Archived - Department of Finance Canada
Financial statements (unaudited)

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For the year ended
March 31, 2013

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, 2013, 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, 2013 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 26, 2013

Sherry Harrison, Chief Financial Officer

Department of Finance Canada
Statement of Financial Position (unaudited)
As at March 31
$ thousands
2013 2012
Liabilities
  Deposit liabilities (note 4) 318,800 1,145,958
  Accounts payable and accrued liabilities (note 5) 3,350,818 4,178,506
  Taxes payable under tax collection agreements (note 6) 2,180,363 9,310,027
  Interest payable (note 7) 5,656,115 6,138,534
  Notes payable to international organizations (note 8) 469,236 468,743
  Matured debt (note 9) 298,786 240,436
  Unmatured debt (note 10) 662,053,049 622,073,497
  Employee future benefits (note 13) 5,407 12,191
 
Total gross liabilities 674,332,574 643,567,892
Liabilities held on behalf of Government (note 14) (469,236) (468,743)
 
Total net liabilities 673,863,338 643,099,149
Financial assets
  Due from Consolidated Revenue Fund 5,933,655 6,405,078
  Coin inventory 31,456 31,004
  Accounts receivable (note 15) 395,513 299,741
  Taxes receivable under tax collection agreements (note 16) 4,084,134 5,409,101
  Foreign exchange accounts (note 17) 58,758,525 56,997,135
  Crown borrowings (note 18) 94,149,960 94,926,332
  Loans, advances and investments (note 19) 3,134,114 3,901,212
 
Total gross financial assets 166,487,357 167,969,603
Financial assets held on behalf of Government (note 14) (4,867,992) (5,811,449)
 
Total net financial assets 161,619,365 162,158,154
 
Departmental net debt 512,243,973 480,940,995
Non‑financial assets
  Tangible capital assets (note 20) 276 56
  Prepaid expenses 7 161,142
 
Total non‑financial assets 283 161,198
 
Departmental net financial position (512,243,690) (480,779,797)

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 26, 2013

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
2013
Planned Results
2013 2012
Expenses (note 25)
  Transfer and taxation payment programs 56,479,033 57,068,475 55,083,221
  Treasury and financial affairs 28,981,400 26,113,066 27,993,622
  Economic and fiscal policy framework 70,987 77,367 90,294
  Internal services 59,716 66,835 68,933
 
Total expenses 85,591,136 83,325,743 83,236,070
Revenues (note 25)
  Investment income 3,515,891 3,726,910 4,068,075
  Sale of domestic coinage 115,388 120,192 106,722
  Interest on bank deposits 175,952 222,359 115,750
  Net foreign currency gain - 78,147 81,666
  Other income 52,017 68,762 38,999
  Revenues earned on behalf of Government (note 26) (3,859,248) (4,216,227) (4,411,027)
 
Total revenues - 143 185
 
Net cost from continuing operations 85,591,136 83,325,600 83,235,885
Transferred operations (note 24)
  Expenses - - 1,618
 
Net cost of transferred operations - - 1,618
 
Net cost of operations before government funding and transfers 85,591,136 83,325,600 83,237,503
Government funding and transfers
  Net cash provided by Government   52,314,038 53,494,397
  Changes in due from Consolidated Revenue Fund   (471,423) (532,977)
  Services provided without charge by other government departments (note 23)   19,092 18,976
  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 31,463,893 30,260,787
Departmental net financial position ‑ beginning of year   (480,779,797) (450,519,010)
 
Departmental net financial position ‑ end of year   (512,243,690) (480,779,797)

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
2013 2012
Net cost of operations after government funding and transfers 31,463,893 30,260,787
Changes due to tangible capital assets
  Acquisition of tangible capital assets 279 3,811
  Amortization of tangible capital assets (59) (143)
  Proceeds from disposal of tangible capital assets - (1)
  Transfer to other government departments - (3,680)
 
Total change due to tangible capital assets 220 (13)
Change due to prepaid expenses (161,135) 7,773
 
Net increase in departmental net debt 31,302,978 30,268,547
Departmental net debt ‑ beginning of year 480,940,995 450,672,448
 
Departmental net debt ‑ end of year 512,243,973 480,940,995

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

Department of Finance Canada
Statement of Cash Flows (unaudited)
For the Year Ended March 31
$ thousands
2013 2012
Operating activities
  Net cost of operations before government funding and transfers 83,325,600 83,237,503
  Non‑cash items:
    Amortization of tangible capital assets (note 20) (59) (143)
    Amortization of discount on loans, advances and investments 28,226 30,630
    Amortization of discounts on unmatured debt (2,903,759) (3,822,771)
    Unrealized foreign exchange gains (losses) (33,210) 3,349
    Services provided without charge by other government departments (note 23) (19,092) (18,976)
  Variations in Statement of Financial Position:
    Increase (decrease) in assets (1,485,650) 1,301,810
    Decrease (increase) in liabilities 9,273,713 (2,838,571)
 
Cash used in operating activities 88,185,769 77,892,831
Capital investing activities
    Acquisition of tangible capital assets (note 20) 279 3,811
    Proceeds from disposal of tangible capital assets - (1)
 
Cash used (provided) in capital investing activities 279 3,810
Investing activities
    Net advances to the Exchange Fund Account of Canada 1,350,778 7,926,721
    Issuance of notes payable to International Monetary Fund (48,547) (42,000)
    Encashment of notes payable to International Monetary Fund 311,000 285,421
    Loans receivable from International Monetary Fund 182,841 183,102
    Issuance of loans receivable 65,162,014 63,334,862
    Repayment of loans receivable (65,966,146) (65,030,494)
 
Cash used in investing activities 991,940 6,657,612
Financing activities
    Net issuance from cross‑currency swaps (835,905) (427,120)
    Issuance of debt (553,846,003) (541,556,926)
    Repayment of debt 517,817,958 510,924,190
 
Cash provided by financing activities (36,863,950) (31,059,856)
 
Net cash provided by Government of Canada 52,314,038 53,494,397

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 of Finance Canada contributes to a strong economy and sound public finances for Canadians. It does so by monitoring developments in Canada and around the world to provide first‑rate analysis and advice to the Government of Canada and by developing and implementing fiscal and economic policies that support the economic and social goals of Canada and its people. The Department of Finance Canada also plays a central role in ensuring that government spending is focused on results and delivers value for taxpayers dollars. The Department interacts extensively with other federal organizations and acts as an effective conduit for the views of participants in the economy from all parts of Canada.

