or semi annual instalments over 15 to 50 years, with final instalments between April 1, 2010, and July 1, 2010.
f) Winter Capital Projects Fund
The loans bear interest at rates from 7.4 to 9.5 per cent per annum and are repayable either in annual instalments over 5 to 20 years, or at maturity. The loans are fully provisioned.
International and other organizations
g) International Development Association (IDA)
Contributions and subscriptions to IDA are made in non-negotiable, non-interest bearing demand notes that are later encashed. During the year, transactions included participation through the issuance of notes payable. As at March 31, 2010, Canada’s total participation in IDA amounted to C$8,580.2 million (C$8,195.9 million in 2009). The loans are fully provisioned.
h) European Bank for Reconstruction and Development
As at March 31, 2010, Canada had paid-in shares valued at US$216,197,668 (US$216,197,668 in 2009). Canada’s contingent liability for the callable portion of its shares is US$612,420,000. The loans are fully provisioned.
i) International Bank for Reconstruction and Development (World Bank)
As at March 31, 2010, Canada has subscribed to 44,795 shares. The total value of these shares is US$5,403.8 million, of which US$319.6 million plus C$16.4 million has been paid-in. The remaining portion is callable. The callable portion is subject to call by the Bank under certain circumstances. Canada’s contingent liability for the callable portion of its shares is US$5,069 million. The loans are fully provisioned.
j) International Monetary Fund - Poverty Reduction and Growth Trust
This account records the loan to the International Monetary Fund's Poverty Reduction and Growth Trust (formerly the Poverty Reduction and Growth Facility) in order to provide assistance to qualifying low-income countries as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.
The total loan authority pursuant to the Bretton Woods and Related Agreements Actwas set at $550 million or such greater amount as may be fixed by the Governor in Council. The Governor in Council subsequently increased the limit to SDR1.2 billion.
As at March 31, 2010, Canada has lent a total of SDR700,000,000 (SDR700,000,000 in 2009) to the Poverty Reduction and Growth Trust. Of this amount, SDR582,011,729 (SDR538,605,953 in 2009) has been repaid. The outstanding balance of SDR117,988,271 (SDR161,394,047 in 2009) was translated into Canadian dollars at the year end closing rate of exchange (1 SDR = C$1.54223). During the year, transactions included repayments and an exchange valuation adjustment.
Separately, Canada has also made budgetary contributions towards an interest subsidy amounting to SDR189,997,586. The final contribution was made in 2006.
k) International Finance Corporation - Subscriptions
As at March 31, 2010, Canada subscribed to 81,342 shares. These shares have a total value of US$81.3 million, all of which has been paid-in. The loans are fully provisioned.
l) International Finance Corporation Global Trade Liquidity Program
This account records Canada's financial assistance to the International Finance Corporation (IFC) for participation in the Global Trade Liquidity Program (GTLP) as authorized by the Bretton Woods and related Agreements Actand various appropriation acts.
As at March 31, 2010, advances to the IFC-GTLP amounted to US$200,000,000.
m) International Finance Corporation Global Agriculture and Food Securities Program
This account records Canada's financial assistance to the International Finance Corporation (IFC) for participation in the G8 Food Security Initiative (FSI) as authorized by the Bretton Woods and related Agreements Act and various appropriation acts.
As at March 31, 2010, advances to the IFC-FSI amounted to C$48,000,000. The loans are fully provisioned.
n) Subscriptions to the Multilateral Investment Guarantee Agency
As at March 31, 2010, Canada has subscribed to 5,225 shares. The total value of these shares is US$56.5 million, of which US$10.7 million is paid-in and the remaining portion is callable. The callable portion is subject to call by the Agency under certain circumstances. Canada’s contingent liability for the callable portion of its shares is US$45.8 million. The loans are fully provisioned.
o) Advances to the Global Environment Facility
Advances to the Global Environment Facility (GEF) are made in non-negotiable, non-interest bearing demand notes that are later encashed. As at March 31, 2010, advances to the GEF amounted to C$10,000,000. The loans are fully provisioned.
p) Investment in loan portfolio acquired from Canadian Commercial Bank
These funds represent the government’s participation in the loan portfolio that was acquired from the Bank and the purchase of outstanding debentures from existing holders. The loans are fully provisioned.
12. Tangible Capital Assets
Amortization expense for the year ended March 31, 2010 is $253,375 ($1,595,463 in 2009).
In 2010, the majority of tangible capital assets were transferred to Treasury Board of Canada Secretariat as part of an organizational restructuring.
