Archived - Department of Finance Canada
Financial statements (unaudited)

Archived information

Archived information is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

For the year ended March 31, 2012

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, 2012, and all information contained in these statements rests with the management of the Department of Finance Canada (the Department). These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of 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 and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

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

A risk-based assessment of the system of ICFR for the year ended March 31, 2012 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

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 have not been audited.

Michael Horgan, Deputy Minister
Ottawa, Canada
August 31, 2012

Sherry Harrison, Chief Financial Officer

Department of Finance Canada
Statement of Financial Position (unaudited)
As at March 31
$ thousands
  2012 2011
Restated
(note 27)
Liabilities
  Accounts payable and accrued liabilities (note 4) 4,175,645 4,232,349
  Taxes payable under tax collection agreements (note 5) 9,310,027 6,622,138
  Interest payable (note 6) 6,138,534 6,538,474
  Notes payable to international organizations (note 7) 468,743 410,645
  Matured debt (note 8) 240,436 194,328
  Unmatured debt (note 9) 622,073,497 587,057,531
  Other liabilities (note 12) 1,148,819 536,955
  Employee future benefits (note 13) 12,191 16,729
 
Total gross liabilities 643,567,892 605,609,149
Liabilities held on behalf of Government (note 14) (468,743) (410,645)
 
Total net liabilities 643,099,149 605,198,504
Financial assets
  Due from Consolidated Revenue Fund 6,405,078 6,938,055
  Coin inventory 31,004 17,930
  Accounts receivable (note 15) 299,741 322,953
  Taxes receivable under tax collection agreements (note 16) 5,409,101 4,128,138
  Foreign exchange accounts (note 17) 56,997,135 48,506,978
  Crown borrowings (note 18) 94,926,332 96,578,724
  Loans, advances and investments (note 19) 3,901,212 3,291,316
 
Total gross financial assets 167,969,603 159,784,094
Financial assets held on behalf of Government (note 14) (5,811,449) (5,258,038)
 
Total net financial assets 162,158,154 154,526,056
 
Departmental net debt 480,940,995 450,672,448
Non-financial assets
  Tangible capital assets (note 20) 56 69
  Prepaid expenses 161,142 153,369
 
Total non-financial assets 161,198 153,438
 
Departmental net financial position (480,779,797) (450,519,010)

Contractual obligations (note 21)

Contingent liabilities (note 22)

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

Michael Horgan, Deputy Minister
Ottawa, Canada
August 31, 2012

Sherry Harrison, Chief Financial Officer

Department of Finance Canada
Statement of Operations and Departmental Net Financial Position (unaudited)
For the Year Ended March 31
$ thousands
  2012
Planned
Results
2012 2011
Restated
(note 27)
Expenses (note 25)
  Transfer and taxation
   payment programs
53,122,282 55,083,221 52,939,285
  Treasury and financial affairs 30,375,598 27,993,622 28,129,161
  Economic and fiscal policy
   framework (recovery of)
232,450 90,294 (32,689)
  Internal services 60,551 68,933 66,053
 
Total expenses 83,790,881 83,236,070 81,101,810
Revenues (note 25)
  Investment income 3,903,824 4,068,075 4,060,418
  Sale of domestic coinage 179,276 106,722 130,969
  Interest on bank deposits 70,304 115,750 85,211
  Net foreign currency gain - 81,666 -
  Other income 52,525 38,999 182,399
  Revenues earned on behalf
   of Government (note 26)
(4,205,929) (4,411,027) (4,458,997)
 
Total revenues - 185 -
 
Net cost from continuing
 operations
83,790,881 83,235,885 81,101,810
Transferred operations (note 24)
  Expenses - 1,618 2,893
 
Net cost of transferred operations - 1,618 2,893
 
Net cost of operations before
 government funding and transfers
83,790,881 83,237,503 81,104,703
Government funding and transfers
  Net cash provided by Government   53,494,397 53,692,894
  Changes in due from Consolidated
   Revenue Fund
  (532,977) (216,853)
  Services provided without charge by
   other government departments (note 23)
  18,976 18,450
  Transfer of assets to other government
   departments (note 24)
  (4,125) -
  Transfer of tangible capital assets
   from other government departments
  445 -
 
Net cost of operations after
 government funding and transfers
30,260,787 27,610,212
Departmental net financial
 position - Beginning of year
  (450,519,010) (422,908,798)
 
Departmental net financial
  position - End of year
  (480,779,797) (450,519,010)

Segmented information (note 25).

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

Department of Finance Canada
Statement of Change in Departmental Net Debt (unaudited)
For the Year Ended March 31
$ thousands
  2012 2011
Net cost of operations after government funding and transfers 30,260,787 27,610,212
Changes due to tangible capital assets
  Acquisition of tangible capital assets 3,811 38
  Amortization of tangible capital assets (143) (45)
  Proceeds from disposal of tangible capital assets (1) (103)
  Transfer to other government departments (3,680) -
 
Total change due to tangible capital assets (13) (110)
Change due to prepaid expenses 7,773 (28,949)
 
Net increase in departmental net debt 30,268,547 27,581,153
Departmental net debt - Beginning of year 450,672,448 423,091,295
 
Departmental net debt - End of year 480,940,995 450,672,448

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
  2012 2011
Restated
(note 27)
Operating activities
  Net cost of operations before government funding and transfers 83,237,503 81,104,703
  Non-cash items:
    Amortization of tangible capital assets (note 20) (143) (45)
    Amortization of discount on other loans, advances and investments 30,630 31,094
    Amortization of discounts on unmatured debt (3,822,771) (3,295,147)
    Unrealized foreign exchange gain (losses) 3,349 (3,944)
    Services provided without charge by other
     government departments (note 23)
(18,976) (18,450)
  Variations in Statement of Financial Position:
    Increase in assets 1,301,810 96,636
    Decrease (increase) in liabilities (2,838,571) 3,113,824
 
Cash used in operating activities 77,892,831 81,028,671
Capital investing activities
    Acquisition of tangible capital assets (note 20) 3,811 38
    Proceeds from disposal of tangible capital assets (1) (103)
 
Cash used (provided) in capital investing activities 3,810 (65)
Investing activities
    Net advances to the Exchange Fund
     Account of Canada
7,926,721 1,368,581
    Issuance of notes payable to International Monetary Fund (42,000) (1,364,574)
    Encashment of notes payable to International Monetary Fund 285,421 1,753,000
    Loans receivable from International Monetary Fund 183,102 811,096
    Issuance of loans receivable 63,334,862 76,412,268
    Repayment of loans receivable (65,030,494) (76,301,543)
 
Cash used in investing activities 6,657,612 2,678,828
Financing activities
    Net issuance from cross-currency swaps (427,120) (224,687)
    Issuance of debt (541,556,926) (536,769,384)
    Repayment of debt 510,924,190 506,979,531
 
Cash provided by financing activities (31,059,856) (30,014,540)
 
Net cash provided by Government of Canada 53,494,397 53,692,894

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

Notes to the Financial Statements

1. Authority and objectives

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

The Department is committed to making a difference for Canadians by helping the Government of Canada develop and implement strong and sustainable economic, fiscal, tax, social, security, international and financial sector policies and programs. It plays an important role in ensuring that government spending is focused on results and delivers value for taxpayer dollars. The Department interacts extensively with other federal organizations and plays a pivotal role in the analysis and design of public policy across a wide range of issues affecting Canadians.

Transfer and taxation payment programs: This program activity administers transfer and taxation payments to provinces and territories, and taxation payments to Aboriginal governments. In accordance with legislation and negotiated agreements, the Department provides fiscal equalization and support for health and social programs and other shared national priorities. The program activity also covers commitments and agreements with international financial institutions aimed at aiding the economic advancement of developing countries.

Treasury and financial affairs: This program activity provides direction for Canada’s debt management activities, including the funding of interest costs for the debt and service costs for new borrowing. In addition, it manages investments in financial assets needed to establish a prudent liquidity position. This program activity 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 in exercising his portfolio responsibilities and 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 to develop a sound and sustainable fiscal and economic framework. It also involves advice and support to the Minister of Finance in exercising his portfolio responsibilities. In addition, it involves the negotiation of agreements and drafting of legislation.

