Department of Finance Canada
Financial statements (unaudited)

For the year ended March 31, 2011

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, 2011, 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 based on 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 Department's financial transactions.  Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department's Departmental Performance Report is consistent with these financial statements.

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

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

An assessment for the year ended March 31, 2011 was completed in accordance with the Policy on Internal Control and 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 recommends for approval by the Deputy Minister 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.

_____________________
Michael Horgan
Deputy Minister

_____________________
Sherry Harrison
Chief Financial Officer

Ottawa, Canada
August 31, 2011

Department of Finance Canada
Statement of Financial Position (unaudited)
As at March 31
($ thousands)

	2011	2010 Restated (Note 24)
Assets
Financial assets
Due from the Consolidated Revenue Fund	6,938,055	7,154,908
Coin inventory	17,930	35,870
Accounts receivable (Note 4)	322,953	351,919
Taxes receivable under tax collection agreements (Note 5)	4,128,138	3,984,613
Foreign exchange accounts (Note 6)	48,506,978	46,950,100
Crown borrowings (Note 7)	96,578,724	96,467,906
Loans, investments, and advances (Note 8)	3,291,316	3,362,009
Total financial assets	159,784,094	158,307,325
Non‑financial assets
Tangible capital assets (Note 9)	69	179
Prepaid expenses	153,369	182,318
Total non‑financial assets	153,438	182,497
Total assets	159,937,532	158,489,822
Liabilities
Accounts payable and accrued liabilities (Note 10)	4,232,349	7,419,869
Taxes payable under tax collection agreements (Note 11)	6,622,138	6,381,633
Interest payable (Note 12)	6,538,474	6,778,377
Notes payable to international organizations (Note 13)	410,645	411,901
Matured debt (Note 14)	194,328	74,327
Unmatured debt (Note 15)	587,057,531	555,137,686
Other liabilities (Note 18)	536,955	465,465
Employee future benefits(Note 19)	16,729	15,124
Total liabilities	605,609,149	576,684,382
Equity of Canada	(445,671,617)	(418,194,560)
Total liabilities and equity	159,937,532	158,489,822

Contingent liabilities (Note 20)

Contractual obligations (Note 21)

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

_____________________
Michael Horgan
Deputy Minister

_____________________
Sherry Harrison
Chief Financial Officer

Ottawa, Canada
August 31, 2011

Department of Finance Canada
Statement of Operations (unaudited)
For the Year Ended March 31
($ thousands)

	2011	2010 Restated (Note 24)
Expenses
Transfer and taxation payment programs	52,939,285	55,647,756
Treasury and financial affairs	28,129,161	27,017,080
Economic and fiscal policy framework (recovery of)	(32,689)	89,859
Internal services	68,946	66,388
Total expenses	81,104,703	82,821,083
Revenues
Transfer and taxation payment programs	248,172	176,097
Treasury and financial affairs	4,210,131	3,559,588
Economic and fiscal policy framework	61	59
Internal services	633	58
Total revenues	4,458,997	3,735,802
Net cost of operations	76,645,706	79,085,281

Segmented information (Note 23)

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

Department of Finance Canada
Statement of Equity of Canada (unaudited)
For the Year Ended March 31
($ thousands)

	2011	2010 Restated (Note 24)
Equity of Canada, beginning of year	(418,194,560)	(372,871,190)
Net cost of operations	(76,645,706)	(79,085,281)
Transfer from other government department	-	54,964
Net cash provided by Government	49,367,052	33,790,480
Change in due from the Consolidated Revenue Fund	(216,853)	(102,206)
Services provided without charge by other  government departments (Note 22)	18,450	18,673
Equity of Canada, end of year	(445,671,617)	(418,194,560)

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

Department of Finance Canada
Statement of Cash Flow (unaudited)
For the Year Ended March 31
($ thousands)

	2011	2010 Restated (Note 24)
Operating activities
Net cost of operations	76,645,706	79,085,281
Non‑cash items:
Amortization of tangible capital assets	(45)	(253)
Amortization of other loans, investments and advances	151,945	163,355
Amortization of discounts on unmatured debt	(3,295,147)	(2,951,350)
Concessionary portion of other loans, investments, and advances	(421,718)	(278,129)
Unrealized foreign exchange losses	(40,923)	(184,490)
Services provided without charge by other government departments	(18,450)	(18,673)
Variations in Statement of Financial Position:
Increase (decrease) in assets	3,451,685	(7,082,225)
Increase in liabilities	(270,191)	(8,047,018)
Cash used in operating activities	76,202,862	60,686,498
Capital investing activities
Acquisition of tangible capital assets	38	-
Proceeds from disposal of tangible capital assets	(103)	(3,612)
Cash used in capital investing activities	(65)	(3,612)
Investing activities
Net advances to the Exchange Fund Account of Canada	1,631,141	11,247,366
Issuance of notes payable to International Monetary Fund	(1,364,574)	(873,000)
Encashment of notes payable to International Monetary Fund	1,753,000	1,459,918
Loans receivable from International Monetary Fund	811,096	363,962
Special drawing rights allocation	-	(8,860,537)
Issuance of loans receivable	77,278,761	120,246,717
Repayment of loans receivable	(76,930,629)	(100,372,853)
Cash used in investing activities	3,178,795	23,211,573
Financing activities
Encashment of notes payable to international organizations	384,280	385,918
Issuance of notes payable to international organizations	(384,280)	(384,280)
Net repayment (issuance) from cross‑currency swaps	(224,687)	293,917
Issuance of debt	(536,769,384)	(565,971,207)
Repayment of debt	506,979,531	515,571,673
Cash provided by financing activities	(30,014,540)	(50,103,979)
Net cash provided by Government of Canada	49,367,052	33,790,480

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

Notes to the Financial Statements

1. Authority and objectives

The Department of Finance Canada is established under the Financial Administration Act as 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 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.

Transfer and taxation payment programs: The Financial Administration Act created 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

These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do no result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

a) Parliamentary authorities

The Department of Finance Canada is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the Department of Finance Canada do not parallel financial reporting according to Canadian generally accepted accounting principles since authorities 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 authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.

b) 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 Government.

c) Amounts due from / to the Consolidated Revenue Fund

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

d) Revenues

Revenues are accounted for on an accrual basis:

• Investment income is recognized as revenue in accordance with the terms and conditions of underlying agreements or relevant legislation as applicable.
• 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 or underlying contract.
• 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.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.

e) Expenses

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. Amortization of discounts and premiums is performed on a straight line basis.
• 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 accrued as the benefits are earned by employees under their respective terms of employment.
• Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

f) Employee future benefits

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer 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.

g) Coin inventory

Coin inventory is valued at the lower of cost and net realizable value. Cost is determined using average cost method.

h) Accounts receivable

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

i) 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, if any, are included in foreign exchange revenues on the statement of operations.

Canada's subscriptions, allocation of special drawing rights, notes payable to and loans receivable from the International Monetary Fund are recorded at cost.

j) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange prevailing on March 31. Gains and losses resulting from foreign currency transactions are included in revenue or expenses in Treasury and Financial Affairs and Transfer and Taxation Payment Programs in the statement of operations.

k) 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.

l) 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 specified in the underlying contracts. Derivative financial instruments that the Department of Finance Canada is currently party to include cross‑currency swap agreements and foreign exchange forward contracts.