13. Accounts Payable and Accrued Liabilities
The following table presents details of accounts payable and accrued liabilities:
|Accounts payable - external (Note 13a)||5,950,845||304,494|
|Province of Ontario - General Motors and Chrysler (Note 13b)||932,393||-|
|Accounts payable - other federal government departments and agencies||281,563||502,414|
|Allowance for guarantees (note 23c)||250,330||317,096|
|Accrued vacation pay||4,738||4,901|
|Total accounts payable and accrued liabilities||7,419,869||1,128,905|
a) Accounts payable – external
Included in accounts payable is $5,899 million payable to Ontario and British Columbia with respect to transitional assistance for sales tax harmonization in those provinces. $4,300 million relates to Ontario and $1,599 million relates to British Columbia. This transitional assistance is outlined in the Comprehensive Integrated Tax Coordination Agreements (CITCAs) with the respective provinces. These amounts will be fully paid by July 2011 if the province is compliant with the terms and conditions of their CITCA.
b) Province of Ontario – General Motors and Chrysler
This liability to the Province of Ontario relates to Canada's obligation to Ontario for the province's substantial interest in the Government's equity holdings in General Motors and Chrysler. These equity investments are currently registered to wholly-owned subsidiaries of the Canada Development Investment Corporation (CDIC), a Crown corporation.
In light of Ontario's one-third contribution to the total Canadian financial assistance provided to General Motors and Chrysler, Canada has entered into an agreement with Ontario to transfer one-third of amounts received as a result of holding these investments, including dividends and proceeds from dispositions.
The carrying amount of the liability approximates one-third of the estimated fair value of the Government's investments in General Motors and Chrysler held through CDIC and its wholly-owned subsidiaries.
14. Taxes Payable under Tax Collection Agreements
At March 31, the balance in the accounts pertaining to taxes collectible and payable to provinces, territories and Aboriginal governments under tax collection agreements is as follows:
|Corporate income taxes||5,508,913||3,480,149|
|Personal income taxes||432,341||1,027,223|
|Harmonized Sales Tax||438,922||434,874|
|First Nations Sales Tax||526||417|
|First Nations Goods and Services Tax||931||870|
|Total taxes payable under tax collection agreements||6,381,633||4,943,533|
Pursuant to various tax collection agreements, the Canada Revenue Agency (CRA) collects and administers personal income tax, corporate income and capital taxes, harmonized sales tax, sales tax, and goods and services sales tax on behalf of certain provinces, territories and Aboriginal governments. Amounts collectible by the CRA, but not yet remitted to the Department of Finance Canada, are described at Note 7.
The Department of Finance Canada ultimately transfers these amounts directly to the participating provinces in accordance with established payment schedules.
Given that the Government of Canada reports information on a fiscal year basis while tax information is calculated on a calendar year basis, there can be transactions related to several tax years during any given fiscal year. Taxes payable therefore include amounts assessed, estimates of assessments based upon cash received, adjustments from reassessments, and adjustments relating to previous tax years payable to provincial, territorial and Aboriginal governments.
15. Interest Payable
The following table presents details of interest payable:
|International Monetary Fund Balances||3,618||1,277|
|Total interest payable||6,778,377||6,839,241|
16. Notes Payable to International Organizations
Non interest bearing demand notes are issued in lieu of cash in respect of subscriptions and contributions to international organizations. The notes are presented for encashment according to their terms of agreement.
At March 31, the amount outstanding is as follows:
|International Development Association||384,280||384,280|
|International Bank of Reconstruction and Development||24,362||30,250|
|Multilateral Investment Guarantee Agency||3,259||4,046|
|European Bank for Reconstruction and Development||-||1,838|
|Total notes payable to international organizations||411,901||420,414|
17. Matured Debt
Matured debt consists of debt that has matured but has not yet been redeemed.
At March 31, the amount outstanding is as follows:
|Retail debt (matured from 1992 to 2010)||61,231||66,078|
|Marketable bonds (matured from 1992 to 2010)||12,505||13,461|
|Treasury bills (matured from 1977 to 1996)||591||591|
|Total matured debt||74,327||80,130|
18. Unmatured Debt
The Department of Finance Canada borrows in both domestic and international markets on behalf of the Government of Canada.
Domestic debt consists of Treasury bills, marketable bonds, retail debt, and bonds for Canada Pension Plan (CPP).
The Treasury bills balance at March 31, 2010, consists of $8.5 billion in odd issue bills, $51.5 billion in three month bills, $38.6 billion in six month bills, and $77.3 billion in 364 day bills.
Marketable bonds consists of outstanding domestic Government of Canada bonds with remaining terms to maturity ranging from 1 to 32 years.
Retail debts include Canada Savings Bonds which are redeemable on demand by the holder, with accrued interest calculated to the end of the previous month; no interest is paid if redeemed during the first three months following the date of issue.
Bonds for Canada Pension Plan and notes are interest-bearing certificates of indebtedness issued by the Government of Canada exclusively to the CPP Investment Fund and are redeemable at face value plus accrued interest.
Foreign debt is issued by the Government of Canada under the government’s foreign currency borrowing program. It consists of marketable bonds; Canada bills; and euro medium term notes. Marketable bonds include bonds assumed by Finance Canada on February 5, 2001, on the dissolution of Petro Canada Limited.
Marketable bonds are either issued in US dollars and/or in euros. They are issued to provide long term foreign funds and have remaining terms to maturity ranging from 5 to 15 years.