Internal services: This program activity enables the Department to deliver its management agenda through related activities and resources that support the needs of departmental programs and the organization’s corporate obligations. These activities are legal services, public affairs and communications, internal audit and evaluation, and corporate services, which include human resources, financial management, procurement, facilities and asset management, and information management and information technology services.

2. Summary of significant accounting policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do no result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department 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 Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.

The planned results amounts in the Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2011-12 Report on Plans and Priorities.

The future-oriented financial statements for 2011-12 have been restated to reflect the revenue net of non-respendable amounts. This restatement resulted in a $4.2  billion increase in net costs of operations before government funding and transfers.

Planned expenditures related to transferred operations were not reclassified as those items had not been specifically forecasted at the time of preparation of the future-oriented financial statements. In addition, the future-oriented financial statements have also been reclassified to conform to the current year presentation.

b) Net cash provided by Government

The Department 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 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 authorities to discharge its liabilities.

d) Revenues

The Department reports revenues 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, warrants and bank account cheques for all departments and agencies are recognized as revenue of the Department 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.
  • Net 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.

Revenues that are non-respendable are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the entity's gross revenues.

e) Expenses

The Department reports expenses on an 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.
  • Interest and other costs 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. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department’s responsibility 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.

Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. 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.

Termination benefits: Termination costs related to a government downsizing or reorganization impacting the Department are recognized when the government has demonstrably committed to either terminate the employment of an employee or group of employees or provide termination benefits as a result of an offer to encourage voluntary termination.

g) Coin inventory

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

h) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value.

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 in effect at year-end. 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 and Departmental Net Financial Position.

k) Loans, advances and investments

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, advances and investments to amounts that approximate their net realizable value.

However, when the term of the loan are concessionary, such as those provided with a low or no interest clause, they are recorded at their estimated net present value. A portion of the unamortized discount is recorded as revenue each year to reflect the change in the present value of loans outstanding. A valuation allowance is recorded for receivables where recovery is considered uncertain.

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 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 reporting 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 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:

Asset class
Amortization Period
Machinery and equipment
Three to five years
Motor vehicles
Three years

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 Interest and other costs.

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. The allowance is included in accounts payable and accrued liabilities.

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, the provision for redemption of Canadian pennies, the liability for employee future benefits and the useful life of tangible capital assets. 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 receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and the Departmental Net Financial Position 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
($ thousands)
   2012  2011
Net cost of operations before  government funding and transfers 83,237,503 81,104,703
Adjustments for items affecting net  cost of operations but not affecting authorities:
  Allowance for bad debts (135,054) (54,581)
  Allowance on loan guarantees (1,909) 30,333
  Recoveries on prior year allowances - 50
  Inventory charged to program expense 2,074 (17,940)
  Concessionary portion of loans receivable (56,864) -
  Employee future benefits 4,538 (1,605)
  Amortization of tangible capital assets (143) (45)
  Services provided without charge by other government departments (18,976) (18,450)
  Other 7,761 (28,965)
Other expenses not being charged to authorities:
  Transitional assistance provided under sales tax harmonization agreements -
   net of recoveries
959,200 3,769,000
  Obligation to Ontario - General Motors and Chrysler 108,624 (1,043,597)
  Other (907) 20,872
 
Total items affecting net cost of operations but not affecting authorities 84,105,847 83,759,775
Adjustments for items not affecting net cost of operations but affecting authorities:
  Advances and prepaid expenses 63,361,763 76,403,807
  Loans, advances and investments issued on behalf of Government 650,202 670,000
  Acquisitions of tangible capital assets 3,811 38
  Other 32,260 2,148
 
Total items not affecting net cost of operations but affecting authorities 64,048,036 77,075,993
 
Current year authorities used 148,153,883 160,835,768

b) Authorities provided and used

Authorities provided and used
($ thousands)
   2012  2011
Authorities provided:
  Vote 1 – Operating expenditures 133,206 128,601
  Vote 5 – Grants and contributions 173,194 319,195
  Statutory amounts 148,071,017 160,699,059
Less:
  Authorities available for future years (68,573) (68,573)
  Lapsed authorities:
    Vote 1 – Operating expenditures (11,302) (16,180)
    Vote 5 – Grants and contributions (143,659) (226,334)
 
Current year authorities used 148,153,883 160,835,768

Included in Statutory amounts are expenditures related to transfer payments, interest and other costs as well as gross disbursements and loans made to Crown Corporations during the year.

4. Accounts payable and accrued liabilities

The following table presents details of the Department's accounts payable and accrued liabilities:

Accounts payable and accrued liabilities
($ thousands)
   2012  2011
Accounts payable - external parties (note 4a) 2,328,677 2,135,076
Province of Ontario - General Motors and Chrysler (note 4b) 1,333,656 1,485,990
Accounts Payable - other government departments and agencies 235,686 291,721
Allowance for guarantees 221,906 219,997
Provision for redemption of Canadian pennies (note 4c) 11,000 -
Revaluation of foreign exchange forward contracts (note 4d) 39,306 95,291
Other accrued liabilities (note 4e) 5,414 4,274
 
Total accounts payable and accrued liabilities 4,175,645 4,232,349

a) External parties

Included in accounts payable - external parties is $2,200 million ($1,880 million in 2011) payable with respect to transitional assistance for sales tax harmonization provided for under various Comprehensive Integrated Tax Coordination Agreements (CITCA) with provinces.

As at March 31, 2012, the amount reflects a payable of $2,200 million to the province of Quebec as a result of a CITCA signed on March 28, 2012. This amount will be paid in two instalments and will be fully paid by 2014.

In the prior year, the amount relates to agreements previously signed with the provinces of Ontario and British Columbia, which were fully paid during the year.

b) Province of Ontario-General Motors and Chrysler

The liability to the Province of Ontario which 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.

c) Provision for redemption of Canadian pennies

In Canada's Economic Action Plan 2012, the Government announced its intention to cease production of the penny and to start withdrawing it from circulation as of February 4, 2013. As part of this initiative, Canadians will have the option of redeeming their pennies at their face value.

This provision reflects the estimated net cost to the Government of this initiative, as at March 31, 2012, represented by the cost of anticipated penny redemptions less their estimated salvage value.

d) Revaluation of foreign exchange forward contracts

This amount represents the net translated notional values of foreign-exchange forward contracts outstanding at March 31, 2012. These amounts were settled on April 5, 2011 and are discussed at (note 17).

e) Other accrued liabilities

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2013. As a result, the Department has recorded at March 31, 2012 an obligation for termination benefits for an amount of $856 thousand as part of accrued liabilities to reflect the estimated workforce adjustment costs. The remainder of accrued liabilities relates to accrued vacation pay.

5. 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
($ thousands)
   2012  2011
Corporate income taxes 6,199,307 5,777,857
Personal income taxes 3,700,037 354,788
Harmonized Sales Tax (589,317) 489,494
First Nations Sales Tax - (1)
 
Total taxes payable under tax collection agreements 9,310,027 6,622,138

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, are described at note 16.

The Department ultimately transfers these amounts directly to the participating governments 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.

6. Interest payable

The following table presents details of interest payable:

Interest payable
($ thousands)
   2012  2011
Domestic debt 4,459,108 4,582,122
Retail debt 1,650,046 1,925,471
Foreign debt 27,153 24,475
International Monetary Fund Balances 2,227 6,406
 
Total interest payable 6,138,534 6,538,474

7. 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
($ thousands)
 2012  2011
International Development Association 441,620 384,280
International Bank for Reconstruction and Development 23,923 23,254
Multilateral Investment Guarantee Agency 3,200 3,111
 
Total notes payable to international organizations 468,743 410,645

8. 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
($ thousands)
   2012  2011
Retail debt (matured from 1994 to 2012) 225,041 175,006
Marketable bonds (matured from 1994 to 2012) 14,804 18,731
Treasury bills (matured from 1977 to 1996) 591 591
 
Total matured debt 240,436 194,328

9. Unmatured debt

The Department borrows in both domestic and international markets on behalf of the Government of Canada.