Cross‑currency swaps and foreign exchange forward contracts are initially recorded at cost and are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. The translated values of cross‑currency swap agreements are included as part of Unmatured debt reflecting their longer‑term nature. The translated values of foreign‑exchange forward contracts are included as part of accounts payable and accrued liabilities as these have maturities that are short‑term in nature.

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 debts 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. For foreign‑exchange forward contracts, any exchange gains or losses are offset by the exchange gains or losses on loan balances with the International Monetary Fund.

Interest paid and payable, and interest received and receivable on cross‑currency swaps is included in interest on unmatured debt.

m) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more 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 performed on a straight‑line basis over the estimated useful life of the asset as follows:

n) 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.

The unamortized premium or discount arising on the buy back of bonds that are subsequently refinanced with similar debt with the intent of sustaining market liquidity is amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter.

o) Other liabilities

Deposits from Crown corporations that are repayable are recorded in "Other Liabilities" in the Statement of Financial Position. The value of cash collateral held in support of a cross‑currency swap agreement is recorded as a liability in the absence of a default.

p) 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.

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.

q) Measurement uncertainty

The preparation of these financial statements 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 authorities

The Department of Finance Canada receives its funding through annual parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through parliamentary authorities 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 authorities used

Reconciliation of net cost of operations to current year authorities used

	2011	2010 Restated (Note 24)
	($ thousands)
Net cost of operations	76,645,706	79,085,281
Adjustments for items affecting net cost  of operations but not affecting authorities:
Revenue not available for spending	4,562,142	4,098,858
Employment Insurance enhancement measure	-	124,000
Allowance for bad debts (recovery of)	(54,581)	106,147
Allowance on loan guarantees	30,333	66,766
Recoveries on prior year allowances	50	-
Inventory charged to program expense	(17,940)	11,372
Employee future benefits	(1,605)	972
Amortization of tangible capital assets	(45)	(253)
Services provided without charge by other government departments	(18,450)	(18,673)
Other	(28,965)	(7,387)
Other expenses not being charged to authorities:
Transitional assistance provided under sales tax harmonization agreements	3,769,000	(5,649,000)
Obligation to Ontario ‑ General Motors and Chrysler	(1,043,597)	-
Other	(80,125)	61,358
Adjusted net cost of operations for items not affecting authorities	83,761,923	77,879,441
Adjustments for items not affecting net cost  of operations but affecting authorities:
Advances and prepaid expenses	76,403,807	119,914,304
Loans, investments, and advances	670,000	385,918
Acquisitions of tangible capital assets	38	-
Total adjustments for items not affecting net cost  of operations but affecting authorities	77,073,845	120,300,222
Current year authorities used	160,835,768	198,179,663

b) Authorities provided and used

Authorities provided and used

	2011	2010
	($ thousands)
Authorities provided:
Vote 1 – Operating expenditures	128,601	135,165
Vote 5 – Grants and contributions	319,195	362,206
Statutory amounts	160,699,059	197,909,258
Less:
Authorities available for future years	(68,573)	(68,573)
Lapsed authorities:
Vote 1 – Operating expenditures	(16,180)	(13,519)
Vote 5 – Grants and contributions	(226,334)	(144,874)
Current year authorities used	160,835,768	198,179,663

4. Accounts receivable

The following table presents details of accounts receivable and advances:

Accounts receivable

	2011	2010 Restated (Note 24)
	($ thousands)
Accrued investment income	141,039	9,696
Accrued interest income ‑ Crown borrowings	179,705	136,754
Receivables ‑ other government departments and agencies	2,131	205,351
Receivables ‑ external	78	118
Total accounts receivable	322,953	351,919

5. Taxes receivable under tax collection agreements

The following table presents details of taxes receivable under tax collection agreements:

Taxes receivable under tax collection agreements

	2011	2010
	($ thousands)
Corporate income taxes	6,133,959	3,198,342
Personal income taxes	(87,531)	697,278
Harmonized Sales Tax	(1,696,688)	265,923
First Nations Goods and Services Tax	3,106	931
First Nations Sales Tax	1,337	526
Provincial benefit programs	(226,045)	(178,387)
Total taxes receivable under tax collection agreements	4,128,138	3,984,613

Taxes receivable include taxes collected or 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 11.

Provincial benefit programs 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.

6. 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:

Foreign exchange accounts

	2011	2010
	($ thousands)
Investments held in the Exchange Fund Account	52,323,739	52,245,773
Accrued net revenue from the Exchange Fund Account	1,718,099	1,455,539
Total investments held in Exchange Fund Account (Note 6a)	54,041,838	53,701,312
Subscriptions to the International Monetary Fund (Note 6b)	9,791,371	9,822,771
Loans receivable from the International Monetary Fund (Note 6c)	1,139,293	337,054
Notes payable to the International Monetary Fund (Note 6d)	(7,260,048)	(7,676,040)
Special drawing rights allocations (Note 6e)	(9,205,476)	(9,234,997)
Total foreign exchange accounts	48,506,978	46,950,100
Fair value	48,978,140	48,354,003

a) Investments held in Exchange Fund Account

This account records the funds 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 in accordance with provisions of the Currency Act. Total advances are limited to $100 billion by order of the Minister of Finance dated September 2009.

The following table details international reserves held in and advances to the Exchange Fund Account:

Investments held in Exchange Fund Account

	2011	2010
	($ thousands)
US dollar cash on deposit	228,556	225,673
US dollar marketable securities	26,796,892	24,478,068
Euro cash on deposit	78,813	175,549
Euro marketable securities	17,762,748	19,441,744
Japanese yen cash on deposit	6,617	90,685
Japanese yen marketable securities	115,866	217,220
Special drawing rights	9,046,481	9,066,489
Gold	5,865	5,884
Total investments held in Exchange Fund Account	54,041,838	53,701,312

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 187 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

This account records the value of interest‑bearing loans made under Canada's multilateral and bi‑lateral borrowing arrangements with the IMF. The purpose of the arrangements is to provide temporary resources for IMF‑member countries requiring balance of payment assistance.

There are three outstanding lending arrangements with the IMF outside of the quota system: the multi‑lateral New Arrangements to Borrow ('NAB') and General Arrangements to Borrow ('GAB') as well as a temporary bi‑lateral borrowing agreement.

Canada's participation in the New Arrangements to Borrow ('NAB') became effective on March 11, 2011. The maximum lending by Canada to the IMF under these arrangements is limited to $7,624 million SDR. As at March 31, 2011, no lending had been provided to the IMF under the NAB.

Canada also participates in the General Arrangements to Borrow ('GAB') which was most recently renewed in November, 2007. The maximum lending by Canada to the IMF under these arrangements is limited to $893 million SDR. As at March 31, 2011, no lending had been provided to the IMF under the GAB.

Canada's temporary bi‑lateral borrowing agreement with the IMF provides for maximum lending to the IMF of $10 billion US and its term was extended during the year to expire on July 2, 2013. As at March 31, 2011, $1,139 million was outstanding with the IMF under this agreement.

Subsequent to the year‑end date, amounts outstanding under the bi‑lateral agreement were rolled in the NAB.

Collectively, the outstanding loans under multi‑lateral and bi‑lateral arrangements with the IMF cannot exceed $8,517 million SDR at any given time. This reflects the maximum commitment under both the NAB and GAB.