Transfer and taxation payment programs: This program activity includes the administration of transfer and taxation payments to provinces and territories as well as taxation payments to Aboriginal governments in accordance with legislation and negotiated agreements. Also included in this program activity are commitments and agreements with international financial organizations aimed at supporting the economic advancement of developing countries. In addition, from time to time, the government will enter into agreements or enact legislation to respond to unforeseen pressures. These commitments can result in payments, generally statutory transfer payments, to a variety of recipients, including individuals, organizations, and other levels of government.

Treasury and financial affairs: 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 borrowings. In addition, the program manages investments in financial assets needed to establish a prudent liquidity position. This program supports the ongoing refinancing of government debt coming to maturity, the execution of the budget plan, and other financial operations of the government, including governance of the borrowing activities of major government‑backed entities, such as Crown corporations. This program activity is also responsible for the system of circulating Canadian currency (bank notes and coins) to meet the needs of the economy.

Economic and fiscal policy framework: This program activity is the primary source of advice and recommendations to the Minister of Finance on issues, policies and programs of the Government of Canada related to the areas of economic, fiscal and social policy; federal‑provincial relations; financial affairs; taxation; and international trade and finance. The work conducted by this program activity involves extensive research, analysis, and consultation and collaboration with partners in both the public and private sectors, including the Cabinet and the Treasury Board; Parliament and parliamentary committees; the public and Canadian interest groups; departments, agencies and Crown corporations; provincial and territorial governments; financial market participants; the international economic and finance community; and the international trade community. In addition, this program activity includes policy advice on the development of Memoranda to Cabinet, negotiation of agreements, drafting of legislation and sponsoring of bills through the parliamentary process, which are subsequently administered by other program activities within the Department and by other government departments and agencies.

Internal services: Internal Services are activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. The Internal Services categories are Management and Oversight Services, Communications and Consultations Services, Legal Services, Human Resources Management Services, Financial Management Services, Information Management Services, Information Technology Services, Real Property Services, Materiel Services, Acquisition Services, and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not those provided specifically to a program.

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 not 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 2012‑13 Report on Plans and Priorities.

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 bank deposits is recognized as revenue when earned.
  • 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.
  • Guarantee fees are recognized when earned and are determined by reference to the terms of the guarantee program or underlying contract.
  • 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.
  • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
  • Revenues earned on behalf of the Government represent revenues that are non‑respendable which 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 authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses 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.

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. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

i) Foreign exchange accounts

Short‑term deposits, marketable securities, and special drawing rights held in the foreign exchange accounts are recorded at cost. Marketable securities are adjusted for amortization of purchase discounts and premiums. Purchases and sales of securities are recorded at the settlement date. Write‑downs to reflect other than temporary impairment in the fair value of securities, if any, are included in foreign currency gain revenues on the Statement of Operations and Departmental Net Financial Position.

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

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. 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. The allowance is determined based on estimated probable losses that exist on the remaining portfolio.

When the terms of a 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.

Investments and share subscriptions are recorded at cost net of allowances. Allowances are determined based on a combination of expected return and likelihood of capital recovery. Given their nature, investments in certain international financial institutions are not expected to generate direct financial returns nor to be recovered. In those cases, investments are fully provisioned.

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 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) Deposit liabilities

Deposits that are repayable on demand are recorded as liabilities.

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 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, advances and investments, 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, 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.

r) Liabilities and financial assets held on behalf of Government

Financial assets and liabilities held on behalf of Government are presented in these financial statements as the deputy head must maintain accounting control for these elements.

The classification of financial assets as held on behalf of Government is determined based on the ability to discharge that financial asset or financial assets against the Department’s liabilities or to increase the value of those financial assets without further authority from Parliament. The classification of liabilities as held on behalf of Government is determined based on the ability to increase the value of those liabilities without further authorities or within prescribed limits or ceilings.

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)
  2013 2012
Net cost of operations before government funding and transfers 83,325,600 83,237,503
Adjustments for items affecting net cost of operations but not affecting authorities:
  Allowance for bad debts (54,173) (135,054)
  Allowance on loan guarantees 172,927 (1,909)
  Inventory charged to program expense (49) 2,074
  Concessionary portion of loans receivable - (56,864)
  Employee future benefits 6,784 4,538
  Amortization of tangible capital assets (59) (143)
  Services provided without charge by other government departments (19,092) (18,976)
  Prepaid expenses (note 27) (161,128) -
  Other (34) 7,761
Other expenses not being charged to authorities:
  Transitional assistance provided under sales tax harmonization agreements ‑ net of recoveries 725,500 959,200
  Obligation to Ontario ‑ General Motors (105,041) 108,624
  Receivable from British Columbia ‑ Comprehensive Integrated Tax Coordination Agreement (319,800) -
  Other (163) (907)
 
Total items affecting net cost of operations but not affecting authorities 83,571,272 84,105,847
Adjustments for items not affecting net cost of operations but affecting authorities:
  Advances and prepaid expenses 65,189,778 63,361,763
  Loans, advances and investments issued on behalf of Government 284,871 650,202
  Acquisitions of tangible capital assets 279 3,811
  Other 69,024 32,260
 
Total items not affecting net cost of operations but affecting authorities 65,543,952 64,048,036
 