Domestic debt consists of Treasury bills, marketable bonds, retail debt, and bonds for Canada Pension Plan (CPP).

The Treasury bills balance at March 31, 2012, consists of $7.2 billion in odd issue bills, $49.4  billion in three month bills, $32.5 billion in six month bills, and $74.3  billion in 364 day bills.

Marketable bonds consists of outstanding domestic Government of Canada bonds with remaining terms to maturity ranging from 1 to 34 years.

Retail debts include Canada Savings Bonds which are redeemable on demand by the holder, with accrued interest calculated to the end of the previous month; no interest is paid if redeemed during the first three months following the date of issue.

Bonds for Canada Pension Plan are interest-bearing certificates of indebtedness issued by the Government of Canada exclusively to the CPP Investment Fund and are redeemable at face value plus accrued interest.

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

Marketable bonds are either issued in US dollars and/or in EURos. They are issued to provide long term foreign funds and have remaining terms to maturity ranging from 3 to 9 years.

Canada bills are short-term certificates of indebtedness issued in the US money market.

Cross-currency revaluation refers to the net notional value of cross-currency swap agreements in place at March 31, 2012 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 10.

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

Unmatured debt
($ thousands)
Face value Unamortized
(discounts)
premiums
Net book
value 2012
Net book
value 2011
Domestic debt:
  Treasury bills 163,400,000 (511,680) 162,888,320 162,374,495
  Marketable bonds 447,768,526 (3,758,869) 444,009,657 412,579,760
  Retail debt 8,921,996 - 8,921,996 10,141,499
  Bonds for Canada Pension Plan 11,118 - 11,118 26,881
 
Total domestic debt 620,101,640 (4,270,549) 615,831,091 585,122,635
 
Foreign debt:
  Marketable bonds 8,698,492 (24,666) 8,673,826 5,680,377
  Canada bills 2,070,861 (348) 2,070,513 1,971,732
 
Total foreign debt 10,769,353 (25,014) 10,744,339 7,652,109
 
Total domestic and foreign debt 630,870,993 (4,295,563) 626,575,430 592,774,744
 
   
Less: Government holdings     - (573,900)
Less: Securities held for the retirement
 of unmatured foreign debt
    (54,079) (52,653)
 
Net domestic and foreign debt 626,521,351 592,148,191
 
Cross-currency revaluation:
  Payables 44,357,670 39,548,018
  Receivables (48,805,524) (44,638,678)
 
Total cross-currency revaluation (4,447,854) (5,090,660)
 
Total unmatured debt 622,073,497 587,057,531
 
Domestic debt fair value 686,333,047 627,192,047
 
Foreign debt fair value 11,190,418 7,787,336

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

Contractual maturities of unmatured debt
($ thousands)
Maturing year Canadian
dollars1
US dollars2 Euro3 Total
2013 218,497,890 2,070,861 - 220,568,751
2014 73,187,814 - - 73,187,814
2015 67,263,018 2,992,500 - 70,255,518
2016 31,445,513 - - 31,445,513
2017 41,683,963 3,025,662 - 44,709,625
2018 and thereafter 188,023,442 19,530 2,660,800 190,703,772
 
Total contractual maturities
 of unmatured debt
620,101,640 8,108,553 2,660,800 630,870,993
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
(%)
2012 2011
Treasury bills 0.99 1.12
Marketable bonds—domestic 3.27 3.56
Retail debt 0.81 1.11
Bonds for Canada Pension Plan 9.37 9.69
Marketable bonds—foreign 2.14 2.92
Canada bills 0.07 0.15

10. 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 interest and other costs. 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 and Departmental Net Financial Position.

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
($ thousands)
Maturing year 2012 2011
2012 - 2,642,850
2013 4,403,752 4,185,058
2014 3,455,511 3,447,007
2015 3,187,498 3,196,895
2016 3,975,506 3,959,211
2017 4,340,721 3,957,144
2018 and thereafter 24,994,682 18,159,853
 
Total cross-currency swaps with contractual
 or notional principal amounts
44,357,670 39,548,018

ii) Foreign-exchange forward agreements

The Government typically funds loans with the International Monetary Fund (IMF) as part of the Foreign Exchange Accounts, which are denominated in special drawing rights (SDRs), with US dollars. Since the currency value of the SDR is based upon a basket of key international currencies (the US dollar, Euro, Japanese yen, 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 and Departmental Net Financial Position.

The foreign-exchange forward agreements with contractual or notional principal amounts outstanding in Canadian dollars is $2,097 million ($1,877 in 2011) 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
($ thousands)
  2012 2011
 

Carrying value Fair value Difference Carrying value Fair value Difference
Assets
Foreign exchange accounts 56,997,135 59,949,232 2,952,097 48,506,978 48,978,140 471,162
Crown borrowings 94,926,331 97,099,398 2,173,067 96,578,724 98,173,490 1,594,766
 
Liabilities
Unmatured debt 622,073,497 693,292,425 71,218,928 587,057,531 626,971,295 39,913,764

 

Notional and fair value of derivative financial instruments
($ thousands)
2012 2011
 

  Notional value Fair value Notional value Fair value
Cross-currency swaps (net) 4,447,854 4,231,040 5,090,660 4,979,482
 
Foreign exchange forward contracts (net) (39,306) (39,264) (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.

11. 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
($ thousands)
  2012 2011
AA - 5,643,928
AA- 2,756,309 15,708,202
A+ 21,684,753 8,436,677
A 10,498,706 5,164,456
A- 4,151,396 6,471,283
BBB+ 3,965,483 -
BBB 3,398,234 -
 
Total notional amounts of swap and
 foreign exchange forward agreements
46,454,881 41,424,546

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 assets and the related foreign currency borrowings of the Government. As at March 31, 2012, the impact of price changes affecting the Exchange Fund Account 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 Exchange Fund Account foreign currency assets and liabilities are held in three currency portfolios: the US dollar, the Euro and the Japanese yen. At March 31, 2012, 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 $29 million due to the exposure of the US dollar portfolio, a foreign exchange loss of $2 million due to the exposure of the Euro portfolio. There is no significant exposure related to the Japanese yen portfolio.

12. Other liabilities

The following table presents details of other liabilities:

Other liabilities
($ thousands)
   2012  2011
Deposits:
  Canada Hibernia Holding Corporation (note 12a) 95,088 94,316
  Canada Eldor Inc. (note 12b) 25,928 39,624
  Collateral deposits (note 12c) 1,024,942 400,154
 
Total deposits 1,145,958 534,094
Other Liabilities:
  Common School Funds - Ontario and Quebec (note 12d) 2,678 2,678
  Foreign Claims Fund (note 12e) 179 179
  War Claims Fund - World War II (note 12f) 4 4
 
Total other liabilities 1,148,819 536,955

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. Included in collateral deposits is $410,105 in Canadian dollar funds and $616,378 in US dollar funds.

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 and other costs.

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.

13. Employee future benefits

a) Pension benefits

The Department's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. 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.

Both the employees and the Department contribute to the cost of the Plan. The expense amounted to $9,066 thousand in 2012 ($9,486 thousand in 2011), which represents approximately 1.8 times (1.9 times in 2011) the contributions by employees.

The Department's responsibility 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 provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. 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:

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Severance benefits
($ thousands)
   2012  2011
Accrued benefit obligation, Beginning of year 16,729 15,124
Expense for the year 2,216 2,519
Benefits paid during the year (6,754) (914)
 
Accrued benefit obligation, End of year 12,191 16,729

14. Liabilities and financial assets held on behalf of Government

Notes payable to international organization are related to investments made in to international organizations. Since the Department must obtain separate authorities to make these investments these items are considered liabilities held on behalf of Government.

In addition a distinction is made between financial assets that are available to discharge the Department’s liabilities and those that are not. Financial assets that are not available to discharge the Department’s liabilities are considered to be held on behalf of the Government and are therefore presented as a reduction of the Department's gross financial assets.