At March 31, 2011, each outstanding drawing under the bi‑lateral agreement has an original term to maturity of three months and bears interest at the SDR rate. Amounts advanced under either arrangement 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.

Canadian dollar holdings of the IMF include these notes and a small working balance (initially equal to one‑quarter of one percent of Canada's subscription) held on deposit at the Bank of Canada. In 2010‑2011, notes payable to the IMF decreased by $416 million.

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.

Canada’s cumulative SDR allocations at March 31, 2011 are SDR 5,988 million. The Canadian dollar equivalent of this amount is $9,205 million.

f) Notional cost

For the year ended March 31, 2011, the notional cost of funds advanced by the CRF to the Exchange Fund Account is $1,493 million ($1,357 million in 2010). 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.

7. Crown borrowings

 The following table presents details of Crown borrowings issued as at March 31, 2011:

Crown borrowings

	Face value	Unamortized (discounts) premiums	Net book value 2011	Net book value 2010
	($ thousands)
Canada Mortgage and  Housing Corporation1	65,793,811	(85)	65,793,726	68,284,469
Farm Credit Canada	17,558,200	3,525	17,561,725	15,938,437
Business Development Bank  of Canada2	13,223,341	(68)	13,223,273	12,245,000
Total Crown borrowings	96,575,352	3,372	96,578,724	96,467,906
Fair value			98,173,490	97,607,872
1 Includes loans of $58,224,099 as of March 31, 2011 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities. 2 Includes loans of $2,187,341 as of March 31, 2011 made through BDC under the Canadian Secured Credit Facility.

Contractual maturities of unmatured loans by Crown corporations over the next five years, at face value, are as follows:

Contractual maturities of unmatured loans by Crown corporations

Maturing year	Canada Mortgage and Housing Corporation1	Farm Credit Canada	Business Development Bank2	Total
	($ thousands)
2012	626,219	7,600,200	10,111,000	18,337,419
2013	879,740	3,363,000	2,519,200	6,761,940
2014	46,290,233	3,174,000	593,141	50,057,374
2015	14,009,413	2,570,000	-	16,579,413
2016	879,360	699,000	-	1,578,360
2017 and thereafter	3,108,846	152,000	-	3,260,846
Total contractual  maturities of unmatured  loans by Crown  corporations	65,793,811	17,558,200	13,223,341	96,575,352
1 Includes loans of $58,224,099 as of March 31, 2011 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities. 2 Includes loans of $2,187,341 as of March 31, 2011 made through BDC under the Canadian Secured Credit Facility.

The effective average annual interest rates are as follows:

Effective average annual interest rates

	Canada Mortgage and Housing Corporation	Farm Credit Canada	Business Development Bank
Short Term fixed interest rate	0.920%	0.912%	0.958%
Long Term fixed interest rate	3.239%	3.003%	1.544%
Short Term floating interest rate	-  %	0.912%	0.889%
Long Term floating interest rate	2.090%	0.893%	0.860%

8. Loans, investments, and advances

The following table presents details of other loans, investments, and advances by category:

Loans, investments and advances

	Face value	Unamortized discounts / Valuation allowance	Net book value 2011	Net book value 2010
	($ thousands)
Government business enterprises
Notes receivable from Canada Lands  Company Ltd. (Note 8a)	90,887	18,676	72,211	41,294
Note receivable from Parc Downsview  Park Inc. (Note 8b)	19,000	16,881	2,119	2,034
Total government business enterprises	109,887	35,557	74,330	43,328
Provincial and territorial governments
Recoverable overpayments of transfer  payments (Note 8c)	2,514,704	220,792	2,293,912	2,436,455
Recoverable overpayments of taxes payable  under tax collection agreements (Note 8d)	426,274	43,708	382,566	496,786
Loans to Municipal Development and  Loan Board  (Note 8e)	315	-	315	315
Loans to the Winter Capital Projects  Fund (Note 8f)	2,900	2,900	-	-
Total provincial and territorial governments	2,944,193	267,400	2,676,793	2,933,556
International and other organizations
Subscriptions and contributions to the International Development  Association (Note 8g)	8,964,498	8,964,498	-	-
Subscriptions to the European Bank for  Reconstruction and Development (Note 8h)	209,625	209,625	-	-
Subscriptions to the International Bank for  Reconstruction and Development (Note 8i)	326,321	326,321	-	-
Loans to the International Monetary Fund’s  Poverty Reduction and Growth Trust (Note 8j)	144,142	-	144,142	181,965
Subscriptions to the International Finance  Corporation (Note 8k)	78,870	78,870	-	-
International Finance Corporation Global  Trade Liquidity Program (Note 8l)	193,920	-	193,920	203,160
International Finance Corporation Global Agriculture  and Food Securities Program (Note 8m)	48,000	48,000	-	-
International Finance Corporation‑Financial Mechanisms  for Climate Change Facility (Note 8n)	268,577	66,446	202,131	-
Subscriptions to the Multilateral Investment  Guarantee Agency (Note 8o)	10,406	10,406	-	-
Advances to the Global Environment  Facility (Note 8p)	10,000	10,000	-	-
Investment in loan portfolio acquired from Canadian  Commercial Bank (Note 8q)	42,202	42,202	-	-
Total international and other organizations	10,296,561	9,756,368	540,193	385,125
Total loans, investments and advances	13,350,641	10,059,325	3,291,316	3,362,009

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 at the time of issuance and are recorded at their discounted value at March 31, 2011.

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 through on‑going transfer payments.

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. The loans are currently due and final arrangement for the reimbursement of the remaining balance are being finalized.

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)

This account records Canada's contributions and subscriptions to the International Development Association (IDA), as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts (including Finance Vote L10, Appropriation Act No. 2, 2010‑2011). The contributions and subscriptions to the IDA, which is part of the World Bank Group, are used to lend funds to the poorest developing countries for development purposes, on highly favourable terms (no interest, with a 35 to 40 years maturity and 10 years of grace). Contributions and subscriptions to the 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, 2011, Canada’s total participation in IDA amounted to C$8,964.5 million (C$8,580.2 million in 2010).

h) European Bank for Reconstruction and Development

This account records Canada's subscriptions to the capital of the European Bank for Reconstruction and Development (EBRD), as authorized by the European Bank for Reconstruction and Development Agreement Act, and various appropriation acts.

At year end, Canada has subscribed to 71,435 shares of the EBRD's authorized capital valued at 714,350,000 EUR. Included in this amount are 3,435 shares with a value 34,350,000 EUR that were transferred to Canada during the year from EBRD reserves.

Only 212,850,000 EUR or about 30% of Canada's share subscription is considered "paid‑in". The balance is callable meaning the institution can request the resources in the unlikely event that it requires them to meet its financial obligations to bondholders. Payments for the share subscription are authorized by the Act. Each payment to the EBRD is comprised of cash and a promissory note.

Canada's contingent liability for the callable portion of its shares was 501,500,000 EUR.

Up to and including March 31, 2011 Canada's total cash contributions into the 'paid‑in" capital of the EBRD total $216,197,668 US.

i) International Bank for Reconstruction and Development (World Bank)

This account records Canada's subscriptions to the capital of the International Bank for Reconstruction and Development, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts. As at March 31, 2011, 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.