Current year authorities used 149,115,224 148,153,883

b) Authorities provided and used

Authorities provided and used
($ thousands)
  2013 2012
Authorities provided:
  Vote 1 – Operating expenditures 126,075 133,206
  Vote 5 – Grants and contributions 224,987 173,194
  Statutory authorities:
    Transfer payments 57,343,965 55,961,555
    Interest on unmatured debt 16,932,094 18,367,056
    Other interest costs 9,050,112 9,514,276
    Purchase of domestic coinage 130,817 114,369
    Other 117,718 101,808
 
  Total statutory authorities 83,574,706 84,059,064
  Non‑budgetary authorities 65,474,622 64,011,953
Less:
  Authorities available for future years (68,576) (68,573)
  Lapsed authorities:
    Vote 1 – Operating expenditures (6,605) (11,302)
    Vote 5 – Grants and contributions (209,985) (143,659)
 
Current year authorities used 149,115,224 148,153,883

4. Deposit liabilities

The following table presents details of deposit liabilities:

Deposit liabilities
($ thousands)
  2013 2012
  Canada Hibernia Holding Corporation (note 4a) 95,916 95,088
  Canada Eldor Inc. (note 4b) 26,154 25,928
  Collateral deposits (note 4c) 196,730 1,024,942
 
Total deposit liabilities 318,800 1,145,958

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.

Interest payable is calculated at a rate equivalent to 90 per cent of the weekly three‑month Treasury bill tender rate.

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.

The interest payable is calculated with a rate equivalent to 90 per cent of the weekly three‑month Treasury bill tender rate.

c) Collateral deposits

This account was established to record cash received as credit support under collateral agreements with financial institutions. Included in collateral deposits is $nil ($410,105 thousand in 2012) in Canadian dollar funds and $193,632 thousand ($616,378 thousand in 2012) in US dollar funds.

5. 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)
  2013 2012
Accounts payable ‑ external parties (note 5a) 1,606,134 2,328,677
Province of Ontario ‑ General Motors (note 5b) 1,459,161 1,333,656
Accounts payable ‑ other government departments and agencies 218,008 235,686
Allowance for guarantees 48,979 221,906
Provision for redemption of Canadian pennies (note 5c) 11,500 11,000
Revaluation of foreign exchange forward contracts (note 5d) - 39,306
Other accrued liabilities 4,175 5,414
Other liabilities (note 5e) 2,861 2,861
 
Total accounts payable and accrued liabilities 3,350,818 4,178,506

a) External parties

The significant components of accounts payable ‑ external parties are as follows:

Accounts payable ‑ external parties
($ thousands)
  2013 2012
Comprehensive Integrated Tax Co‑ordination Agreements:  
  Quebec 1,467,000 2,200,000
  Prince Edward Island 14,000 -
 
Total Comprehensive Integrated Tax Co‑ordination Agreements 1,481,000 2,200,000
Other 125,134 128,677
 
Total accounts payable ‑ external parties 1,606,134 2,328,677

The amounts relating to Comprehensive Integrated Tax Co‑ordination Agreements (CITCA) are amounts payable at March 31 with respect to transitional assistance for sales tax harmonization with certain provinces. During the year, Prince Edward Island completed a CITCA with the Government of Canada.

b) Province of Ontario‑General Motors

The liability to the Province of Ontario reflects Canada's obligation to Ontario for the province's one third interest in the Government's equity holdings in General Motors. 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, 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 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 remaining net cost to the Government of this initiative as of March 31, 2013.

d) Revaluation of foreign exchange forward contracts

This amount represents the net translated notional values of foreign‑exchange forward contracts outstanding at March 31, 2013. These amounts were settled on April 17, 2013 and are discussed at note 11.

e) Other liabilities

The most significant component of Other liabilities is an amount of $2,678 thousand which relates to the Common School Funds for 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 $134 thousand —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.

6. Taxes payable under tax collection agreements

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.

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)
  April 1/2012 Receipts and
other credits
Payments and
other charges
March 31/2013
Corporate income tax 6,199,307 11,487,912 15,124,319 2,562,900
Personal income tax 3,700,037 54,334,219 55,597,588 2,436,668
Harmonized sales tax (589,317) 28,901,139 31,131,027 (2,819,205)
First Nations sales tax - 6,233 6,233 -
First Nations goods and services tax - 16,107 16,107 -
 
Total taxes payable under tax collection agreements 9,310,027 94,745,610 101,875,274 2,180,363

The Department ultimately transfers these amounts directly to the participating provinces, territories and Aboriginal 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.

7. Interest payable

The following table presents details of interest payable:

Interest payable
($ thousands)
  2013 2012
Domestic debt 4,289,945 4,459,108
Retail debt 1,338,264 1,650,046
Foreign debt 26,570 27,153
International Monetary Fund Balances 1,336 2,227
 
Total interest payable 5,656,115 6,138,534

8. 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)
  2013 2012
International Development Association 441,610 441,620
International Bank for Reconstruction and Development 24,367 23,923
Multilateral Investment Guarantee Agency 3,259 3,200
 
Total notes payable to international organizations 469,236 468,743

9. 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)
  2013 2012
Retail debt (matured from 1995 to 2013) 285,570 225,041
Marketable bonds (matured from 1995 to 2013) 13,216 14,804
Treasury bills (matured from 1977 to 1996) - 591
 
Total matured debt 298,786 240,436

10. 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 and retail debt.

The Treasury bills balance at March 31, 2013, consists of $10.4 billion ($7.2 billion in 2012) in odd issue bills, $54.5 billion ($49.4 billion in 2012) in three month bills, $36.0 billion ($32.5 billion in 2012) in six month bills, and $79.8 billion ($74.3 billion in 2012) in 364 day bills.

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

Retail debt includes 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 or 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, 2013 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 11.