Canada bills are short-term certificates of indebtedness issued in the US money market.
Euro medium-term notes are issued in euros and thus provide Canada with an additional source of medium-term foreign funds.
At March 31, unmatured debt is composed of the following:
|Face value||Unamortized (discounts) premiums||Net book value2010||Net book value2009|
|Bonds for Canada Pension Plan||451,891||-||451,891||523,003|
|Euro medium-term notes||-||-||-||1,675,562|
|Less: Securities held for the retirement of unmatured foreign debt||(55,251)||(267,863)|
|Total unmatured debt||555,137,686||510,197,055|
|Domestic debt fair value||585,217,733||550,969,884|
|Foreign debt fair value||8,391,693||10,457,232|
Contractual maturities of unmatured debt by currency over the next five years, at face value, are as follows:
|Maturing year||Canadian dollars||US dollars||Euro||Total|
|2016 and thereafter||186,099,758||53,659||2,744,000||188,897,417|
1 Includes Treasury bills, marketable bonds, retail debt and bonds for Canada Pension Plan.
The effective average annual interest rates are as follows:
|Bonds for Canada Pension Plan||11.19||11.03|
|Foreign currency notes||-||4.50|
19. Derivative and Fair Values of Financial Instruments
a) Derivatives - Swap agreements
Government debt is issued at both fixed and variable interest rates and is denominated in Canadian dollars, US dollars and other currencies. The government has entered into cross-currency swap agreements to facilitate the management of its debt structure. In the case of cross-currency swap agreements, Canadian-dollar and other foreign-currency debt has been converted into US dollars or other foreign currencies with either fixed interest rates or variable interest rates. As a normal practice, the government’s swap positions are held to maturity. The government does not enter into swap agreements for speculative purposes.
The interest paid or payable and the interest received or receivable on all swap transactions are recorded as part of public debt charges. Unrealized gains or losses due to fluctuations in the foreign exchange value of the swaps are presented in the cross-currency swap revaluation account.
Cross-currency swap with contractual, notional principal amounts outstanding at March 31, are as follows:
|2016 and thereafter||21,736,939||19,267,527|
Credit risk to swap agreements
The government manages its exposure to credit risk by dealing principally with financial institutions having credit ratings from at least two recognized rating agencies, one of which must be Moody’s or Standard & Poor’s. At the time of inception of the agreement, the credit rating of the institution must be at least A–.
The government does not have a significant concentration of credit risk with any individual institution and does not anticipate any credit loss with respect to its swap agreements.
The following table presents the notional amounts of the swap agreements by ratings assigned by Standard & Poor’s:
b) Fair value of financial instruments
The following tables present the carrying value, notional value and the fair value of financial instruments. Fair values are government estimates and are generally calculated using market conditions at a specific point in time where a market exists. Fair values of instruments with a short lifespan or of a non-negotiable nature are assumed to approximate carrying values. Fair values may not reflect future market conditions nor the actual values obtainable should the instrument be exchanged on the market. The calculations are subjective in nature and involve inherent uncertainties due to unpredictability of future events.
|Carrying value||Fair value||Difference||Carrying value||Fair value||Difference|
|Foreign exchange Accounts||46,950,100||48,354,003||1,403,903||51,708,538||53,457,209||1,748,671|
|Notional value||Fair value||Notional value||Fair value|
|Cross-currency swaps (net)||4,233,176||3,891,753||(3,689,979)||(2,225,102)|
Fair value of the swap agreements are the estimated amount that the Government would receive or pay, based on market factors, if the agreements were terminated on March 31. They are established by discounting the expected future cash flows of the swap agreements by using fiscal year end market interest and exchange rates. A positive (negative) fair value indicates that the Government would receive (make) a payment if the agreements were terminated.
20. Financial Risk
Interest rate and foreign currency risks are managed using a strategy of matching the duration structure and the currency of the Exchange Fund Account (EFA) assets and the related foreign currency borrowings of the Government of Canada. As at March 31, 2010, the EFA assets and the liabilities funding these assets were effectively matched, which means that most price changes would affect both sides of the statement of financial position equally. Assets related to the International Monetary Fund are only partially matched, as they are denominated in SDRs.
The Government of Canada’s foreign currency assets and liabilities are held in mainly three currency portfolios: the US dollar, the euro, and the Japanese yen. At March 31, 2010, a one per cent appreciation of the Canadian dollar versus the US dollar, the euro, and the Japanese yen would have resulted in a foreign exchange gain of $17.3 million due to the unmatched exposure of the US dollar portfolio and in a foreign exchange loss of $2.5 million to the unmatched exposure of the euro portfolio.