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 Act was 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, 2011, Canada has lent a total of SDR728,520,000 (SDR700,000,000 in 2010) to the Poverty Reduction and Growth Trust. Of this amount, SDR634,757,150 (SDR582,011,729 in 2010) has been repaid. The outstanding balance of SDR93,762,850 (SDR117,988,271 in 2010) was translated into Canadian dollars at the year end closing rate of exchange (1 SDR = C$1.5373). During the year, transactions included repayments and an exchange valuation adjustment.

Separately, Canada has also made budgetary contributions towards an interest subsidy amounting to SDR215,157,946.

k) International Finance Corporation ‑ Subscriptions

This account records Canada's subscription to the capital of the International Finance Corporation (IFC), which is part of the World Bank Group, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts. As at March 31, 2011, Canada has subscribed to 81,342 shares. These shares have a total value of US$81.3 million, all of which has been paid‑in.

l) International Finance Corporation Global Trade Liquidity Program

This account records Canada's financial assistance to the IFC for participation in the Global Trade Liquidity Program (GTLP) as authorized by the Bretton Woods and related Agreements Act and various appropriation acts.

As at March 31, 2011, 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 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, 2011, advances to the IFC‑FSI amounted to C$48,000,000.

n) International Finance Corporation‑ Financial Mechanisms for Climate Change Facility

This account records Canada's financial support of the IFC's ‑ Financial Mechanisms for Climate Change (FMCC) facility as authorized by the Bretton Woods and related Agreements Act and various appropriation acts. The FMCC supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional financing arrangements.

As at March 31, 2011, advances to the IFC‑FMCC amount to C$268,577,000. Amounts are recovered through the FMCC trust mechanism based on the terms and conditions of project funding which is administered by the IFC in accordance with the administration agreement signed between IFC and the Government of Canada.

o) Subscriptions to the Multilateral Investment Guarantee Agency

This account records Canada's subscriptions to the capital of the Multilateral Investment Guarantee Agency, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

As at March 31, 2011, 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.

p) Advances to the Global Environment Facility

This account records the funding of a facility for environmental funding in developing countries in the areas of ozone, climate change biodiversity and international waters as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

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, 2011, advances to the GEF amounted to C$10,000,000.

q) Investment in loan portfolio acquired from Canadian Commercial Bank

Advances have been made the Canadian Commercial Bank representing the government’s participation in the support group as authorized by the Canadian Commercial Bank Financial Assistance Act. 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.

9. Tangible capital assets

Tangible capital assets

	Cost				Accumulated amortization				Net book value
Capital asset class	Opening balance	Acqui-sitions	Disposals and write‑offs	Closing balance	Opening balance	Amorti-zation	Disposals and write‑offs	Closing balance	2011	2010
	($ thousands)
Machinery  and  equipment	876	13	(492)	397	697	44	(389)	352	45	179
Motor vehicles	48	25	-	73	48	1	-	49	24	-
Total capital  assets	924	38	(492)	470	745	45	(389)	401	69	179

Amortization expense for the year ended March 31, 2011 is $44,969 ($253,375 in 2010).

10. Accounts payable and accrued liabilities

The following table presents details of accounts payable and accrued liabilities:

Accounts payable and accrued liabilities

	2011	2010
	($ thousands)
Accounts payable ‑ external (Note 10a)	2,135,076	5,950,845
Province of Ontario ‑ General Motors and Chrysler (Note 10b)	1,485,990	932,393
Accounts payable ‑ other government departments and agencies	291,721	281,563
Allowance for guarantees  (Note 20c)	219,997	250,330
Revaluation of foreign exchange forward contracts  (Note 10c)	95,291	-
Accrued vacation pay	4,274	4,738
Total accounts payable and accrued liabilities	4,232,349	7,419,869

a) Accounts payable – external

Included in accounts payable‑external is $1,880 million ($5,899 million in 2010) payable to Ontario and British Columbia with respect to transitional assistance for sales tax harmonization in those provinces. $1,300 million relates to Ontario and $580 million relates to British Columbia. This transitional assistance is outlined in the Comprehensive Integrated Tax Coordination Agreements (CITCAs) with the respective provinces. On July 4, 2011, these amounts were fully paid.

b) Province of Ontario‑General Motors and Chrysler

The liability to the Province of Ontario reflects Canada's obligation to Ontario for the province's one third  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 remaining investments in General Motors and Chrysler held through CDIC and its wholly‑owned subsidiaries. Changes in the value of the liability are considered transfer payments. Distributions to Ontario of proceeds arising as a result of holding these investments are recorded as a reduction to the liability.

During the year, Canada received $1.17 billion (2010‑$nil) in dividends from CDIC as a direct result of the sale of common shares of General Motors. Of this, one‑third or $389 million (2010‑$nil) was transferred directly to Ontario.

c) Revaluation of foreign exchange forward contracts

This amount represents the net translated notional values of foreign‑exchange forward contracts outstanding at March 31, 2011. These amounts were settled on April 5, 2011 and are discussed at Note 16.

11. 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:

Taxes payable under tax collection agreements

	2011	2010
	($ thousands)
Corporate income taxes	5,777,857	5,508,913
Personal income taxes	354,788	432,341
Harmonized Sales Tax	489,494	438,922
First Nations Sales Tax	(1)	526
First Nations Goods and Services Tax	-	931
Total taxes payable under tax collection agreements	6,622,138	6,381,633

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 5.

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.

12. Interest payable

The following table presents details of interest payable:

Interest payable

	2011	2010
	($ thousands)
Domestic debt	4,582,122	4,512,385
Retail debt	1,925,471	2,237,734
Foreign debt	24,475	24,640
International Monetary Fund Balances	6,406	3,618
Total interest payable	6,538,474	6,778,377

13. 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:

Notes payable to international organizations

	2011	2010
	($ thousands)
International Development Association	384,280	384,280
International Bank of Reconstruction and Development	23,254	24,362
Multilateral Investment Guarantee Agency	3,111	3,259
Total notes payable to international organizations	410,645	411,901

14. 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:

Matured debt

	2011	2010
	($ thousands)
Retail debt (matured from 1993 to 2011)	175,006	61,231
Marketable bonds (matured from 1993 to 2011)	18,731	12,505
Treasury bills (matured from 1977 to 1996)	591	591
Total matured debt	194,328	74,327

15. 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).

Foreign debt is issued by the Government of Canada under the government’s foreign currency borrowing program. It consists of marketable bonds and Canada bills. Marketable bonds include bonds assumed by Finance Canada on February 5, 2001, on the dissolution of Petro Canada Limited.

Cross‑currency revaluation refers to the net notional value of cross‑currency swap agreements in place at March 31, 2011 translated into Canadian dollar equivalents using year‑end market rates. Cross‑currency swap agreements are entered into to effectively convert portions of domestic debt into foreign debt in order to meet foreign funding requirements. Remaining terms to maturity range from 1 to 11 years. Further details are discussed at Note 16.