Financial assets held on behalf of Government include amount related to non-respendable revenues as well as loans, advance and investment which if repaid could not be used to discharge other liabilities.

The following table presents details of the liabilities and financial assets held on behalf of Government:

Liabilities and financial assets held on behalf of Government
($ thousands)
   2012  2011
Liabilities held on behalf of Government:
  Notes payable to international organizations (note 7) 468,743 410,645
 
Total liabilities held on behalf of Government 468,743 410,645
Financial assets held on behalf of Government:
  Accounts receivable (note 15) 299,741 322,953
  Foreign exchange accounts (note 17) 1,672,216 1,718,099
  Loans, advances and investments (note 19) 3,839,492 3,216,986
 
Total financial assets held on behalf of Government 5,811,449 5,258,038

15. Accounts receivable

The following table presents details of the Department accounts receivable:

Accounts receivable
($ thousands)
   2012  2011
Accrued interest income - Crown borrowings 181,910 179,705
Accrued investment income 114,657 141,039
Receivables - Other government departments and agencies 2,650 2,131
Receivables - External parties 524 78
 
Total accounts receivable 299,741 322,953

16. Taxes receivable under tax collection agreements

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

Taxes receivable under tax collection agreements
($ thousands)
   2012  2011
Corporate income taxes 5,423,287 6,133,959
Personal income taxes 2,581,520 (87,531)
Harmonized Sales Tax (2,386,379) (1,696,688)
First Nations Goods and Services Tax 1,378 3,106
First Nations Sales Tax 444 1,337
Provincial benefit programs (211,149) (226,045)
 
Total taxes receivable under tax collection agreements 5,409,101 4,128,138

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.

The Department ultimately transfers these amounts directly to the participating governments in accordance with established payment schedules. Amounts payable are described at (note 5).

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.

17. 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
($ thousands)
   2012  2011
Investments held in the Exchange Fund Account 60,468,687 52,323,739
Accrued net revenue from the Exchange Fund Account 1,672,216 1,718,099
 
Total investments held in Exchange Fund Account (note 17a) 62,140,903 54,041,838
Subscriptions to the International Monetary Fund (note 17b) 9,841,688 9,791,371
Loans receivable from the International Monetary Fund (note 17c) 1,325,102 1,139,293
Notes payable to the International Monetary Fund (note 17d) (7,057,776) (7,260,048)
Special drawing rights allocations (note 17e) (9,252,782) (9,205,476)
 
Total foreign exchange accounts 56,997,135 48,506,978
 
Fair value 59,949,232 48,978,140

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 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
($ thousands)
   2012  2011
US dollar cash on deposit 618,300 228,556
US dollar marketable securities 33,033,620 26,796,892
Euro cash on deposit 162,466 78,813
Euro marketable securities 18,950,931 17,762,748
Japanese yen cash on deposit 6,985 6,617
Japanese yen marketable securities 342,310 115,866
Special drawing rights 9,020,395 9,046,481
Gold 5,896 5,865
 
Total investments held in Exchange Fund Account 62,140,903 54,041,838

b) Subscriptions to the International Monetary Fund

This account records the value of Canada’s subscription (“quota”) to the capital of the IMF. The IMF is an international organization of 188 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 multi-lateral and bi-lateral borrowing arrangements with the IMF. The purpose of these 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 expanded 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, 2012, 858 million SDR or $1,325 million CAD (2011 - nil) in lending has been provided to the IMF under the NAB.

Canada also participates in the 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, 2012, 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. This agreement expires on July 2, 2013. As at March 31, 2012, no lending ($1,139 million in 2011) has been provided under this agreement.

Collectively, the outstanding loans under multi-lateral and bi-lateral arrangements with the IMF cannot exceed 8,517 million SDR at any given time.

At March 31, 2012, 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 2012, notes payable to the IMF decreased by $202 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, 2012 are SDR 5,988 million. The Canadian dollar equivalent of this amount is $9,253 million.

f) Notional cost

For the year ended March 31, 2012, the notional cost of funds advanced by the CRF to the Exchange Fund Account is $1,489 million ($1,493 million in 2011). 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.

18. Crown borrowings

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

Crown borrowings
($ thousands)
  Face value Unamortized
(discounts)
premiums
Net book
value 2012
Net book
value 2011
Canada Mortgage and Housing Corporation1 63,036,929 (19) 63,036,910 65,793,726
Farm Credit Canada 19,325,795 2,199 19,327,994 17,561,725
Business Development Bank of Canada2 12,561,439 (11) 12,561,428 13,223,273
 
Total Crown borrowings 94,924,163 2,169 94,926,332 96,578,724
 
Fair value 97,099,398 98,173,490

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

Contractual maturities of unmatured loans by Crown corporations
($ thousands)
Maturing year Canada Mortgage
and Housing
Corporation1
Farm
Credit
Canada
Business
Development
Bank2
Total
2013 954,524 9,207,895 12,094,612 22,257,031
2014 43,671,041 3,479,700 461,309 47,612,050
2015 13,210,083 2,785,000 - 15,995,083
2016 879,360 2,511,200 5,518 3,396,078
2017 1,067,432 906,000 - 1,973,432
2018 and thereafter 3,254,489 436,000 - 3,690,489
 
Total contractual maturities of unmatured
 loans by Crown corporations
63,036,929 19,325,795 12,561,439 94,924,163

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 0.864% 0.876% 1.040%
Long Term fixed interest rate 3.209% 2.459% 2.096%
Short Term floating interest rate - % 0.873% 0.873%
Long Term floating interest rate 2.081% 0.877% 0.863%

1 Includes loans of $54,805,577 thousand as of March 31, 2012 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities.

2 Includes loans of $460,920 thousand as of March 31, 2012 made through BDC under the Canadian Secured Credit Facility.

19. Loans, advances and investments

i) Loans and advances

The following table presents the various components of loans and advances due to the Department.

Loans and advances
($ thousands)
  Face value Unamortized
discounts / Valuation
allowance
Net book
value 2012
Net book
value 2011
Government business enterprises
Notes receivable from Canada Lands Company Ltd.
 (note 19a)
73,445 13,965 59,480 72,211
Note receivable from Parc Downsview Park Inc.
 (note 19b)
19,000 16,760 2,240 2,119
 
Total government business enterprises 92,445 30,725 61,720 74,330
 
Provincial and territorial governments      
Federal-Provincial fiscal arrangements (note 19c) 2,179,241 158,228 2,021,013 2,293,912
Recoverable overpayments of taxes payable under tax
 collection agreements (note 19d)
284,183 22,244 261,939 382,566
Loans to Municipal Development and Loan Board
 (note 19e)
315 - 315 315
Loans to the Winter Capital Projects Fund
 (note 19f)
2,900 2,900 - -
Receivable from British Columbia - Comprehensive
 Integrated Tax Coordination Agreement (note 19g)
1,279,200 36,421 1,242,779 -
 
Total provincial and territorial governments 3,745,839 219,793 3,526,046 2,676,793
 
International and other organizations      
Loans to the International Monetary Fund’s Poverty
 Reduction and Growth Trust (note 19h)
110,972 - 110,972 144,142
International Finance Corporation Global Trade Liquidity
 Program (note 19i)
- - - 193,920
International Finance Corporation Global Agriculture
 and Food Securities Program (note 19j)
48,000 48,000 - -
Advances to the Global Environment Facility
 (note 19k)
10,000 10,000 - -
Loan portfolio acquired from Canadian Commercial
 Bank (note 19l)
42,202 42,202 - -
 
Total international and other organizations 211,174 100,202 110,972 338,062
 
Total loans and advances 4,049,458 350,720 3,698,738 3,089,185

The breakdown of loans and advances by organizational body is outlined as follows.

Loans and advances by enterprise type
($ thousands)
  Face value Unamortized
discounts / Valuation
allowance
Net book
value 2012
Proportion %
Total Government business enterprises 92,445 30,725 61,720 2%
Total provincial and territorial governments 3,745,839 219,793 3,526,046 95%
Total international and other organizations 211,174 100,202 110,972 3%

The amount of loans receivable outstanding in foreign currencies, the Canadian dollar equivalent and the basis of translation is outlined in the table below.