21. Other Liabilities
The following table presents details of other liabilities:
|Canada Hibernia Holding Corporation (Note 21a)||93,719||93,506|
|Canada Eldor Inc. (Note 21b)||39,373||44,275|
|Collateral deposits (Note 21c)||329,512||-|
|Common School Funds - Ontario and Quebec (Note 21d)||2,678||2,678|
|Foreign Claims Fund (Note 21e)||179||179|
|War Claims Fund - World War II (Note 21f)||4||4|
|Total other liabilities||465,465||140,642|
The deposits from the two wholly owned subsidiaries of the Canada Development Investment Corporation are interest bearing and are repayable.
a) Canada Hibernia Holding Corporation—Abandonment reserve fund
This account is a demand deposit established to record funds that will be used by Canada Hibernia Holding Corporation to defray the future abandonment costs that will incur at the closure of the Hibernia field.
b) Canada Eldor Inc.—Holdback—Privatization—CDIC
This account was established pursuant to subsection 129(1) of the Financial Administration Act. This special purpose money is to be used to meet costs incurred on the sale of Crown corporations and demand for payment by purchasers pursuant to the acquisition agreement and costs incurred by the CDIC in connection with their sale.
c) Collateral deposits
This account was established to record cash received as credit support under a collateral agreement with financial institutions.
d) Common School Funds—Ontario and Quebec
This account was established under 12 Victoria 1849, Chapter 200, to record the proceeds from the sale of lands set apart for the support and maintenance of common schools in Upper and Lower Canada, now Ontario and Quebec. Interest of $133,889—apportioned on the basis of population—is paid directly to these provinces on a semi-annual basis, at the rate of 5 per cent per annum, and is charged to interest on the public debt.
e) Foreign Claims Fund
This account was established by Vote 22a, Appropriation Act No. 9, 1966, to record (a)such part of the money received from the Custodian of Enemy Property, proceeds of the sale of property, and the earnings of property and (b)all amounts received from governments of other countries pursuant to agreements entered into after April 1, 1966, relating to the settlement of Canadian claims and also records payment of claims submitted, including payment of the expenses incurred in investigating and reporting on such claims.
f) War Claims Fund—World War II
This account was established by Vote 696, Appropriation Act No. 4, 1952, to record monies received from the Custodian of Enemy Property or from other sources and payments (a) to eligible claimants for compensation in respect of World War II; (b) of a supplementary award amounting to 50 per cent of the original award (PC 1958-1467, October 23, 1958); and (c) of expenses incurred in investigating and reporting on claims. The War Claims Commission was established to enquire into and report on claims made by Canadians arising out of World War II for which compensation may be paid from this fund. The expenses of the Commission are chargeable hereto.
22. Employee Benefits
a) Pension benefits
Employees of the Department of Finance Canada participate in the Public Service Pension 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 per cent per year of pensionable service times the average of the best five consecutive years of earnings. The benefits are integrated with the Canada and Quebec Pension Plan benefits and they are indexed to inflation.
Employees and the Department contribute to the cost of the Plan. The expense amounted to $9,358 thousand in 2010 ($8,253 thousand in 2009), which represents approximately 1.9 times (2.0 times in 2009) the contributions by employees. The responsibility of the Department of Finance Canada with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor.
b) Severance benefits
The Department of Finance Canada provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows.
|Accrued benefit obligation, beginning of year||16,096||12,800|
|Expense for the year (recovery of)||(174)||4,579|
|Benefits paid during the year||(798)||(1,283)|
|Accrued benefit obligation, end of year||15,124||16,096|
23. Contingent Liabilities
a) Claims and litigations
In the normal course of its operations, the Department of Finance Canada becomes involved in various claims or legal actions. Some of these potential liabilities 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 in the financial statements.
As at March 31, 2010, the Department of Finance Canada has contingent liabilities of $75 million ($75 million in 2009) based on the Department’s legal assessment of the potential exposure. The existence and amount of the liability depend upon the future outcome of these legal actions, which are not currently determinable. No accrual for these contingent liabilities has been made in the financial statements.
b) Callable share capital
The Department of Finance Canada has callable share capital in certain international organizations that could require payments to those organizations. At March 31, 2010, callable share capital is $5,818 million ($7,224 million in 2009).
c) Loan guarantees
The Department of Finance Canada guarantees loans insured by the Genworth Financial Mortgage Insurance Company Canada, AIG United Guaranty and PMI Mortgage Insurance Company Canada. At March 31, 2010, the contingent liability related to the guarantees is $1,468 million ($1,636 million in 2009). Losses on loan guarantees are recorded in the accounts when it is likely that a payment will be made to honour a guarantee and where the amount of the anticipated loss can be reasonably estimated. The amount of the allowance for losses is determined by taking into consideration historical loss experience and current economic conditions.
No amounts have been provided for in the current or prior year.
Canadian Wheat Board and Export Development Canada
The Department of Finance Canada manages guarantees to the Canadian Wheat Board for the repayment of the principal and interest of all receivables resulting from sales made under the Credit Grain Sale Program for an amount of $226 million ($274 million in 2009) and a portion of credit sales made under the Agri-Food Credit Facility, which amounted to $49 million ($58 million in 2009). The Department of Finance Canada also administers the government’s compensation arrangement regarding Export Development Canada’s sovereign loans and guarantees. Under this arrangement, the government fully compensates Export Development Canada for the cost of existing debt reduction commitments and shares losses with Export Development Canada on new debt reduction on obligations contracted before March 31, 2001. The government has also agreed to share losses with Export Development Canada in the event of unilateral debt reduction on debts contracted after March 31, 2001. Total funds covered under this agreement amount to $391 million ($1,332 million in 2009).