At March 31, unmatured debt is composed of the following:

Unmatured debt

	Face value	Unamortized (discounts) premiums	Net book value 2011	Net book value 2010
	($ thousands)
Domestic debt:
Treasury bills	163,000,000	(625,505)	162,374,495	175,644,442
Marketable bonds	416,410,595	(3,830,835)	412,579,760	363,210,645
Retail debt	10,141,499	-	10,141,499	11,855,433
Bonds for Canada Pension Plan	26,881	-	26,881	451,891
Total domestic debt	589,578,975	(4,456,340)	585,122,635	551,162,411
Foreign debt:
Marketable bonds	5,708,618	(28,241)	5,680,377	5,811,416
Canada bills	1,972,102	(370)	1,971,732	2,452,286
Total foreign debt	7,680,720	(28,611)	7,652,109	8,263,702
Total domestic and foreign debt	597,259,695	(4,484,951)	592,774,744	559,426,113
Less: Government holdings			(573,900)	-
Less: Securities held for the retirement of unmatured  foreign debt			(52,653)	(55,251)
Net domestic and foreign debt			592,148,191	559,370,862
Cross‑currency revaluation:
Payables			39,548,018	37,559,463
Receivables			(44,638,678)	(41,792,639)
Total cross‑currency revaluation			(5,090,660)	(4,233,176)
Total unmatured debt			587,057,531	555,137,686
Domestic debt fair value			619,183,959	585,217,733
Foreign debt fair value			7,787,336	8,391,693

Contractual maturities of unmatured debt by currency over the next five years, at face value, are as follows:

Contractual maturities of unmatured debt

Maturing year	Canadian dollars1	US dollars2	Euro3	Total
	($ thousands)
2012	205,147,128	1,972,102	-	207,119,230
2013	75,338,004	-	-	75,338,004
2014	44,078,213	-	-	44,078,213
2015	38,960,103	2,908,800	-	41,868,903
2016	31,521,112	-	-	31,521,112
2017 and thereafter	194,534,415	55,818	2,744,000	197,334,233
Total contractual  maturities of  unmatured debt	589,578,975	4,936,720	2,744,000	597,259,695
1 Includes Treasury bills, marketable bonds, retail debt and bonds for Canada Pension Plan. 2 Includes marketable bonds issued in US dollars and Canada bills. 3 Includes marketable bonds issued in euro.

The effective average annual interest rates are as follows:

Effective average annual interest rates

	2011	2010
Treasury bills	1.12	0.40
Marketable bonds—domestic	3.56	3.87
Retail debt	1.11	1.32
Bonds for Canada Pension Plan	9.69	11.19
Marketable bonds—foreign	2.92	2.89
Canada bills	0.15	0.13

16. Derivative and fair values of financial instruments

a) Derivative financial instruments

i) Swap agreements

Government debt is issued at both fixed and variable interest rates and is denominated in Canadian dollars, US dollars and Euros. The Government has entered into cross‑currency swap agreements to facilitate the management of its debt structure. Using 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 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 and are recognized as part of net foreign exchange revenues in the Statement of Operations.

Cross‑currency swaps with contractual or notional principal amounts outstanding at March 31, stated in Canadian dollars, are as follows:

Cross-currency swaps with contractual or notional principal amounts

Maturing year	2011	2010
	($ thousands)
2011	-	2,529,300
2012	2,642,850	2,195,010
2013	4,185,058	4,300,759
2014	3,447,007	3,530,590
2015	3,196,895	3,266,865
2016	3,959,211	4,068,555
2017 and thereafter	22,116,997	17,668,384
Total cross‑currency swaps with contractual  or notional principal amounts	39,548,018	37,559,463

ii) Foreign‑exchange forward agreements

The Government typically funds loans with the IMF as part of the Foreign Exchange Accounts, which are dominated in SDR, with US dollars. Since the currency value of the SDR is based upon a basket of key international currencies (the US dollar, Euro, Japanese yet, and Pound sterling), a foreign exchange mismatch results, whereby fluctuations in the value of the loan asset are not equally offset by fluctuations in the value of the related funding liability. Therefore, the Government enters into forward agreements to hedge this foreign exchange risk.

Unrealized gains and losses due to fluctuations in the foreign exchange value of these agreements are recorded in accounts payable and accrued liabilities and are recognized as part of the net foreign exchange revenues in the Statement of Operations.

The foreign‑exchange forward agreements with contractual or notional principal amounts outstanding in Canadian dollars is $1,877 million (nil in 2010) maturing in 2012.

b) Fair value of financial instruments

The following tables present the carrying value, notional value and the fair value of certain 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 and fair value of financial instruments

	2011				2010
	Carrying value	Fair value		Difference	Carrying value	Fair value		Difference
	($ thousands)
Foreign exchange accounts	48,506,978	48,978,140		471,162	46,950,100	48,354,003		1,403,903
Crown borrowings	96,578,724	98,173,490		1,594,766	96,467,906	97,607,872		1,139,966
Unmatured debt	587,057,531	626,971,295		39,913,764	555,137,686	593,609,426		38,471,740

 

Notional and fair value of financial instruments

	2011		2010
	Notional value	Fair value	Notional value	Fair value
	($ thousands)
Cross‑currency swaps (net)	5,090,660	4,979,482	4,233,176	3,891,753
Foreign exchange forward contracts	(95,291)	(95,291)	-	-

Fair values of the swap and forward 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.

17. Financial risk

a) Credit risk related to swap and foreign‑exchange forward agreements

The Department 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 Standard & Poor’s or Moody's. At the time of inception of the agreement, the credit rating of the institution must be at least A–. Credit risk is also managed through collateral provisions in swap and foreign exchange forward agreements. Counterparties must pledge collateral to the Government, which, in the event of default, could be liquidated to mitigate credit losses.

The Department does not have a significant concentration of credit risk with any individual institution and does not anticipate any counterparty credit loss with respect to its swap and foreign exchange forward agreements.

The following table presents the notional amounts of the swap and foreign exchange forward agreements by ratings assigned by Standard & Poor’s at year end:

Notional amounts of swap and foreign exchange forward agreements

	2011	2010
	($ thousands)
AA	5,643,928	4,691,410
AA‑	15,708,202	13,746,329
A+	8,436,677	6,749,664
A	5,164,456	3,422,194
A‑	6,471,283	2,130,360
BBB+	-	5,447,210
BBB	-	1,372,296
Total notional amounts of swap and foreign  exchange forward agreements	41,424,546	37,559,463

b) Managing foreign currency risk and sensitivity analysis to foreign currency exposures

Interest rate and foreign currency risks are managed using a strategy of matching the duration and the currency of the Exchange Fund Account (EFA) assets and the related foreign currency borrowings of the Government. As at March 31, 2011, the impact of price changes affecting the EFA assets and the liabilities funding these assets naturally offset each other, resulting in no significant impacts to the Government’s net debt. Assets related to the IMF are only partially matched by related foreign currency borrowings, as they are denominated in SDR; however, foreign‑exchange risks relating to loans to the IMF have been managed through entering into various foreign‑exchange forward agreements. 

The majority of the Government's foreign currency assets and liabilities are held in three currency portfolios: the US dollar, the Euro and the Japanese yen. At March 31, 2011, a one percent appreciation in the Canadian dollar as compared to the US dollar, the Euro and the Japanese yen would result in a foreign exchange gain of $26 million due to the exposure of the US dollar portfolio, a foreign exchange loss of $3 million due to the exposure of the Euro portfolio and a foreign exchange gain of $1 million due to the exposure of the Japanese yen portfolio.