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

Unmatured debt
($ thousands)
  Face value Unamortized
(discounts)
Net book
value 2013
Net book
value 2012
Domestic debt:
  Treasury bills 180,700,000 (589,189) 180,110,811 162,888,320
  Marketable bonds 468,860,076 (1,547,580) 467,312,496 444,009,657
  Retail debt 7,480,702 - 7,480,702 8,921,996
  Bonds for Canada Pension Plan - - - 11,118
 
Total domestic debt 657,040,778 (2,136,769) 654,904,009 615,831,091
 
Foreign debt:
  Marketable bonds 8,754,469 (18,892) 8,735,577 8,673,826
  Canada bills 2,102,613 (710) 2,101,903 2,070,513
 
Total foreign debt 10,857,082 (19,602) 10,837,480 10,744,339
 
Total domestic and foreign debt 667,897,860 (2,156,371) 665,741,489 626,575,430
 
   
Less: Government holdings     (214,900) -
Less: Securities held for the retirement of unmatured foreign debt     (54,979) (54,079)
     
Net domestic and foreign debt 665,471,610 626,521,351
 
Cross‑currency revaluation:
  Payables 46,216,237 44,357,670
  Receivables (49,634,798) (48,805,524)
     
Total cross‑currency revaluation (3,418,561) (4,447,854)
     
Total unmatured debt 662,053,049 622,073,497
     
Domestic debt fair value 725,107,835 686,333,047
     
Foreign debt fair value 11,383,071 11,190,418

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
2014 239,067,596 2,102,613 - 241,170,209
2015 88,682,746 3,048,000 - 91,730,746
2016 58,837,300 - - 58,837,300
2017 41,597,851 3,081,776 - 44,679,627
2018 31,577,047 - - 31,577,047
2019 and thereafter 197,278,238 19,893 2,604,800 199,902,931
 
Total contractual maturities of unmatured debt 657,040,778 8,252,282 2,604,800 667,897,860
1. Includes Treasury bills, marketable bonds and retail debt.
2. Includes marketable bonds issued in US dollars and Canada bills.
3. Includes marketable bonds issued in Euros.

The effective average annual interest rates are as follows:

Effective average annual interest rates
%
  2013 2012
Treasury bills 1.03 0.99
Marketable bonds—domestic 3.04 3.27
Retail debt 0.76 0.81
Bonds for Canada Pension Plan - 9.37
Marketable bonds—foreign 2.23 2.14
Canada bills 0.13 0.07

11. 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 currency gain or loss 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 2013 2012
2013 - 4,403,752
2014 3,615,669 3,455,511
2015 3,182,616 3,187,498
2016 3,987,608 3,975,506
2017 4,312,971 4,340,721
2018 4,774,389 4,754,942
2019 and thereafter 26,342,984 20,239,740
 
Total cross‑currency swaps with contractual or notional principal amounts 46,216,237 44,357,670
ii) Foreign‑exchange forward agreements

The Government 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 or accounts receivable and are recognized as part of the net foreign currency gain or loss in the Statement of Operations and Departmental Net Financial Position.

Foreign‑exchange forward agreements with contractual or notional principal amounts outstanding in Canadian dollars is $2,268 million ($2,097 million in 2012) maturing in 2014.

b) Fair value of financial instruments

The following tables present the carrying 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)
  2013 2012
 

   Carrying value Fair value Carrying value Fair value
Assets
Foreign exchange accounts 58,758,525 62,243,231 56,997,135 59,949,232
Crown borrowings 94,149,960 95,486,401 94,926,332 97,099,398
Liabilities
Net domestic and foreign debt 665,471,610 736,490,906 626,521,351 697,523,465

Fair values of the swap and foreign‑exchange 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 cash flows of the swap and foreign‑exchange forward agreements, calculated from the contractual or notional principal amounts, using 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 on March 31.

Notional and fair value of derivative financial instruments
($ thousands)
2013 2012
 

  Notional value Fair value Notional value Fair value
Cross‑currency swaps (net) 3,418,561 3,201,166 4,447,854 4,231,040
 
Foreign exchange forward contracts (net) 107,346 107,230 (39,306) (39,264)

12. 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 contractual or notional principal amounts of the swap and foreign‑exchange forward agreements organized by credit ratings based on published Standard & Poor's credit ratings and stand‑alone credit profiles at year end:

Notional amounts of swap and foreign exchange forward agreements
($ thousands)
  2013 2012
AA‑ - 2,756,309
A+ 14,302,236 21,684,753
A 12,669,365 10,498,706
A‑ 14,815,329 4,151,396
BBB+ 3,493,992 3,965,483
BBB 3,203,541 3,398,234
 
Total notional amounts of swap and foreign exchange forward agreements 48,484,463 46,454,881

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, 2013, 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, 2013, 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 loss of $7 million (gain of $29 million in 2012) due to the exposure of the US dollar portfolio, a foreign exchange loss of $2 million (loss of $2 million in 2012) due to the exposure of the Euro portfolio. There is no significant exposure related to the Japanese yen portfolio.

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 $8,734 thousand in 2013 ($9,066 thousand in 2012), which represents approximately 1.7 times (1.8 times in 2012) 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.

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)
  2013 2012
Accrued benefit obligation, beginning of year 12,191 16,729
Expense for the year (1,220) 2,216
Benefits paid during the year (5,564) (6,754)
 
Accrued benefit obligation, end of year 5,407 12,191

14. Liabilities and financial assets held on behalf of Government

a)  Liabilities held on behalf of Government

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

b)  Financial assets 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 amounts related to non respendable revenues as well as loans, advances and investments 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)
  2013 2012
Liabilities held on behalf of Government:
  Notes payable to international organizations (note 8) 469,236 468,743
 
Total liabilities held on behalf of Government 469,236 468,743
Financial assets held on behalf of Government:
  Accounts receivable (note 15) 395,513 299,741
  Foreign exchange accounts (note 17) 1,400,551 1,672,216
  Loans, advances and investments (note 19) 3,071,928 3,839,492
 
Total financial assets held on behalf of Government 4,867,992 5,811,449

15. Accounts receivable

The following table presents details of the Department accounts receivable:

Accounts receivable
($ thousands)
  2013 2012
Accrued interest income ‑ Crown borrowings 189,193 181,910
Revaluation of foreign exchange forward contracts (note 15a) 107,346 -
Accrued investment income 94,367 114,657
Receivables ‑ Other government departments and agencies 4,541 2,650
Receivables ‑ External parties 66 524
 
Total accounts receivable 395,513 299,741

a) Revaluation of foreign exchange forward contracts

This amount represents the net translated canadian dollar values of foreign‑exchange forward contracts outstanding at March 31, 2013. These amounts were settled on April 17, 2013 and are discussed at note 11.