Loans and advances by currency
($ thousands)
  Net Book Value CAD Equivalent Exchange Rate 2012 Proportion %
CAD 3,587,766 3,587,766 N/A 97%
SDR 71,817 110,972 1.5452 3%

Government business enterprises

a) Canada Lands Company Ltd. (CLC)

Canada Lands Company CLC Limited (CLC) manages, redevelops and/or sells strategic Government of Canada properties across Canada that are no longer required for program purposes.

CLC issues promissory notes, which do not bear interest and are repayable from the proceeds of the sale of the properties in respect of which they were issued.

The promissory notes are discounted using the Consolidated Revenue Fund (CRF) lending rate applicable to Crown corporations at the time of issuance and are recorded at their discounted value at March 31, 2012.

b) Parc Downsview Park Inc.

Located in Toronto, Downsview Park is a unique urban recreational green space, a safe and peaceful place developed according to the principles of environmental, economic and social sustainability, for Canadians to enjoy in all seasons.

Parc Downsview Park Inc. issued a promissory note which is non-interest bearing and is repayable in full on July 31, 2050.

The promissory notes are discounted using the CRF lending rate applicable to Crown corporations at the time of issuance and are recorded at their discounted value at March 31, 2012.

Provincial and territorial governments

c) Federal-Provincial fiscal arrangements

These amounts represent net overpayments in respect of transfer payments to provinces under the Constitutions Acts 1867 to 1982, the Federal-Provincial Arrangements Act, and other statutory authorities. The overpayments are non-interest bearing and are paid in subsequent years.

d) Recoverable overpayments of taxes payable under tax collection agreements

As part of regular operations, the Department transfers tax revenue collected on behalf of other levels of government under tax collection agreements. In certain circumstances, overpayments of taxes collected occur.

The recoverable overpayments 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 Department issued various loans to municipalities in the 1960s for infrastructure development purposes.

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.

g) Recoverable from British Columbia - Comprehensive Integrated Tax Coordination Agreement

Transitional assistance that had been paid to British Columbia as part of a Comprehensive Integrated Tax Coordination Agreement with Canada is being recovered in equal annual instalments with final payment due in March 2016. The Government has not collected interest on these amounts.

International and other organizations

h) 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 in CAD or such greater amount as may be fixed by the Governor in Council. The Governor in Council subsequently increased the limit to $1.2 billion SDR.

As at March 31, 2012, Canada has lent a total of $1,346.1 millions in CAD (SDR 728,520,000) to the Poverty Reduction and Growth Trust. Of this amount, $1,235.1 millions in CAD (SDR 656,702,750) has been repaid. The outstanding balance is $111.0 millions in CAD (SDR 71,817,250) translated into Canadian dollars at the year end closing rate of exchange of C$ 1.5452 [CAD to SDR Rate] per SDR. During the year, transactions included repayments and an exchange valuation adjustment.

Separately, Canada has also made budgetary contributions towards an interest subsidy amounting to $410.1 millions in CAD (SDR 215,157,946).

i) International Finance Corporation Global Trade Liquidity Program (IFC-GTLP)

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 and is interest-bearing.

During the year, this financial assistance was repaid in full less administrative costs totalling $3 million which were retained by IFC.

j) International Finance Corporation Global Agriculture and Food Securities Program (IFC-FSI)

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, 2012, advances to the IFC-FSI amounted to $48 millions in CAD.

k) Advances to the Global Environment Facility (GEF)

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 GEF are made in non-negotiable, non-interest bearing demand notes that are later encashed.

As at March 31, 2012, advances to the GEF amounted to $10,000,000 CAD.

l) 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.

ii) Investments and share subscriptions

The following table presents details of investments and share subscriptions that the Department participates in:

Investments and share subscriptions
($ thousands)
  Face value Unamortized
discounts / Valuation
allowance
Net book
value 2012
Net book
value 2011
International and other organizations        
Subscriptions and contributions to the
 International Development Association
 (note 19a)
9,406,118 9,406,118 - -
Subscriptions to the European Bank for
 Reconstruction and Development (note 19b)
215,657 215,657 - -
Subscriptions to the International Bank for
 Reconstruction and Development (note 19c)
392,384 392,384 - -
Subscriptions to the International Finance
 Corporation (note 19d)
81,139 81,139 - -
International Finance Corporation-Financial
 Mechanisms for Climate Change Facility
 (note 19e)
268,577 66,103 202,474 202,131
Subscriptions to the Multilateral Investment
 Guarantee Agency (note 19f)
10,705 10,705 - -
 
Total investments and share subscriptions 10,374,580 10,172,106 202,474 202,131

a) International Development Association (IDA)

This account records Canada's contributions and subscriptions to the IDA, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts (including Finance Vote L15, Appropriation Act No. 1, 2011-2012 and L15b, Appropriation Act No. 3, 2011-2012). 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, 2012, Canada’s total participation in IDA amounted to C$9,406.1 million (C$8,964.5 million in 2011).

b) 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 102,049 shares of the EBRD's authorized capital valued at 1,020,490 EUR. During the year, Canada subscribed to 30,614 callable shares with a value of 306,140,000 EUR.

Only 212,850,000 EUR or about 20% 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 807,640,000 EUR.

Up to and including March 31, 2012 Canada's total cash contributions into the "paid-in" capital of the EBRD total $216,197,668 US.

c) 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, 2012, Canada has subscribed to 52,709 shares. The total value of these shares is US$6,358.6 million, of which US$376.9 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$5,966 million.

d) International Finance Corporation

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, 2012, 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.

e) 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 (including Finance Vote L12b, Appropriation Act No. 4, 2010-2011). The FMCC supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional financing arrangements.

As at March 31, 2012, advances to the IFC-FMCC amount to $268.6 in CAD. 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.

f) 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, 2012, 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.

20. Tangible capital assets

Tangible capital assets
($ thousands)
  Cost Accumulated amortization Net book value
 


Capital asset class Opening balance Acqui-
sitions
Adjust-
ments
Dispo-
sals
and
write-
offs
Closing balance Opening balance Amorti-
zation
Adjust-
ments
Dispo-
sals
and
write-
offs
Closing balance 2012 2011
Machinery and equipment 397 3,811 (3,852) 12 344 352 134 (172) 11 303 41 45
Motor vehicles 73 - - - 73 49 9 - - 58 15 24
 
Total capital assets 470 3,811 (3,852) 12 417 401 143 (172) 11 361 56 69

Amortization expense for the year ended March 31, 2012 is $142,658 ($44,969 in 2011).

Effective November 15, 2011, the Department transferred machinery and equipment with a net book value of $4,124,720 to Shared Services Canada. This transfer is included in the adjustment columns (refer to note 24 for further detail on the transfer).

Adjustments also include transferred machinery and equipment from Other Government Departments with a net book value of $445,160.

21. Contractual obligations

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

Contractual obligations
($ thousands)
  2013 2014 2015 2016 2017 and
thereafter
Total
Transfer payments
  International Development Association 492,810 492,810 51,200 51,200 930,500 2,018,520
  African Development Fund - - - - 415,750 415,750
  Toronto Waterfront Revitalization Initiative 10,000 - - - - 10,000
  Harbourfront Centre Funding Program 5,000 5,000 5,000 3,000 - 18,000
 
Total contractual obligations 507,810 497,810 56,200 54,200 1,346,250 2,462,270

22. 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. While the total amount claimed in the actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management are $nil ($75 million in 2011) at March 31, 2012. 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 has callable share capital in certain international organizations that could require payments to those organizations. At March 31, 2012, callable share capital is $7,072 million ($5,648 million in 2011).

Callable share capital
($ thousands)
   2012  2011
International and other organizations    
Subscriptions to the European Bank for
 Reconstruction and Development
1,074,485 689,211
Subscriptions to the International Bank for
 Reconstruction and Development
5,951,418 4,914,815
Subscriptions to the Multilateral Investment
 Guarantee Agency
45,688 44,411
 
Total callable share capital 7,071,591 5,648,437

c) Loan guarantees

Mortgage Insurance

The Department 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, 2012, the contingent liability related to the guarantees is $1,098 million ($1,258 million in 2011). 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 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 $200 million ($213 million in 2011) and a portion of credit sales made under the Agri-Food Credit Facility, which amounted to $25 million ($51 million in 2011).