18.  Other liabilities

The following table presents details of other liabilities:

Other liabilities

	2011	2010
	($ thousands)
Deposits:
Canada Hibernia Holding Corporation (Note 18a)	94,316	93,719
Canada Eldor Inc. (Note 18b)	39,624	39,373
Collateral deposits (Note 18c)	400,154	329,512
Total deposits	534,094	462,604
Other Liabilities:
Common School Funds ‑ Ontario and Quebec (Note 18d)	2,678	2,678
Foreign Claims Fund (Note 18e)	179	179
War Claims Fund ‑ World War II (Note 18f)	4	4
Total other liabilities	536,955	465,465

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.

19. Employee future 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 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with the Canada/Quebec Pension Plans benefits and they are indexed to inflation.

Employees and the Department contribute to the cost of the Plan. The expense amounted to $9,486 thousand in 2011 ($9,358 thousand in 2010), which represents approximately 1.9 times (1.9 times in 2010) 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 authorities. Information about the severance benefits, measured as at March 31, is as follows:

Severance benefits

	2011	2010
	($ thousands)
Accrued benefit obligation, beginning of year	15,124	16,096
Expense for the year (recovery of)	2,519	(174)
Benefits paid during the year	(914)	(798)
Accrued benefit obligation, end of year	16,729	15,124

20. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into three categories as follows:

a) Claims and litigations

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. Based on Department's assessment, legal proceedings for claims estimated at $75 million ($75 million in 2010) were pending at March 31, 2011. 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.

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, 2011, callable share capital is $5,648 million ($5,818 million in 2010).

c) Loan guarantees

Mortgage Insurance

The Department of Finance Canada guarantees loans insured by the Genworth Financial Mortgage Insurance Company Canada, Canada Guarantee Mortgage Insurance Company and PMI Mortgage Insurance Company Canada. At March 31, 2011, the contingent liability related to the guarantees is $1,258 million ($1,468 million in 2010). 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 $213 million ($226 million in 2010) and a portion of credit sales made under the Agri‑Food Credit Facility, which amounted to $51 million ($49 million in 2010).

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 $310 million ($391 million in 2010).

A total liability of $220 million as at March 31, 2011 ($250 million in 2010) was recorded under both programs and is included in accounts payable and accrued liabilities (Note 10).

21. Contractual obligations

The nature of the Department’s activities can result in some large multi‑year agreements and contracts and obligations whereby the Department of Finance Canada will be obligated to make future payments in order to carry out its obligations.

Significant contractual obligations that can be reasonably estimated are summarized as follows:

Contractual obligations

	2012	2013	2014	2015	2016 and thereafter	Total
	($ thousands)
Transfer payments
International Development Association	51,200	51,200	51,200	51,200	1,118,670	1,323,470
African Development Fund	-	-	-	-	415,750	415,750
Toronto Waterfront Revitalization Initiative	22,200	-	-	-	-	22,200
Harbourfront Centre Funding Program	900	-	-	-	-	900
Total contractual obligations	74,300	51,200	51,200	51,200	1,534,420	1,762,320

22. Related party transactions

The Department of Finance Canada is related as a result of common control to all Government 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 and in certain instances under statutory requirements to do so. During the year, the Department also received common services which were obtained without charge from other government departments as discussed below.

a) Common services received without charge from other government departments

During the year, the Department of Finance Canada received services without charge from certain common service organizations, related to accommodation, legal services, and the employer’s contribution to the health and dental insurance plans. These services received without charge have been recorded in the Department’s statement of operations as follows:

Services received without charge

	2011	2010
	($ thousands)
Accommodation	8,556	7,399
Employer’s contribution to the health and dental insurance plans	6,832	6,548
Legal services	3,062	4,726
Total services received without charge	18,450	18,673

The Government has centralized some of its administrative activities for efficiency, cost‑effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The cost of these services, such as the 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 in the Department's statement of operations.

b) Other transactions with related parties

Other transactions with related parties

	2011	2010
	($ thousands)
Expenses‑Other Government departments and agencies	10,075,245	10,227,212
Revenues‑Other Government departments and agencies	13,269	3,953

23. Segmented information

Presentation by segment is based on the Department's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

Segmented information

($  thousands)	Transfer and Taxation Payment Programs	Treasury and Financial Affairs	Economic and Fiscal Policy Framework	Internal Services	2011 Total	2010 Total
Expenses
Transfer payments
Provinces and territories (Note 23a)	52,321,908	-	-	-	52,321,908	55,344,072
International organizations	600,474	-	-	-	600,474	363,091
Individuals (recovery of) (Note 23b)	-	-	(121,258)	-	(121,258)	-
Non‑profit institutions and organizations	100,384	-	26	-	100,410	70,102
Allowances on loan guarantees	(30,333)	-	-	-	(30,333)	(66,766)
Employment insurance enhancement    measures (recovery of)	-	-	-	-	-	(124,000)
Total transfer payments	52,992,433	-	(121,232)	-	52,871,201	55,586,499
Public debt charges
Interest on unmatured debt (Note23c)	-	17,643,154	-	-	17,643,154	16,535,376
Interest on superannuation and    other accounts (Note 23d)	-	10,203,342	-	-	10,203,342	10,342,737
Other public debt charges	-	17,352	-	-	17,352	31,537
Total public debt charges	-	27,863,848	-	-	27,863,848	26,909,650
Operating expenses (Note 23e)	788	(31)	75,288	68,928	144,973	151,494
Cost of domestic coinage sold	-	119,607	-	-	119,607	121,829
Net foreign currency loss	(53,888)	145,737	-	4	91,853	46,171
Other expenses	(48)	-	13,255	14	13,221	5,440
Total expenses	52,939,285	28,129,161	(32,689)	68,946	81,104,703	82,821,083
Revenues
Investment income
Crown borrowings‑interest	-	2,207,628	-	-	2,207,628	1,867,789
Exchange Fund Account‑net revenues	-	1,718,099	-	-	1,718,099	1,455,539
Other interest	126,321	8,311	59	-	134,691	152,451
Total investment income	126,321	3,934,038	59	-	4,060,418	3,475,779
Sale of domestic coinage	-	130,969	-	-	130,969	115,498
Guarantee fees	121,851	-	-	-	121,851	28,698
Interest on bank deposits	-	85,211	-	-	85,211	82,908
Unclaimed cheques and other	-	59,913	2	633	60,548	32,919
Total revenues	248,172	4,210,131	61	633	4,458,997	3,735,802
Net cost from operations	52,691,113	23,919,030	(32,750)	68,313	76,645,706	79,085,281

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:

Transfer payments to provinces and territories

	2011	2010
	($ thousands)
Canada Health Transfer	25,605,395	24,081,039
Canada Health Transfer ‑ Wait Times Reduction	250,000	250,000
Fiscal Equalization	14,881,503	14,185,000
Canada Social Transfer	11,178,825	10,857,853
Quebec Abatement	(3,750,759)	(3,298,849)
Territorial Financing	2,663,567	2,497,926
Crown Share Adjustment	-	79,400
Bill C‑9 (An Act to implement certain provisions of the budget tabled  in Parliament on March 4, 2010):
Canada Health Transfer ‑ special payment to Newfoundland and Labrador	8,408	-
Canada Health Transfer ‑ special payment to Saskatchewan	7,304	-
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	160,395	489,058
Payment to Nova Scotia	-	74,188
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	241,524	163,400
Transitional assistance provided under sales tax harmonization agreements	-	5,899,000
Obligation to Ontario ‑ General Motors and Chrysler	1,043,597	33,900
Statutory subsidies	32,149	32,157
Total transfer payments to provinces and territories	52,321,908	55,344,072

b) Transfer payments ‑ Individuals

During the year, the Department of Finance Canada recovered a total of $121.2 million (nil in 2010) from the Canadian Millenium Scholarship Foundation in relation to its dissolution and in accordance with the requirements of Section 94(4) of Budget Implementation Act, 2008.