16. Taxes receivable under tax collection agreements

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

Taxes receivable under tax collection agreements
($ thousands)
  2013 2012
Corporate income taxes 3,514,368 5,423,287
Personal income taxes 3,231,450 2,581,520
Harmonized Sales Tax (2,303,454) (2,386,379)
First Nations Goods and Services Tax 1,209 1,378
First Nations Sales Tax 460 444
Provincial benefit programs (359,899) (211,149)
 
Total taxes receivable under tax collection agreements 4,084,134 5,409,101

The Department ultimately transfers these amounts directly to the participating provincial, territorial or Aboriginal governments in accordance with established payment schedules. Amounts payable are described at note 6.

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)
  2013 2012
Investments held in the Exchange Fund Account 61,980,795 60,468,687
Accrued net revenue from the Exchange Fund Account 1,400,551 1,672,216
 
Total investments held in Exchange Fund Account (note 17a) 63,381,346 62,140,903
Subscriptions to the International Monetary Fund (note 17b) 9,693,859 9,841,688
Loans receivable from the International Monetary Fund (note 17c) 1,456,484 1,325,102
Notes payable to the International Monetary Fund (note 17d) (6,659,366) (7,057,776)
Special drawing rights allocations (note 17e) (9,113,798) (9,252,782)
 
Total foreign exchange accounts 58,758,525 56,997,135
 
Fair value 62,243,231 59,949,232

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)
  2013 2012
US dollar cash on deposit 312,490 618,300
US dollar marketable securities 36,599,900 33,033,620
Euro cash on deposit 16,020 162,466
Euro marketable securities 17,462,592 18,950,931
Japanese yen cash on deposit 8,157 6,985
Japanese yen marketable securities 305,673 342,310
Special drawing rights 8,671,022 9,020,395
Gold 5,492 5,896
 
Total investments held in Exchange Fund Account 63,381,346 62,140,903

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 two 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).

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 SDR 7,624 million. As at March 31, 2013, SDR 957 million (SDR 858 million in 2012) or $1,456 million ($1,325 million in 2012) in lending has been provided to the IMF under the NAB.

Canada also participates in the GAB which was most recently renewed in November, 2012. The maximum lending by Canada to the IMF under these arrangements is limited to SDR 893 million. As at March 31, 2013, no lending had been provided to the IMF under the GAB.

Canada's temporary bi‑lateral borrowing agreement with the IMF provided for maximum lending to the IMF of US $10 billion. This agreement with the IMF expired on March 31, 2013.

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

At March 31, 2013, a total of SDR 957 million or $1,456 million was outstanding under these arrangements. Amounts advanced under these arrangements 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 2013, notes payable to the IMF decreased by $398 million ($202 million in 2012).

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, 2013 are SDR 5,988 million (SDR 5,988 million in 2012). The Canadian dollar equivalent of this amount is $9,114 million ($9,253 million in 2012).

f) Notional cost

For the year ended March 31, 2013, the notional cost of funds advanced by the CRF to the Exchange Fund Account is $1,416 million ($1,489 million in 2012). 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 2013
 Net book
value 2012
Canada Mortgage and Housing Corporation1 59,761,732 - 59,761,732 63,036,910
Farm Credit Canada 21,173,917 70 21,173,987 19,327,994
Business Development Bank of Canada2 13,214,389 (148) 13,214,241 12,561,428
 
Total Crown borrowings 94,150,038 (78) 94,149,960 94,926,332
 
Fair value 95,486,401 97,099,398

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
2014 41,223,059 9,758,717 13,133,025 64,114,801
2015 12,532,072 5,029,000 31,364 17,592,436
2016 879,360 3,605,200 - 4,484,560
2017 1,105,399 1,717,000 - 2,822,399
2018 1,045,271 601,000 50,000 1,696,271
2019 and thereafter 2,976,571 463,000 - 3,439,571
 
Total contractual maturities of unmatured loans by Crown corporations 59,761,732 21,173,917 13,214,389 94,150,038
1. Includes loans of $51,653,205 thousand as of March 31, 2013 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities.
2. Includes loans of $104,726 thousand as of March 31, 2013 made through BDC under the Canadian Secured Credit Facility.

The effective average annual interest rates are as follows:

Effective average annual interest rates
  Canada Mortgage
and Housing Corporation
Farm Credit Canada Business Development
Bank
Short Term fixed interest rate 0.93% 0.95% 1.06%
Long Term fixed interest rate 3.18% 1.96% 1.80%
Short Term floating interest rate - % 0.94% 0.95%
Long Term floating interest rate 2.08% 0.94% 0.94%

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
2013
Net book
value
2012
Government business enterprises
Notes receivable from Canada Lands Company Ltd. (note 19a) 71,197 11,379 59,818 59,480
Note receivable from Parc Downsview Park Inc. (note 19b) 19,000 16,632 2,368 2,240
 
Total government business enterprises 90,197 28,011 62,186 61,720
 
 
Provincial and territorial governments
Federal‑Provincial fiscal arrangements (note 19c) 1,750,011 98,847 1,651,164 2,021,013
Recoverable overpayments of taxes payable under tax collection agreements (note 19d) 142,091 7,548 134,543 261,939
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) 959,400 21,900 937,500 1,242,779
 
Total provincial and territorial governments 2,854,717 131,195 2,723,522 3,526,046
 
International and other organizations
Loans to the International Monetary Fund’s Poverty Reduction and Growth Trust (note 19h) 85,310 - 85,310 110,972
International Finance Corporation Global Agriculture and Food Securities Program (note 19i) 48,000 48,000 - -
Advances to the Global Environment Facility (note 19j) 10,000 10,000 - -
Loan portfolio acquired from Canadian Commercial Bank (note 19k) 42,202 42,202 - -
 
Total international and other organizations 185,512 100,202 85,310 110,972
 
Total loans and advances 3,130,426 259,408 2,871,018 3,698,738

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
2013
Proportion
%
Total Government business enterprises 90,197 28,011 62,186 2%
Total provincial and territorial governments 2,854,717 131,195 2,723,522 95%
Total international and other organizations 185,512 100,202 85,310 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 2013 Proportion
%
CAD 2,785,708 2,785,708 N/A 97%
SDR 56,051 85,310 1.5220 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, 2013.