The Department 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 $261 million ($310 million in 2011).

A total liability of $222 million ($220 million in 2011) was recorded under both programs and is included in accounts payable and accrued liabilities (note 4).

23. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Department has an agreement with Treasury Board of Canada Secretariat related to the provision of accounting services. During the year, the Department received common services which were obtained without charge from other government departments as disclosed below.

a) Common services received without charge from other government departments

During the year, the Department 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 and Departmental Net Financial Position as follows:

Services received without charge
($ thousands)
   2012  2011
Accommodation 9,136 8,556
Employer’s contribution to the health and dental insurance plans 6,786 6,832
Legal services 3,054 3,062
 
Total services received without charge 18,976 18,450

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 and Departmental Net Financial Position.

b) Other transactions with related parties

Other transactions with related parties
($ thousands)
   2012  2011
Expenses - Other government departments and agencies 9,493,845 10,075,245
Revenues - Other government departments and agencies 23,263 13,269

24. Transfer to other government departments

Effective November 15, 2011, the Department transferred responsibility for certain information technology activities to the Shared Services Canada in accordance with s31.1 of the Financial Administration Act and Order in Council P.C. 2011-1297 including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, the Department transferred the following assets and liabilities related to the information technologies activities to Shared Services Canada on November 15, 2011:

Transfer to other government departments
Assets ($ thousands)
Tangible capital assets (net book value) (note 20) 4,125
Adjustment to the departmental net financial position 4,125

In addition, the 2011 comparative figures have been reclassified on the Statement of Operations and Departmental Net Financial Position to present the expenses of the transferred operations.

During the transition period, the Department continued to administer the transferred activities on behalf of SSC. The administered disbursements amounted to $1,597 thousand for the year. These disbursements are not included in these financial statements.

25. 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 2012
Total
2011
Total
Restated
(note 27)
Expenses
Transfer payments
  Provinces and
   territories (note 25a)
54,480,061 - - - 54,480,061 52,321,908
  International
   organizations
573,788 - - - 573,788 600,474
  Individuals (recovery of)
   (note 25b)
- - - - - (121,258)
  Non-profit institutions
   and organizations
27,494 - 14,350 5 41,849 113,665
  Allowances on loan
   guarantees
1,909 - - - 1,909 (30,333)
 
Total transfer payments 55,083,252 - 14,350 5 55,097,607 52,884,456
Interest and other costs
  Interest on unmatured
   debt (note 25c)
- 18,345,699 - - 18,345,699 17,643,154
  Interest on superannuation
   and other accounts (note 25d)
- 9,514,277 - - 9,514,277 10,203,342
  Other Interest and costs - 21,356 - - 21,356 17,352
 
Total interest and other costs - 27,881,332 - - 27,881,332 27,863,848
Operating expenses (note 25e) (31) (5) 75,944 68,890 144,798 142,080
Cost of domestic coinage sold - 112,295 - - 112,295 119,607
Net foreign currency loss - - - - - 91,853
Other expenses - - - 38 38 (34)
 
Total expenses 55,083,221 27,993,622 90,294 68,933 83,236,070 81,101,810
Revenues
Investment income
  Crown borrowings-interest - 2,270,544 - - 2,270,544 2,207,628
  Exchange Fund
   Account-net revenues
- 1,672,216 - - 1,672,216 1,718,099
  Other interest 114,194 11,062 59 - 125,315 134,691
 
Total investment income 114,194 3,953,822 59 - 4,068,075 4,060,418
Sale of domestic coinage - 106,722 - - 106,722 130,969
Guarantee fees 8,277 - - - 8,277 121,851
Interest on bank deposits - 115,750 - - 115,750 85,211
Unclaimed cheques and other - 28,127 2,342 253 30,722 60,548
Net foreign currency gain 11,881 69,790 - (5) 81,666 -
Revenues earned on
 behalf of Government
(134,352) (4,274,211) (2,401) (63) (4,411,027) (4,458,997)
 
Total revenues - - - 185 185 -
 
Net cost from operations 55,083,221 27,993,622 90,294 68,748 83,235,885 81,101,810

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 include the following:

Transfer payments to provinces and territories
($ thousands)
   2012  2011
Canada Health Transfer 26,923,831 25,605,395
Canada Health Transfer - Wait Times Reduction 250,000 250,000
Fiscal Equalization 15,327,539 14,881,503
Canada Social Transfer 11,514,064 11,178,825
Quebec Abatement (3,929,322) (3,750,759)
Territorial Financing 2,876,083 2,663,567
Bill C-3(An Act to implement certain provisions of
 the budget tabled in Parliament on June 6, 2011
):
  Fiscal Equalization - Total Transfer Protection 952,107 -
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
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 845 241,524
Obligation to Ontario - General Motors and Chrysler (108,624) 1,043,597
Statutory subsidies 32,149 32,149
Transitional assistance provided under sales tax
 harmonization agreement for British Columbia
(recovery of)
(1,558,611) -
Transitional assistance provided under sales tax
 harmonization agreement for Quebec
2,200,000 -
 
Total transfer payments to provinces and territories 54,480,061 52,321,908

b) Transfer payments - Individuals

In 2011, the Department recovered a total of $121.2 million 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
($ thousands)
   2012  2011
Interest on domestic debt:
  Marketable bonds 16,322,901 15,997,689
  Treasury bills 1,744,748 1,307,423
  Retail debt 111,052 160,085
  Bonds for Canada Pension Plan 1,235 12,370
 
Total interest on domestic debt 18,179,936 17,477,567
 
Interest on foreign debt:
  Marketable bonds (US and EURo) 163,948 161,084
  Canada bills (US) 1,815 4,503
 
Total interest on foreign debt 165,763 165,587
 
Total interest on unmatured debt 18,345,699 17,643,154

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
($ thousands)
   2012  2011
Superannuation accounts 9,107,486 9,780,118
Other specified purpose accounts 256,863 268,540
Retirement compensation arrangement accounts 115,994 121,459
Special drawing rights allocations 31,614 31,051
Canada Pension Plan account 2,320 2,174
 
Total interest on superannuation and other accounts 9,514,277 10,203,342

The Department 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 Canada Pension Plan Account, and other accounts.

e) Operating expenses

The following table presents details of operating expenses by category:

Operating expenses
($ thousands)
   2012  2011
Restated
(note 27)
Salaries and wages 82,582 88,165
Professional and special services 16,085 17,916
Contribution to employee benefit plans 12,545 13,402
Accommodation 9,136 8,556
Information services 9,699 5,749
Transportation and telecommunications 3,352 4,611
Machinery and equipment 5,089 2,571
Repairs and maintenance 422 554
Rentals 393 511
Amortization of tangible capital assets 143 45
Other subsidies and payments - other government department 5,352 -
 
Total operating expenses 144,798 142,080

26. Revenues earned on behalf of Government

The following table presents details of the revenues earned on behalf of Government:

Revenues earned on behalf of Government
($ thousands)
   2012  2011
Revenues earned on behalf of Government:
  Crown borrowing-interest 2,270,544 2,207,628
  Exchange Fund Account-net revenues 1,672,216 1,718,099
  Other interest 125,315 134,691
  Sale of domestic coinage 106,722 130,969
  Guarantee fees 8,277 121,851
  Interest on bank deposits 115,750 85,211
  Unclaimed cheques and other 30,537 60,548
  Net foreign currency gain 81,666 -
 
Total revenues earned on behalf of Government 4,411,027 4,458,997

Revenues earned on behalf of Government represent revenue which the Department cannot re-spend to fund other departmental activities.

27. Adoption of new accounting policy

In fiscal year 2012, amendments were made to the Treasury Board Accounting Standard 1.2 - Departmental and Agency Financial Statements to improve financial reporting by government departments and agencies. The amendments are effective for financial reporting of fiscal years ending March 31, 2012, and later. The significant changes to the Department's financial statements are described below. These changes have been applied retroactively, and comparative information for 2011 has been restated.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position. Accompanying this change, the Department now presents a Statement of Change in Net Debt and no longer presents a Statement of Equity.