c) 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 unmatured debt

	2011	2010
	($ thousands)
Interest on domestic debt:
Marketable bonds	15,997,689	14,920,076
Treasury bills	1,307,423	1,204,693
Retail debt	160,085	271,938
Bonds for Canada Pension Plan	12,370	51,896
Total interest on domestic debt	17,477,567	16,448,603
Interest on foreign debt:
Marketable bonds (US and euro)	161,084	61,073
Canada bills (US)	4,503	24,026
Euro medium‑term notes (euro)	-	1,674
Total interest on foreign debt	165,587	86,773
Total interest on unmatured debt	17,643,154	16,535,376

d) Interest on superannuation and other accounts

For the period ending March 31, interest on superannuation and other accounts includes the following:

Interest on superannuation and other accounts

	2011	2010
	($ thousands)
Superannuation accounts	9,780,118	10,031,559
Other specified purpose accounts	268,540	268,227
Retirement compensation arrangement accounts	121,459	119,812
Employment Insurance Fund (recovery of)	-	(93,980)
Special drawing rights allocations	31,051	16,383
Canada Pension Plan account	2,174	736
Total interest on superannuation and other accounts	10,203,342	10,342,737

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, 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.

e) Operating expenses

The following table presents details of operating expenses by category:

Operating expenses

	2011	2010
	($ thousands)
Salaries and wages	88,810	82,615
Professional and special services	19,400	19,004
Contribution to employee benefit plans	13,512	12,962
Accommodation	8,556	7,399
Information services	5,749	18,443
Transportation and telecommunications	5,038	5,683
Machinery and equipment	2,777	3,703
Repairs and maintenance	554	609
Rentals	532	823
Amortization of tangible capital assets	45	253
Total operating expenses	144,973	151,494

24. Adoption of new accounting policies

During the year, the Department adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements which is effective for the Department for the 2011 fiscal year. There are two major impacts to the financial statements of the Department required by the adoption of the revised TBAS 1.2, which are the recognition of amounts due from the Consolidated Revenue Fund as an asset on the statement of financial position and the removal of the investments in certain Crown corporations (Canada Development Investment Corporation, Bank of Canada and Canada Pension Plan Investment Board) and related investment revenues.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on comparative figures for 2009‑2010.

Adoption of new accounting policies

	2010 As previously stated	Effect of changes	2010 (Restated)
	($ thousands)
Statement of Financial Position
Assets	155,207,177	3,282,645	158,489,822
Equity of Canada	(421,477,205)	3,282,645	(418,194,560)
Statement of Operations
Revenues	5,088,439	(1,352,637)	3,735,802

25. Comparative information

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

1. Introduction

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 as well as the Departmental Financial Statements for the fiscal year 2010‑2011.

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) within the Department and that this system be assessed, on an annual basis, to determine its ongoing effectiveness. Among other things, an effective system of ICFR is a foundational element to the Department’s ability to produce relevant and reliable Departmental Financial Statements and to undergo a controls‑based external audit of those financial statements should a requirement to do so exist.

The Policy also requires that an annual report which summarizes the results of the ICFR assessment along with actions taken in response to significant issues which may have arisen as a result be attached to the Statement of Management Responsibility Including Internal Control over Financial Reporting, in the form of this Annex.

1.1 Authority, Mandate and Program Activities

The Department 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 (WEBLINK) and Departmental Performance Report (WEBLINK).

1.2 Financial Highlights

The Department’s unaudited financial statements are a component of the annual Departmental Performance Report. Highlights of the 2010‑2011 fiscal year are as follows (amounts expressed in $millions, unless otherwise stated):

Statement of operations

• Total expenses of the Department were $81,105 ($82,821 in 2010). The majority of expenses are comprised of transfer payments to provinces and territories of $52,322 ($55,344 in 2010) and public debt charges of $27,864 ($26,910 in 2010).
• Total revenues were $4,459 ($3,736 in 2010) and are mostly comprised of income arising from investments held in the Exchange Fund Account and the Crown borrowings‑interest. 

Statement of financial position

• At March 31, the Department holds a total of $159,938 in assets ($158,490 at March 31, 2010). Of total assets, the three most significant categories are advances made under the Crown Borrowing Framework with $96,579 ($96,468 at March 31, 2010), Foreign exchange accounts with $48,507 ($46,950 at March 31, 2010) and Due from the consolidated revenue fund with $6,938 ($7,155 at March 31, 2010).
• At March 31, the Department has incurred a total of $605,609 in liabilities ($576,684 at March 31, 2010). Of total liabilities, the most significant category is Unmatured debt with $587,058 ($555,138 at March 31, 2010) with Taxes payable under tax collection agreements of $6,622 ($6,382 at March 31, 2010) and related Interest payable at $6,538 ($6,778 at March 31, 2010).

Note 1 to the Departmental Financial Statements and the Departmental Performance Report provide 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, relative to 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);
• 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;
• The Office of the Comptroller General (OCG) co‑ordinates provisioning methodologies with respect to certain contingent liabilities and provides actuarial assumptions with respect to employee severance benefits;
• Treasury Board of Canada Secretariat (TBS) provides operational support to the Department in the form of accounting services for certain operational expenditures 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 2010‑2011

Fiscal year 2010‑2011 has seen the following changes in key areas for the Department.

• The Department consolidated the positions of the Director, Values and Ethics and the Disclosure Protection Officer. The consolidation helps to ensure that employees are provided with one point of contact and service to receive guidance on values and ethics issues and make protected disclosures of wrongdoing in accordance with the Public Servants Disclosure Protection Act.
• Select shared corporate services delivered by TBS to the Department were transferred to or implemented by the Department. As a result, compensation and benefits, departmental specific security services, and certain administration services are now more aligned with the specific needs and requirements of the Department.
• The Department has implemented the new requirements of Treasury Board Accounting Standard 1.2 in the preparation of its 2010‑2011 Departmental Financial Statements. Comparative results have been restated to reflect the new standard and are disclosed as appropriate within the financial statements.

2. Control Environment of the Department

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 (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, composed mainly of members who do not occupy a position within the federal public administration, which provides independent, objective advice and guidance to the Deputy Minister. The committee recommends for approval by the Deputy Minister the departmental audit and evaluation plans, oversees the performance of internal audit and evaluation function in the Department and reviews and recommends the Departmental Financial Statements for 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. Additionally, it reviews the corporate risk profile and departmental internal control arrangements.

2.2 Key Measures Taken by the Organization

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 to provide service and guidance on values and ethics issues, discuss ethical dilemmas in accordance with the Values and Ethics Code for the Public Sector and the Conflict of Interest Code for the Department of Finance to underline the need for employees to avoid, and if necessary, resolve conflicts of interest between their official duties and their personal interests. Mandatory annual reporting is an important feature of the code;
• Finance Disclosure Protection Officer to make protected disclosures of wrongdoing in accordance with the Public Servants Disclosure Protection Act;
• A dedicated group 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 financial authorities and IT access controls; and
• IT processing systems with objectives of security, integrity, efficiency and effectiveness.