A total liability of $250 million as at March 31, 2010 ($317 million in 2009) was recorded under both programs. (Note 13)
d) Canadian Lenders Assurance Facility (CLAF) / Canadian Life Insurers Assurance Facility (CLIAF)
The Canadian Lenders Assurance Facility (CLAF) and the Canadian Life Insurers Assurance Facility (CLIAF) were components of Canada’s implementation of the G7 Plan of Action to stabilize financial markets, restore the flow of credit and support global economic growth.
Under the terms of both facilities, the Government had agreed to provide a guarantee for up to three years on certain debt issued by eligible banks, deposit-taking institutions and life insurers up to and including December 31, 2009.
Both facilities expired on December 31, 2009. No securities were guaranteed under either facility.
e) Canadian Asset Backed Commercial Paper – Senior Funding Facility (SFF)
The Government of Canada, in partnership with the governments of Québec, Alberta and Ontario and the Caisse de Dépôt et Placement du Québec, has entered into an agreement to provide a $1.85 billion conditional funding facility to “Master Asset Vehicle” (MAV) 1 and MAV 2, both created as part of the Montreal Accord (‘the Accord’). If drawn upon, the Provinces of Ontario and Alberta have provided further guarantees of repayment to Canada in the amount of $550 million. Canada’s net credit exposure under this facility is therefore $1.3 billion.
The conditional funding to either MAV is in the form of a Senior Funding Facility (SFF) that is senior to all other funding facilities under the Accord and the original notes issued by the vehicles. The purpose of the SFF is to provide assurance to holders of the right to call for additional collateral underlying the original notes issued by the vehicles that, in the very remote event that certain credit market indices exceed agreed upon trigger levels, such additional collateral would be provided. Principal and interest on any amounts drawn under the SFF would be repaid to the Government and other SFF participants prior to any other claimants.
The SFF will expire on August 16, 2010. If no funding events have occurred prior to August 16, 2010, the obligations of the Government under the SFF will cease at that time.
Any advances made under this facility will bear interest at rates based on Canadian Bankers Acceptances or the LIBOR, depending on the form of the advance. The Government also earns a commitment fee of 1.19% per annum on its net credit commitment until December 2016.
The Government has not been required to make any purchase or other funding commitments under the SFF.
24. Contractual Obligations
The nature of the Department’s activities can result in some large multi-year agreements and contracts whereby the Department of Finance Canada will be obligated to make future payments when the terms of those contracts or agreements are met.
Significant contractual obligations that can be reasonably estimated are summarized as follows:
|2011||2012||2013||2014||2015 and thereafter||Total|
|Undisbursed Loans and Advances|
|International Development Association||384,280||-||-||-||-||384,280|
|Toronto Waterfront Revitalization Initiative||65,045||-||-||-||-||65,045|
|Harbourfront Centre Funding Program||5,000||-||-||-||-||5,000|
|International Development Association||51,200||51,200||51,200||51,200||1,169,870||1,374,670|
|African Development Fund||-||-||-||-||415,750||415,750|
|Total contractual obligations||505,525||51,200||51,200||51,200||1,585,620||2,244,745|
25.Related Party Transactions
The Department of Finance Canada is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department of Finance Canada enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, during the year, the Department received services that were obtained without charge from other government departments as presented below.
Services received without charge
During the year, the Department of Finance Canada received without charge from other departments, accommodation, legal fees, and the employer’s contribution to employee health and dental insurance plans. These services received without charge have been recognized in the Department’s statement of operations as follows:
|Employer’s contributions to employee health and dental insurance plans||6,548||5,988|
|Total services received without charge||18,673||17,756|
The Government of Canada has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all departments without charge. The cost of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the statement of operations.
Comparative figures have been reclassified to conform to the current year's presentation.
Department of Finance Canada
Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting
This document forms an integral part of the Department of Finance Canada’s (‘the Department’) Statement of Management Responsibility Including Internal Control over Financial Reporting and the Departmental Financial Statementsfor the fiscal year 2009-2010.
The Treasury Board Policy on Internal Control (‘the Policy’) became effective for the Department on April 1, 2009. This policy requires that measures are taken to maintain an effective system of internal control over financial reporting (ICFR) in the Department and that this system be assessed, on an annual basis, to determine its ongoing effectiveness.
The Policy also requires that an annual summary information return be provided, in the form of this Annex, that summarizes the results of the ICFR assessment along with actions taken in response to significant issues which may have arisen as a result.