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, 2013.

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 is 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 SDR 1.2 billion.

As at March 31, 2013, Canada has lent a total of $1,108.8 million ($1,125.7 million in 2012) in CAD (SDR 728.5 million) (SDR 728.5 million in 2012) to the Poverty Reduction and Growth Trust. Of this amount, $1,023.5 million ($1,014.7 million in 2012) in CAD (SDR 672.5 million) (SDR 656.7 million in 2012) has been repaid.

The outstanding balance is $85.3 million ($111.0 million in 2012) in CAD (SDR 56 million) (SDR 71.8 million in 2012) translated into Canadian dollars at the year end closing rate of exchange of C$ 1.5220 (C$1.5452 in 2012) [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 that over time have amounted to SDR 215.2 million.

i) 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.

During the year amounts for front‑end and commitment fees and interest were repaid in accordance with the administration agreement signed between the IFC and the Government of Canada.

As at March 31, 2013, advances to the IFC‑FSI amounted to $48 million in CAD.

j) 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, 2013, advances to the GEF amounted to $10 million CAD ($10 million in 2012).

k) Investment in loan portfolio acquired from Canadian Commercial Bank

Advances have been made to 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 2013 Net book value 2012
International and other organizations
Subscriptions and contributions to the International Development Association (note 19a) 9,847,728 9,847,728 - -
Subscriptions to the European Bank for Reconstruction and Development (note 19b) 219,657 219,657 - -
Subscriptions to the International Bank for Reconstruction and Development (note 19c) 440,864 440,864 - -
Subscriptions to the International Finance Corporation (note 19d) 82,643 82,643 - -
International Finance Corporation‑Financial Mechanisms for Climate Change Facility (note 19e) 328,855 65,759 263,096 202,474
Subscriptions to the Multilateral Investment Guarantee Agency (note 19f) 10,904 10,904 - -
 
Total investments and share subscriptions 10,930,651 10,667,555 263,096 202,474
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. 2, 2012‑2013). 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, 2013, Canada’s total participation in IDA amounted to C$9,847.7 million (C$9,406.1 million in 2012).

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 (102,049 shares in 2012) of the EBRD's authorized capital valued at EUR 1,020.5 million (EUR 1,020.5 million in 2012).

Only EUR 212.9 million (EUR 212.9 million in 2012) or about 21% (21% in 2012) 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 EUR 807.6 million (EUR 807.6 million in 2012).

Up to and including March 31, 2013 Canada's total cash contributions into the "paid‑in" capital of the EBRD total US $216.2 million.

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, 2013, Canada has subscribed to 58,354 shares (52,709 shares in 2012). The total value of these shares is US$7,039.5 million (US$6,358.6 million in 2012), of which US$417.8 million (US$376.9 million in 2012) plus C$16.4 million (C$16.4 million in 2012) 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$6,606 million (US$5,966 million in 2012).

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, 2013, Canada has subscribed to 81,342 shares (81,342 shares in 2012). These shares have a total value of US$81.3 million (US$81.3 million in 2012), 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 and Vote L17c, Appropriation Act No. 5, 2012‑2013). The FMCC supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional financing arrangements.

As at March 31, 2013, advances to the IFC‑FMCC amount to $328.9 million ($268.6 million in 2012) 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, 2013, Canada has subscribed to 5,225 shares (5,225 shares in 2012). The total value of these shares is US$56.5 million (US$56.5 million in 2012), of which US$10.7 million (US$10.7 million in 2012) 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 (US$45.8 million in 2012).

20. Tangible capital assets

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


Capital asset class Opening balance Acqui‑
sitions
Adjust‑
ments
Disposals and
write‑
offs
Closing balance Opening balance Amorti‑
zation
Adjust‑
ments
Disposals and
write‑
offs
Closing balance 2013 2012
Machinery and equipment 344 224 - - 568 303 43 - - 346 222 41
Motor vehicles 73 55 - 48 80 58 16 - 48 26 54 15
 
Total capital assets 417 279 - 48 648 361 59 - 48 372 276 56

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)
  2014 2015 2016 2017 2018 and
thereafter
Total
Transfer payment
  International Development Association 492,810 51,200 51,200 51,200 879,300 1,525,710
  African Development Fund - - - - 441,717 441,717
  Harbourfront Centre Funding Program 5,000 5,000 3,000 - - 13,000
 
Total contractual obligations 497,810 56,200 54,200 51,200 1,321,017 1,980,427

22. Contingent liabilities

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

a) Callable share capital

The Department has callable share capital in certain international organizations that could require payments to those organizations. At March 31, 2013, callable share capital is $7,811 million ($7,072 million in 2012).

Callable share capital
($ thousands)
  2013 2012
International and other organizations
Subscriptions to the European Bank for Reconstruction and Development 1,051,870 1,074,485
Subscriptions to the International Bank for Reconstruction and Development 6,712,162 5,951,418
Subscriptions to the Multilateral Investment Guarantee Agency 46,536 45,688
 
Total callable share capital 7,810,568 7,071,591

b) Loan guarantees

Mortgage Insurance

The Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA) received Royal Assent on June 26, 2011 and came into force on January 1,2013.