3. Assessment of Finance Canada's System of ICFR

3.1 Assessment Approach

In support of the Policy on Internal Control, an effective system of ICFR has the objectives to provide reasonable assurance that:

• Transactions are appropriately authorized;
• Financial records are properly maintained;
• Assets are safeguarded; and,
• Applicable laws, regulations and policies are followed

To ensure these objectives are met over time, assessments of the design and operating effectiveness of the system of ICFR must take place at appropriate intervals and be supported by a process for continued monitoring through an on‑going monitoring program.

Design effectiveness provides 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 effectiveness ensures 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 monitoring program identifies areas for continued or periodic observance, update and testing on a defined rotational basis consistent with the level of risk associated with business processes.

The Department has formalized its strategy to meet these objectives. There are two key elements to its approach which are determined and re‑confirmed on an annual basis.

First, there is an assignation of an appropriate level of financial‑reporting risk to each significant business process in place within the Department. Risk‑levels are delineated between high, medium and low risk in accordance with criteria as follows:

• Materiality of the business process;
• The nature of the account, ranging from department‑specific to strategic to the Government as a whole;
• Volume of activity, complexity, and homogeneity of transactions within the business process;
• Susceptibility to loss due to the nature of the process; and,
• Any existing recommendations relating to internal or external audits.

Second, an on‑going monitoring framework is developed that determines how often and in what way a business process would be examined. Currently, this framework is as follows:

• For high‑risk business processes, both design and operational‑effectiveness testing is performed within the same assessment period.
• For medium‑risk business processes, design and operational‑effectiveness testing is performed within the same assessment period at least once every three fiscal years. If resources permit or circumstances require, more frequent testing can occur.
• For low‑risk business processes, design effectiveness is completed at least once every three years. If resources permit or circumstances require, more frequent documentation can occur.

Circumstances which might require a re‑assessment of risk or a re‑examination of a business process outside of this established frequency can include the introduction of common financial business process guidelines by the OCG, new initiatives undertaken by the Department or an internal or external audit issue brought to the attention of management.

Periodically, or in relation to material departmental changes, the effectiveness of general computer and entity level controls will also be revalidated.

Internal audits within the Department are conducted in accordance with an audit plan approved annually by Deputy Minister on the advice and recommendation of the AEC. If the nature, extent and scope of an internal audit are relevant to the objectives of the Policy, they are appropriately incorporated into the assessment for any given year regardless of the business process being audited. This approach provides for internal efficiencies.

3.2 Departmental Assessment Scope

The Department completed its annual risk assessment process in accordance with the steps and framework described at Section 3.1.

The results of this approach determined, in particular, the scope of work necessary for 2010‑2011. This work‑plan is described in the table below:

2010-2011 Work-Plan

Business process or area of control	Part of 2010‑2011 assessment scope	Approach to assessment
Transfer payments	Yes	Update to design effectiveness and planned internal audit
Domestic debt	Yes	Update to design effectiveness and planned internal audit
Crown borrowing	Yes	Design and operational effectiveness
International balances	Yes	Design and operational effectiveness
Financial close and reporting	Yes	Design and operational effectiveness
Foreign portfolio	No	Part of 2011‑2012 work plan
Operating expenses	No	Part of 2011‑2012 work plan
Circulating Coins	Yes	Planned internal audit
Payroll and benefits	No	Part of 2011‑2012 work plan
Budgeting and forecasting	Yes	Design and operational effectiveness
Entity level controls	Yes	Design effectiveness
General IT controls	No	Part of 2011‑2012 work plan

4. The Department's Assessment Results

The Department has completed the work established as part of its 2010‑2011 annual assessment scope. The significant results of these assessments are discussed at Sections 4.1 and 4.2 below.

4.1 Design Effectiveness of Key Controls

During the course of it work, management has noted four areas for improvement or further review. These are:

Confirmations: the Department confirms the contractual cash flows of its significant financial transactions prior to actual payment. In some cases, the confirmation process is designed to elicit a response from the counterparty only in situations where there is an initial disagreement over amounts or other details of these upcoming payments. A requirement for the counterparty to positively confirm their agreement with payment details could provide additional predictive value to the confirmation process.

Authorization: the Department has noted an opportunity to streamline its debt‑auction process through the elimination of redundant or repetitive controls.

Frequency of review: the Department would benefit from increasing the frequency of review of domestic coinage inventories against contractually agreed levels.

Frequency of review: the Department processes significant expenditures within the SPS which are date sensitive by contract or statute. After these payments have been processed using normal review and authorization procedures, a secondary review takes place confirming payment details. This secondary review would benefit from further confirmation of the payment date.

Where areas of improvement have been noted, it is important to consider that these areas have been assessed within the context of all the key controls identified within a business process. Accordingly, an area(s) for improvement is not an indication that controls within a business process, on an overall basis, are not designed effectively.

4.2 Operating Effectiveness of Key Controls

During the course of its work, management has noted one instance where key controls were not operating effectively. These are:

Financial coding of transactions: for a particular statutory transaction, it was noted that although proper authority to make a payment was properly documented and obtained, the subsequent coding of the transaction within the accounting system was to an unrelated fund centre.

Where an observation has been made with respect to the operating effectiveness of key controls, it is important to consider that these areas have been assessed within the context of the key controls identified within a business process. Accordingly, an area(s) for improvement is not an indication that controls within a business process, on an overall basis, are not operating effectively.

5. The Department's Action Plan

5.1 Progress As of March 31, 2011

During 2010‑2011, the Department continued to make significant progress in assessing and improving its key controls. Progress to date is summarized below:

The Department has completed:

• Its annual risk‑based assessment for the 2010‑2011 fiscal year as described at section 3.2;
• Addressing the areas of improvement for Authorization and Frequency of Review noted at section 4.1; With respect to items identified in the Department’s 2009‑2010 Action Plan relating to progress as at 2010‑2011:
• Developing and implementing an ongoing‑monitoring plan of periodic and risk‑based evaluations of significant business processes within the Department;
• Updated design and operational effectiveness testing for all business processes falling within the scope of its risk‑based approach;
• Completed its review of the delegated financial authorities matrix.

The Department has substantially completed:

• Finalizing its work‑plan with respect to 2011‑2012 with final confirmation upon completion of the 2010‑2011 Departmental Financial Statements

The Department has commenced or partially completed work to:

• Undertake a review of the confirmation processes employed in the settlement of certain financial transactions, as discussed at section 4.1

5.2 Action Plan ‑ Future Years

By the end of 2011‑2012, the Department plans to:

• Have completed its 2011‑2012 assessment work‑plan which tentatively will include reviews of Transfer payments, Domestic debt, Crown borrowing, International Balances, Financial Close and Reporting, Foreign Portfolio, Payroll and Benefits and General Computer Controls;
• Have begun addressing any remediation elements identified in 2011‑12;
• Have reviewed the implementation of changes to the design and operation of business processes implemented in 2010‑2011; and,
• Continue monitoring on an ongoing and risk‑based basis that ICFR continue to operate effectively over time.