The Departmental Financial Statementsare not currently subject to an external audit; however, significant portions of the Department’s activities are audited. These audit activities take place in support of the audited Financial Statements of the Government of Canadawhich form part of the annual Public Accounts of Canada. There is currently no requirement for the Departmental Financial Statements to be separately audited; although, ongoing compliance with the Policy would support such an audit if it were to take place.
The Department has completed its first annual assessment in accordance with the Policy and the highlights thereof are provided below.
1.1 Authority, Mandate and Program Activities
The Department of Finance Canada develops policies and provides advice to the Government with the goal of creating a healthy economy for all Canadians. For example, it:
- Plans and prepares the federal government’s budget;
- Analyzes and designs tax policies;
- Develops regulations for Canada’s banks and other financial institutions;
- Administers the transfer of federal funds to the provinces and territories;
- Develops policies on international finance and helps design our country’s tariff policies; and,
- Monitors economic and financial developments in Canada and provides policy advice on a wide range of economic issues.
Detailed information on Finance’s authority, mandate and program activities can be found in the annual Report on Plans and Priorities and Departmental Performance Report.
1.2 Financial highlights
The Department’s unaudited financial statements are a component of the annual Departmental Performance Report. Highlights of the 2009-2010 fiscal year are as follows (amounts expressed in $millions, unless otherwise stated):
Statement of operations
- Total expenses of the Department were $82,821 ($76,728 in 2008-2009). The majority of expenses are comprised of transfer payments to provinces and territories of $55,344 ($45,756 in 2008-2009) and public debt charges of $26,910 ($29,940 in 2008-2009).
- Total revenues were $5,088 ($5,439 in 2008-09) and are mostly comprised of income arising from investments held in the Exchange Fund Account, dividends from Crown Corporations which fall under the Department’s responsibility and interest revenue on funds advanced under the Crown Borrowing Framework.
Statement of financial position
- At March 31, the Department holds a total of $155,207 in assets ($144,039 at March 31, 2009). Of total assets, the three most significant categories are advances made under the Crown Borrowing Framework with $96,468 ($76,422 at March 31, 2009), Foreign exchange accountswith $46,950 ($51,708 at March 31, 2009) and Taxes receivable under tax collection agreementswith $3,985 ($11,091 at March 31, 2009).
- At March 31, the Department has incurred a total of $576,684 in liabilities ($523,766 at March 31, 2009). Of total liabilities, the most significant category is Unmatured debtwith $555,138 ($510,197 at March 31, 2009) with related Interest payableat $6,778 ($6,839 at March 31, 2009) and Taxes payable under tax collection agreementsof $6,382 ($4,944 at March 31, 2009).
Note 1 to the Departmental Financial Statements and theDepartmental Performance Reportprovide additional context on the nature of these transactions.
1.3 Service arrangements relevant to financial statements
The Department relies on other organizations for the financial reporting, or inputs into the financial reporting, of certain transactions. It also relies on other organizations to provide the infrastructure relating to transaction settlement and treasury management.
The following are key areas, vis-à-vis their overall importance to the financial statements, where reliance is placed on external service providers:
- The Bank of Canada, in its capacity as fiscal agent for the Government of Canada;
- Public Works and Government Services Canada (PWGSC), which centrally administers the government’s standard payment system (SPS) through which the Department processes the majority of its expenses;
- Canada Revenue Agency (CRA) provides information used by the Department to determine taxes receivable and payable under tax collection agreements with provincial, territorial and Aboriginal governments
- Treasury Board of Canada Secretariat (TBS) provides operational support to the Department in the form of accounting services, payroll and benefit management and the management of key informatics systems including its financial accounting system (hereinafter referred to as ‘shared corporate services’); and,
- The Department of Justice provides continuing advice on the nature of certain contingent liabilities that the Department is exposed to at the reporting date.
1.4 Material changes in fiscal year 2009-2010
Fiscal year 2009-2010 has seen significant variations in key areas for the Department.
Statement of operations
The Government has committed to providing $5.899 billion in transitional assistance to Ontario and British Columbia with respect to the harmonization of sales taxes in those provinces. These amounts are reflected inTransfer and taxation payment programsand, when combined with increases in other transfer payments to provinces and territories, comprise most of the variation in this category compared to 2008-2009.
Responsibilities for the Toronto Waterfront Revitalization Initiative and the Harbourfront Centre Funding Program were transferred to the Department effective April 1, 2009. These payments also form part of Transfer and taxation payment programs.
Public debt charges have decreased due to lower average effective interest rates, despite the increase in total government borrowing.
Statement of financial position
The Government’s 2009-2010 budget deficit has caused an increase in overall Government borrowing requirements. These requirements are reflected in the increased carrying value of Unmatured debt.
Internationally, Canada has provided temporary resources to the International Monetary Fund (IMF) to assist member countries requiring balance of payments assistance during the economic crisis. In August and September of 2009, the IMF also completed allocations of Special Drawing Rights (SDRs) following the commitment to boost global liquidity made by G20 leaders at their April summit. The impact of these transactions is reflected in the carrying value of Foreign exchange accounts.