Revenue and related accounts receivable is now presented net of non-respendable amounts in the Statement of Operations and Departmental Net Financial Position. The effect of this change was to increase the net cost of operations before government funding and transfers by $4,411,027 thousand for 2012 ($4,458,997 thousand for 2011). Financial assets and liabilities are now presented net of those held on behalf of the Government. The effect of this change was to decrease financial assets by $5,811,449 thousand for 2012 ($5,258,038 thousand for 2011) and decrease liabilities by $468,743 thousand for 2012 ($410,645 thousand for 2011).

Government funding and transfers, as well as the credit related to services provided without charge by other government departments are now recognized in the Statement of Operations and Departmental Net Financial Position below "Net cost of operations before government funding and transfers." In previous years, the Department recognized these transactions directly in the Statement of Equity of Canada. The effect of this change was to decrease the net cost of operations after government funding and transfers by $52,976,716 thousand for 2012 ($53,494,491 thousand for 2011).

Effect of change
($ thousands)
  2011 As
previously
stated
Effect of
change
2011
Restated
Statement of Financial Position:
  Liabilities held on behalf of Government - (410,645) (410,645)
  Assets held on behalf of Government - (5,258,038) (5,258,038)
  Departmental financial position (445,671,617) (4,847,393) (450,519,010)
Statement of Operations and
 Departmental Net Financial Position:
  Revenues 4,458,997 (4,458,997) -
  Government funding and transfers
    Net cash provided by Government - 53,692,894 53,692,894
    Change in due from Consolidated
     Revenue Fund
- (216,853) (216,853)
    Services provided without charge
     by other government departments
- 18,450 18,450

28. Future accounting changes

On April 1, 2012, the Government of Canada will adopt Public-Sector Accounting Standard 3410, Government Transfers. The Department will implement this standard on a prospective basis.

As a result of this change in accounting policy, the Department will recognize an immediate transfer payment expense of $161 million on April 1, 2012 in relation to amounts which had been previously disbursed but, given the timing of certain events, were presented as Prepaid Expenses.

29. Comparative information

Comparative figures have been reclassified where necessary 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 of the Department of Finance Canada for Fiscal Year 2011-12 (unaudited)

NOTE TO THE READER

With the Treasury Board Policy on Internal Control, effective April 1, 2009, departments are now required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR).

As part of this policy, departments are expected to conduct annual assessments of their system of ICFR, establish action plan(s) to address any necessary adjustments, and to attach to their Statements of Management Responsibility a summary of their assessment results and action plan.

Effective systems of ICFR aim to achieve reliable financial statements and to provide assurances that:

  • Transactions are appropriately authorized;
  • Financial records are properly maintained;
  • Assets are safeguarded from risks such as waste, abuse, loss, fraud and mismanagement; and;
  • Applicable laws, regulations and policies are followed.

It is important to note that the system of ICFR is not designed to eliminate all risks, rather to mitigate risk to a reasonable level with controls that are balanced with and proportionate to the risks they aim to mitigate.

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 the effectiveness of associated key controls and adjust as required, as well as to monitor the system in support of continuous improvement. As a result, the scope, pace and status of those departmental assessments of the effectiveness of their system of ICFR will vary from one organization to another based on risks and taking into account their unique circumstances.

1. INTRODUCTION

This document is attached to Finance Canada’s Statement of Management Responsibility Including Internal Control Over Financial Reporting for the fiscal-year 2011-2012. As required by the Treasury Board Policy on Internal Control, effective April 1, 2009, this document provides summary information on the measures taken by Finance Canada to maintain an effective system of internal control over financial reporting (ICFR).

In particular, it provides summary information on the assessments conducted by Finance Canada in relation to the fiscal year ending March 31, 2012, including progress, results and related action plans along with some financial highlights pertinent to understanding the control environment unique to the department.

This is the third annex produced by this department.

1.1 AUTHORITY, MANDATE AND PROGRAM ACTIVITIES

Finance Canada’s unaudited financial statements are a component of the annual Departmental Performance Report. The department’s financial results are also a significant component of the Public Accounts of Canada.

Detailed information on Finance Canada’s authority, mandate and program activities can be found in the Departmental Performance Report and Report on Plans and Priorities.

1.2 FINANCIAL HIGHLIGHTS

Finance Canada is a central agency and its finance and accounting functions are all located in Ottawa.

Highlights of the 2011-2012 fiscal year are as follows (amounts expressed in $millions, unless otherwise stated):

Statement of operations

Total expenses of the Department were $83,236 ($81,102 in 2011). The majority of expenses are comprised of transfer payments to provinces and territories of $54,480 ($52,322 in 2011) and interest in unmatured debt of $18,346 ($17,643 in 2011).

Statement of financial position

At March 31, the Department holds a total of $162,158 in net financial assets ($154,526 at March 31, 2011). Of total assets, the three most significant categories are advances made under the Crown Borrowing Framework with $94,926 ($96,579 at March 31, 2011), Foreign exchange accounts with $56,997 ($48,507 at March 31, 2011) and Due from the Consolidated Revenue Fund with $6,405 ($6,938 at March 31, 2011).

At March 31, the Department has incurred a total of $643,099 in net liabilities ($605,199 at March 31, 2011). Of total liabilities, the most significant category is Unmatured debt with $622,073 ($587,058 at March 31, 2011) with Taxes payable under tax collection agreements of $9,310 ($6,622 at March 31, 2011) and related Interest payable at $6,139 ($6,538 at March 31, 2011).

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

Finance Canada relies on other organizations for the processing of certain transactions that are recorded in its financial statements.

Common arrangements:

  • Public Works and Government Services Canada (PWGSC) which centrally administers banking arrangements and related processes, the payments of salaries and the procurement of goods and services consistent with the Department’s delegation of authority;
  • Shared Services Canada (SSC) was created on August 4, 2011 to consolidate, streamline and improve the government’s information technology (IT) infrastructure services, specifically email, data centre and network services for 43 federal departments and agencies. Effective November 15, 2011 the responsibility for email, data centre and network services, including associated resources, was transferred from Finance Canada to SSC. The administration and delivery of these services were shared during the 2011-12 transition period while SSC was being established;
  • Treasury Board Secretariat (TBS), specifically the Office of the Comptroller General (OCG), provides the Department with information used to calculate various accruals and allowances, such as accrued employee severance benefits; and,
  • The Department of Justice provides legal services to the Department of Finance.

Specific arrangements:

  • The Bank of Canada, in its capacity as fiscal agent, provides funds-management and treasury management services, for the Government of Canada;
  • Canada Revenue Agency (CRA) provides the financial information used by the Department to determine taxes receivable from CRA under tax collection agreements, including accrual-based methodologies to determine amounts receivable at year-end;
  • TBS provides accounting services for Operating expenses, managed through a shared-services arrangement; and,
  • TBS provides Finance Canada with its SAP financial system platform through which its captures and reports on financial transactions.

1.4 MATERIAL CHANGES IN FISCAL YEAR 2011-2012

Fiscal year 2011-2012 has seen the following changes impact financial reporting or the control-environment at the departmental-level:

  • The department has implemented the new requirements of Treasury Board Accounting Standard (TBAS) 1.2 in the preparation of its 2011-2012 Departmental Financial Statements. Comparative results have been restated to reflect the new standard and are disclosed as appropriate within the financial statements.
  • During the year, the Office of Values and Ethics assumed the role of Disclosure Protection Officer (DPO) which was intended both to enhance the independence of the DPO and provide a single point of contact to departmental employees in areas concerning public-service values, ethics and the disclosure of wrong-doing.

2. CONTROL ENVIRONMENT OF FINANCE RELATIVE TO ICFR

The control environment is the foundation of all other components of internal control. Finance Canada recognizes the importance of setting the tone from the top from the highest level of senior management to help ensure that staff at all levels understand their roles in maintaining effective systems of ICFR and are equipped to carry out their responsibilities effectively.