The PRMHIA authorizes the Minister of Finance to provide protection in respect of certain mortgage or hypothecary insurance contracts written by approved mortgage insurers. Under the PRMHIA, a payment in respect of this guarantee would only be made if a winding‑up order were made in respect of an approved mortgage insurer that had written an insurance contract guaranteed under the PRMHIA. In that case, the Minister would honour lender claims for insured mortgages in default, subject to: (1) any proceeds the beneficiary has received from the underlying property or the insurer's liquidation, and (2) a deductible of 10% of the original principal amount of the insured mortgage.

As at March 31, 2013, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $164 billion. Any payment made by the Minister is subject to a deductible equal to 10% of the original principal amount of these loans, or $22 billion. The principal amount outstanding does not refer to anticipated losses or payments in respect of the guarantee. No provision has been made in these accounts for payments under the guarantee.

As at March 31, 2013, there are two approved mortgage insurers under the PRMHIA: Genworth Financial Mortgage Insurance Company Canada, and Canada Guaranty Mortgage Insurance Company.

Canadian Wheat Board

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 $185 million ($200 million in 2012) and a portion of credit sales made under the Agri‑Food Credit Facility, which amounted to $16 million ($25 million in 2012).

A total allowance of $49 million ($49 million in 2012) was recorded under both programs and is included in accounts payable and accrued liabilities (note 5).

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)
  2013 2012
Accommodation 9,500 9,136
Employer’s contribution to the health and dental insurance plans 7,101 6,786
Legal services 2,491 3,054
 
Total services received without charge 19,092 18,976

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)
  2013 2012
Expenses ‑ Other government departments and agencies 9,042,106 9,493,845
Revenues ‑ Other government departments and agencies 23,763 23,263

Expenses disclosed exclude common services provided without charge, which are disclosed in note 23a. These amounts include expenses and revenues pertaining to assets and liabilities held on behalf of Government as well as interest on superannuation and other accounts.

24. Transfer to other government departments

Effective November 15, 2011, the Department transferred responsibility for certain information technology activities to the Shared Services Canada (SSC) 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:

Assets
($ thousands)
  2013 2012
Tangible capital assets - 4,125

During the transition period, the Department continued to administer the transferred activities on behalf of Shared Services Canada (SSC). The administered disbursements were $nil in 2013 ($1,597 thousand for 2012). 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 2013
Total
2012
Total
Expenses  
Transfer payments
  Provinces and territories (note 25a) 56,509,696 - - - 56,509,696 54,480,061
  International organizations 716,719 - - - 716,719 573,788
  Non‑profit institutions and organizations 14,987 - 5 10 15,002 41,849
  Allowances on loan guarantees (172,927) - - - (172,927) 1,909
 
Total transfer payments 57,068,475 - 5 10 57,068,490 55,097,607
Interest and other costs
  Interest on unmatured debt (note 25b) - 16,922,228 - - 16,922,228 18,345,699
  Interest on superannuation and other accounts (note 25c) - 9,050,112 - - 9,050,112 9,514,277
  Other Interest and costs - 9,861 - - 9,861 21,356
 
Total interest and other costs - 25,982,201 - - 25,982,201 27,881,332
Operating expenses (note 25d) - - 77,362 66,814 144,176 144,798
Cost of domestic coinage sold - 130,865 - - 130,865 112,295
Other expenses - - - 11 11 38
 
Total expenses 57,068,475 26,113,066 77,367 66,835 83,325,743 83,236,070
Revenues
Investment income
  Crown borrowings‑interest - 2,230,682 - - 2,230,682 2,270,544
  Exchange Fund Account‑net revenues - 1,400,551 - - 1,400,551 1,672,216
  Other interest 92,268 3,350 59 - 95,677 125,315
 
Total investment income 92,268 3,634,583 59 - 3,726,910 4,068,075
Sale of domestic coinage - 120,192 - - 120,192 106,722
Guarantee fees 11,168 - - - 11,168 8,277
Interest on bank deposits - 222,359 - - 222,359 115,750
Unclaimed cheques and other - 51,911 5,480 203 57,594 30,722
Net foreign currency gain (21,671) 99,820 - (2) 78,147 81,666
Revenues earned on behalf of Government (81,765) (4,128,865) (5,539) (58) (4,216,227) (4,411,027)
 
Total revenues - - - 143 143 185
 
Net cost from operations 57,068,475 26,113,066 77,367 66,692 83,325,600 83,235,885

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)
  2013 2012
Canada Health Transfer 28,662,354 26,923,831
Canada Health Transfer ‑ Wait Times Reduction 250,000 250,000
Fiscal Equalization 15,865,879 15,327,539
Canada Social Transfer 11,859,486 11,514,064
Quebec Abatement (4,093,539) (3,929,322)
Territorial Financing 3,110,680 2,876,083
Fiscal Equalization ‑ Total Transfer Protection 679,660 952,107
Incentive for the elimination of capital taxes (recovery of) (1,014) 845
Obligation to Ontario ‑ General Motors 105,041 (108,624)
Statutory subsidies 32,149 32,149
Transitional assistance provided under sales tax harmonization agreements (recovery of):
  British Columbia - (1,558,611)
  Quebec - 2,200,000
  Prince Edward Island 39,000 -
 
Total transfer payments to provinces and territories 56,509,696 54,480,061

b) Interest on unmatured debt

Interest on unmatured debt includes interest incurred, amortization of debt discounts, premiums and net interest on cross‑currency and interest rate swaps.