The Insured Mortgage Purchase Program (IMPP) and the Canadian Secured Credit Facility (CSCF) continued to increase demand for direct lending to Crown corporations in 2009-2010 under the Crown Borrowing Framework. This is reflected within Crown borrowings.
As discussed above, the Government has committed to providing $5.899 billion in transitional assistance to Ontario and British Columbia with respect to the harmonization of sales taxes in those provinces. The amounts will be paid over the next two fiscal years and are reflected within Accounts payable and accrued liabilities.
From the perspective of ICFR, although significant in stature, these events have largely occurred within the context of existing programs and management control frameworks. As a result, underlying business processes designed to administer them have remained relatively consistent from year-to-year.
2. The Department's Control Environment Relevant to ICFR
2.1 Key positions, roles and responsibilities
Below are the Department’s key positions and committees with responsibilities for maintenance and oversight of the effectiveness of its system of ICFR.
Deputy Minister– The Department’s Deputy Minister reports directly to the Minister and, as Accounting Officer, assumes overall responsibility and leadership for the measures taken to maintain an effective system of internal control. The Deputy Minister serves as a member of the Departmental Audit and Evaluation Committee.
Chief Financial Officer (CFO)– The CFO supports the Deputy Minister by establishing and maintaining a system of internal control related to financial management, including financial reporting and departmental accounts and by acting as a key steward with respect to relevant legislation, regulations, policies, directives and standards.
Senior Departmental Managers– The Department’s senior departmental managers in charge of program delivery are responsible for maintaining and reviewing effectiveness of their systems of ICFR falling within their mandate.
Internal Audit and Evaluation Branch (Chief Audit Executive) (CAE) – The Internal Audit and Evaluation team provides internal audit and evaluation services to the Deputy Minister, departmental managers and the external Audit and Evaluation Committee. It supports the Deputy Minister and senior management in attaining the strategic objectives of the Department by providing them with objective, independent, and evidence-based information, assurance, and advice on the effectiveness, efficiency and economy of departmental activities.
Departmental Audit and Evaluation Committee(AEC) - The AEC is an advisory committee that provides objective advice and guidance to the Deputy Minister. The Committee approves the departmental audit and evaluation plans, oversees the internal audit and evaluation activities in the Department and reviews and recommends the Departmental financial statementsfor approval to the Deputy Minister. It also reviews the results of audits and evaluations as well as management responses and action plans developed to address audit recommendations.
2.2 Key organization-wide controls
The Department’s control environment also includes a series of measures to equip its staff through raising awareness, providing appropriate knowledge and tools as well as developing skills. Key measures include:
- An Office of Values and Ethics that is responsible for the development, implementation, monitoring, and improvement of plans to ensure compliance with the Values and Ethics Code for the Public Serviceand the Conflict of Interest Code for the Department of Finance;
- A defined process for the disclosure of wrongdoing in the workplace supported by a Disclosure Protection Officer (DPO);
- A dedicated section under the supervision of the CFO tasked with the oversight of ICFR;
- A corporate-risk profile;
- A risk-based internal audit plan;
- Annual performance agreements that clearly set out financial management responsibilities;
- Training programs and communications in core areas of financial management;
- Regularly updated delegated authorities and IT access controls; and
- IT processing systems to achieve greater security, integrity, efficiency and effectiveness.
3. Assessment of the Department's system of ICFR
3.1 Assessment baseline
In 2004, the Government of Canada commenced an initiative to determine the ability of departments to undergo controls-based audits of their financial statements. In response to this initiative, the Department has undertaken a comprehensive controls-based audit readiness assessment which provided initial conclusions on the design effectiveness of ICFR.
An effective system of ICFR is intended to provide reasonable assurance that:
- Transactions are appropriately authorized;
- Financial records are properly maintained;
- Assets are safeguarded; and,
- Applicable laws, regulations and policies are complied with.
To ensure these objectives are met over time, assessments of the design and operating effectiveness of the system of ICFR must take place coincident with an effective process for the on-going monitoring of the overall system.
Design effectivenessis the assurance that key control points are identified, documented, in place, aligned with the risks they aim to mitigate and that any required remediation is addressed.
Operating effectivenessensures that controls, as designed and implemented at a point in time, continue to operate effectively over a prolonged and defined period and that any required remediation is addressed.
An effective on-going monitoringprogramwould identify areas for continued or periodic observance, update and testing on a defined rotational basis consistent with the level of risk associated with business processes.
3.2 Assessment methodology
Although designed to mitigate financial reporting risk, an effective system of ICFR cannot be expected to eliminate all risks.
Accordingly, the Department’s approach to its assessment program is risk-based. Financial statements are decomposed such that significant business processes underlying financial balances are identified. Those considered to be of a high risk are given priority over areas of lower risk. Risk in this context is a function of the potential for a material error to occur given the size of the financial statement balance as well as its general level of complexity and/or extent of required judgement. The Department also identified areas of general control which, by definition, permeate throughout the organization either in terms of the control environment or with respect to systems used to perform financial reporting tasks.