The Department’s focus is to ensure risks are managed well through a responsive and risk-based control environment that enables continuous improvement and innovation.

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. The CFO participates at all meetings of the Departmental Audit and Evaluation Committee.

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 Departmental 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 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, including this Annex and supporting work-plans.

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;
  • A Disclosure Protection Officer, housed within the Office of Values and Ethics, to facilitate protected disclosures of wrongdoing in accordance with the Public Servants Disclosure Protection Act;
  • A group dedicated to ICFR under the direction of the CFO;
  • A corporate risk profile;
  • Annual business plan;
  • A risk based internal audit plan which also covers planned audits related to business processes assessed under the Policy on Internal Control;
  • Integrated human resources 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;
  • Documentation maintained of main business processes and related key risk and control points to support the management and oversight of its system of ICFR; and,
  • IT processing systems meeting objectives of security, integrity, efficiency and effectiveness.

3. ASSESSMENT OF FINANCE CANADA'S SYSTEM OF ICFR

3.1 ASSESSMENT APPROACH

Requirements of the Policy on Internal Control:

To satisfy the requirements of the Policy on Internal Control, the department must be able to maintain an effective system of ICFR with 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 means to ensure that key control points are identified, documented, in place and that they are aligned with the risks (i.e. controls are balanced with and proportionate to the risks they aim to mitigate) and that any remediation is addressed. This includes the mapping of key processes and IT systems to the main accounts as applicable.

Operating effectiveness means that the application of key controls has been tested over a 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 as determined in the annual risk assessment process.

Approach at Finance Canada:

The Department has formalized its strategy to sustain the objectives of the Policy on Internal Control. Overall, this strategy is risk-based in that is designed to ensure adequate focus is placed on business processes which could be considered to pose the most risk to the reliability of financial reporting if adequate internal controls were either not in place or not functioning.

On an annual basis, an appropriate level of financial reporting risk is assigned to each significant business process within the Department. A business process could be considered high, medium or low risk in accordance with internally developed criteria, such as:

  • 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.

An on going monitoring process is now in place building on the results and experience from past work to develop documentation for assessing and validating key business processes and related controls. This monitoring framework incorporates the following:

  • For high risk business processes, both design and operational effectiveness testing is to be performed within the same annual assessment period.
  • For medium risk business processes, design and operational effectiveness testing is performed within the same annual assessment period at least once every three fiscal years.
  • For low risk business processes, design effectiveness is completed at least once every three years.

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

More frequent assessments can take place depending on the situation or important changes. This could include new initiatives undertaken by Finance Canada or internal or external audit issues brought to the attention of management.

Internal audits within the Department are conducted in accordance with an audit plan approved annually by the 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.

3.2 SCOPE OF DEPARTMENTAL ASSESSMENT DURING FISCAL YEAR 2011-2012

The Department has taken measures to assess its system of ICFR in a manner consistent with the risk-based approach described in Section 3.1 including its monitoring of on-going effectiveness of ICFR.

The results of this approach determined, in particular, the scope of the assessment plan for 2011-2012 as described in the table below:

Business process
  Risk 2011-2012
assessment scope
Approach
to assessment
Transfer payments High Yes Design and operational effectiveness
Domestic debt High Yes Design and operational effectiveness
Crown borrowing High Yes Design and operational effectiveness
International organizations High Yes Design and operational effectiveness
Official International Reserves High Yes Design and operational effectiveness
Operating expenses Medium Yes Design and operational effectiveness
Domestic coinage Medium No Not applicable
Payroll and benefits Low No Not applicable

The Department also documented and assessed its entity (corporate) level controls and IT general system controls. Finally, the Department took into account new information available from recent audits or evaluations.

4. ASSESSMENT RESULTS DURING FISCAL YEAR 2011-2012

Finance Canada carried out its annual risk-based assessment in accordance with the scope described at Section 3.2.

4.1 DESIGN EFFECTIVENESS OF KEY BUSINESS PROCESS CONTROLS

Assessment results for business processes identified some areas for remediation:

Documentation of controls: in several areas, control activities were taking place but were not providing adequate evidence such as physical signature or record of approval. Also, for certain activities undertaken by the fiscal agent, the Department did not receive a formal indication that they had taken place. These findings were remediated during the year.

Finance Canada identified the need to finalize a memorandum of understanding with the Bank of Canada relating to the back-office accounting functions for Domestic Debt taking place within both entities, which will clearly document roles and responsibilities. As of March 31, 2012, this document was substantially advanced and will be completed in 2012-2013.

Reconciliation: the department could enhance existing controls in the areas of domestic debt and transfer payments by formalizing the frequency of existing reconciliations with external data sources as well as establishing an acceptable threshold for un-reconciled differences, if appropriate. These findings were remediated during the year.

4.2 OPERATING EFFECTIVENESS OF KEY BUSINESS PROCESS CONTROLS

Assessment results revealed some areas for remediation as follows:

Documentation of controls: in certain areas, even if the business process was designed to provide evidence of a control taking place, physical evidence was not present in several instances. The issue is not considered systemic, but should be addressed by ensuring staff clearly understand business requirements.

4.3 ENTITY-LEVEL AND IT GENERAL CONTROLS

Opportunities to strengthen existing IT general controls have been identified and relate mainly to the change management process, user profiles and security log and access levels. These findings were remediated during the year.

5. DEPARTMENTAL ACTION PLAN

Overall the department is implementing its plan for monitoring the effectiveness of its ICFR on an on-going basis.

5.1 PROGRESS DURING FISCAL YEAR 2011-2012

Remediation of findings from the prior year

During the year, Finance Canada addressed design effectiveness findings from the prior year and determined them to have been resolved in 2011-2012. These included prior-year observations with respect to authorization activities, confirmation processes as well the frequency of review in certain business processes.

This remediation work included the implementation of quarterly debt issuance authorizations to eliminate redundant controls in the debt-auction process, implementing a formal positive confirmation process with respect to certain financial transactions in the Crown Borrowing program, increasing the frequency of review of domestic coinage levels and enhancing the secondary review process for payments.

Other items of significance

In addition to its assessment work described in Section 4.0, the department has made efforts to align its financial reporting and closing checklists to its business process documentation to ensure consistent and efficient application of key controls as well as to improve the auditability of key controls.

Also, the department has adjusted the timing of certain audits taking place under its risk-based audit plan. These changes will take affect in 2012-2013 and will complement the timing of work required under the Policy on Internal Control.

5.2 ACTION PLAN FOR 2012-2013 AND SUBSEQUENT YEARS

Remediation activities related to current year observations

For the most part, items identified for remediation were addressed during 2011-2012. The Department will report formally on progress with respect to 2011-12 observations in its 2012-2013 annual report.

Other items of significance

Effective April 1, 2012, the Public-Sector Accounting Standard for Government Transfers became effective for the Department. No significant changes to on-going accounting processes or controls are anticipated as a result of this new standard.

Effective April 1, 2015, the Public-Sector Accounting Standards for Financial Instruments and Foreign-Exchange will become effective for the Department. Although work continues to assess the impact that these new standards will have on the financial statements of Finance Canada, they are expected to be significant both in terms of quantitative impact and in terms of impact to existing systems.

Future work plans

In future years, the Department will continue its ongoing monitoring of ICFR in place at the business process level. The results of this testing will be published in this annex as applicable and the department will continue to refine and develop its overall approach to ICFR assessment.

Assuming no changes to its assessment approach to ICFR, the following are the planned assessment activities for business processes for the next two fiscal years:

Business process
  Risk 2012-2013
assessment scope
2013-2014
assessment scope
Transfer payments High Yes Yes
Domestic debt High Yes Yes
Crown borrowing High Yes Yes
International organizations High Yes Yes
Official International Reserves High Yes Yes
Operating expenses Medium Yes Yes
Domestic coinage Medium Yes No
Payroll and benefits Low No Yes

Entity-level controls and IT general controls will continue to be monitored on a periodic basis or as circumstances require.

This approach is subject to change depending on changes to departmental activities and priorities.