For each business process or general control, the controls-based audit readiness assessment provided a description of the process, identification of key controls, level of associated risk, and observations for remediation.
As part of its first required annual assessment of ICFR for 2009-2010, the Department commenced an update of business processes addressed in the original audit-readiness assessment and completed walkthroughs to ensure controls were implemented as designed. A particular focus on transfer payments to provinces and territories was applied given the significance of these amounts to the statement of operations.
In addition, in conjunction with the corporate shared service provider, a comprehensive review of computer access controls in the department’s ERP system was undertaken to ensure adequate segregation of duties.
The Department also engaged an external consultant to perform operational effectiveness testing in the Transfer paymentsbusiness process. The external consultant was engaged in order to:
- Independently assess operational effectiveness in the Transfer payment area;
- Provide an opportunity for the Department to re-assess the quality of its documentation and conclusions on design effectiveness and potentially address any areas for improvement to its ICFR on the whole; and,
- Provide a foundation as the Department begins to assess requirements for ongoing monitoring activities.
4. The Department's Assessment Results
4.1 Design effectiveness of key controls
Four major remediation themes arose as a result of the original design-effectiveness testing undertaken as part of the audit readiness assessment. These were:
- Documentation and evidence of controls
There was a general need to improve the overall level of documentation with respect to business procedures and controls as well as a need to document that critical approval functions were properly actioned.
- Computer access controls
Additional work was identified to strengthen controls over the level of user access to key files and systems.
- General and analytical review functions
There was a need to improve the level of analysis over departmental results including greater frequency of review and reconciliation to third-party reports.
- Reliance on other entities and government Departments
The Department relies extensively on other entities in the carrying out of its mandate. There was a need to fully understand their integrated roles and responsibilities in an internal control context given the extent of reliance placed on their services.
As a result of work completed as part of the 2009-2010 assessment, the Department has concluded that ICFR over the transfer payment business process have been designed effectively and have been implemented. Remediation themes from the original design-effectiveness testing have been largely addressed in this area. As a result of work completed by the external consultant, some areas for improvement in design have been noted and will form part of a remediation process in 2010-2011.
As a result of this work, the department has also re-affirmed that its basic approach to documenting business processes is sound and, with some minor areas for improvement noted, will continue to employ this methodology.
4.2 Operating effectiveness of key controls
The results of operational effectiveness testing have indicated that internal controls for the transfer payment business process were operating effectively as designed for the period ending March 31, 2010.
The Department will commence operational effectiveness testing for all other completed business processes in 2010-2011.
4.3 On-going monitoring program
The Department expects to have fully developed its ongoing monitoring plans by the end of 2010-2011. To some degree, the updates to business processes noted above constitute a form of on-going monitoring; however, a more comprehensive approach will be undertaken at such time that operational effectiveness testing is concluded across all business processes and there is continued assurance to the Department that the methodologies employed in documentation and testing of key controls is sound.
5. The Department's action plan
5.1 Progress as of March 31, 2010
During 2009-2010, the Department continued to make significant progress in assessing and improving its key controls. Progress to date is summarized below:
The Department has completed:
- Establishment and resourcing of an internal control function to implement the Policy and provide ongoing monitoring and reporting;
- A risk-based decomposition of the financial statements;
- A comprehensive controls-based audit readiness assessment, covering both business processes and general controls;
- Successfully completed design and operational effectiveness testing for the transfer payment business process with a conclusion that ICFR in this area are effective in 2009-2010;
- A review of all user roles assigned within the financial accounting system which ensures that appropriate segregation of duties exists at March 31, 2010 and on a go-forward basis;
- Implementation of financial statement preparation software, which facilitates the documentation of key review and challenge functions employed during the preparation of the Departmental financial statements.
The Department has substantially completed:
- Updated design effectiveness documentation and walkthroughs for the following key business processes: domestic and retail debt, foreign exchange account and reserves, financial close and reporting and budgeting and forecasting. Operational effectiveness testing is planned for 2010-2011;
- The development of a standardized approach to sampling transactions for operational effectiveness testing which will form an integral component of on-going monitoring plans.
The Department has commenced or partially completed work to:
- Update documentation for the Crown borrowing program, entity-level controls and payroll and benefits;
- Assess the extent to which principles highlighted by the Common Financial Management Business Process Initiative for the compensation and benefits area have been implemented by the department;
- Improve the manner in which variance analysis for the Department’s financial results is undertaken by the Departmental Reporting group.
5.2 Action plan – future years
By the end of 2010-2011, the Department plans to:
- Have fully developed and finalized its intentions with respect to an on-going monitoring regime. This would include planned rotational updates and testing of key business processes;
- Completed updated design and operational testing for all other business processes with the intent of having fully addressed all business processes by this time;
- Perform an update of its delegated authorities matrix.
By the end of 2011-2012, the Department plans to:
- Have fully implemented its on-going monitoring regime.