For the period ending March 31, interest on unmatured debt includes the following:

Interest on unmatured debt
($ thousands)
  2013 2012
Interest on domestic debt:
  Marketable bonds 14,896,217 16,322,901
  Treasury bills 1,759,267 1,744,748
  Retail debt 75,948 111,052
  Bonds for Canada Pension Plan 167 1,235
 
Total interest on domestic debt 16,731,599 18,179,936
 
Interest on foreign debt:
  Marketable bonds 187,922 163,948
  Canada bills 2,707 1,815
 
Total interest on foreign debt 190,629 165,763
 
Total interest on unmatured debt 16,922,228 18,345,699

c) 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)
  2013 2012
Superannuation accounts 8,673,602 9,107,486
Other specified purpose accounts 251,289 256,863
Retirement compensation arrangement accounts 113,826 115,994
Special drawing rights allocations 8,536 31,614
Canada Pension Plan account 2,859 2,320
 
Total interest on superannuation and other accounts 9,050,112 9,514,277

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.

d) Operating expenses

The following table presents details of operating expenses by category:

Operating expenses
($ thousands)
  2013 2012
Salaries and wages 80,935 82,582
Professional and special services 19,084 16,085
Information services 16,069 9,699
Contribution to employee benefit plans 12,233 12,545
Accommodation 9,500 9,136
Transportation and telecommunications 2,775 3,352
Rentals 1,900 393
Machinery and equipment 1,562 5,089
Amortization of tangible capital assets 59 143
Repairs and maintenance 45 422
Other subsidies and payments ‑ other government department 14 5,352
 
Total operating expenses 144,176 144,798

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)
  2013 2012
  Crown borrowing‑interest 2,230,682 2,270,544
  Exchange Fund Account‑net revenues 1,400,551 1,672,216
  Other interest 95,677 125,315
  Sale of domestic coinage 120,192 106,722
  Guarantee fees 11,168 8,277
  Interest on bank deposits 222,359 115,750
  Unclaimed cheques and other 57,451 30,537
  Net foreign currency gain 78,147 81,666
 
Total revenues earned on behalf of Government 4,216,227 4,411,027

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

27. Accounting changes

On April 1, 2012, the Government of Canada adopted Public‑Sector Accounting Standard 3410, Government Transfers. The Department has implemented this standard on a prospective basis.

As a result of this change in accounting policy, the Department has recognized 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 in 2012.

This expense is presented as a transfer payment expense to international organizations (note 25).

28. 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 2012‑13 (unaudited)

1. INTRODUCTION

This document provides summary information on the measures taken by the Department of Finance Canada (the Department) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management and assessment results and related action plans.

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

2. DEPARTMENTAL SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING

2.1 Internal control management

The Department has an established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control framework is in place which includes:

  • Organizational accountability structures as they relate to internal control management to support sound financial management including clear roles and responsibilities for employees in their areas of responsibility for control management;
  • On‑going communication and training on statutory requirements, policies and procedures for sound financial management and control;
  • A group dedicated to ICFR under the direction of the Chief Financial Officer (CFO) with a primary focus on maintaining documentation in support of business processes and related key risk and control points to support management and its oversight of its system of ICFR;
  • A risk based internal audit plan which also covers planned audits related to business processes assessed under the Policy on Internal Control;
  • 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;
  • Monitoring and regular updates on internal control management plus assessment results and action plans to the Audit and Evaluation Committee (AEC) as well as senior management.
  • The AEC provides advice to the Deputy Head on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to the financial statements

The Department 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) 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;
  • Treasury Board of Canada Secretariat (TBS) provides the Department with information used to calculate various accruals and allowances, such as loan guarantees and the accrued severance liability;
  • The Department of Justice provides legal services to the Department;
  • Shared Services Canada (SSC) provides information technology (IT) infrastructure services in the area of data centre and network services.
Specific arrangements:
  • The Bank of Canada has responsibility for maintaining the financial records and accounts of the public debt for which the Bank is fiscal agent including ensuring that all related financial systems and processes are effectively designed and operating;
  • 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 the Department and other departments with its SAP financial system platform through which its captures and reports on financial transactions. As the service provider, TBS is responsible for ensuring that IT‑general controls over the SAP environment are designed and operating effectively. As the client, the Department retains responsibility over certain IT‑general controls over the SAP environment, such as user access controls and segregation of duties.

3. DEPARTMENTAL ASSESSMENT RESULTS DURING FISCAL YEAR 2012‑2013

The key findings and significant adjustments required from the current year’s assessment activities are summarized below.

New or significantly amended key controls –in the current year, there were no significantly amended key controls in existing processes which required a reassessment. As is its practice, The Department assesses the design and operational effectiveness of its high‑risk business processes on an annual basis as part of its rotation on‑going monitoring program (OGM).

On‑going monitoring program – as part of its rotational OGM, the Department completed its reassessment of entity‑level controls, IT‑general controls under departmental management and the following business processes:

Departmental Assessment Results
Business process  Assessed level of financial‑reporting risk Approach to assessment
Transfer payments High Design and operational effectiveness
Domestic debt High Design and operational effectiveness
Crown borrowing High Design and operational effectiveness
International organizations High Design and operational effectiveness
Official International Reserves High Design and operational effectiveness
Operating expenses Medium Operational effectiveness
Domestic coinage Medium Design and operational effectiveness

Based on the work performed, key controls tested performed as intended.

Other items of significance – in support of its work assessing ICFR, the Department has identified a need to more formally document its approach to sampling and sample‑size methodologies. This work will be undertaken in 2013‑2014.

The Department also focused to the results of five internal audits completed during the year to aid in supporting its assessment results for fiscal 2012‑2013:

  • Audit of Payments in lieu of Severance Pay;
  • Audit of the Control Framework for the Transfer Payments Process;
  • Audit of the Control Framework for the Crown Borrowings Process;
  • Audit of the Business Continuity Plan;
  • Audit of Contracting.

4. DEPARTMENTAL ACTION PLAN

4.1 Progress during fiscal year 2012‑2013

The Department continued to conduct its on‑going monitoring according to the previous fiscal year’s rotational plan as shown in the following table:

Previous year's rotational on‑going monitoring plan for current year
Business process  Status
Transfer payments Completed as planned and no remedial actions required
Domestic debt Completed as planned and no remedial actions required
Crown borrowing Completed as planned and no remedial actions required
International organizations Completed as planned and no remedial actions required
Official International Reserves Completed as planned and no remedial actions required
Operating expenses Completed as planned and no remedial actions required
Domestic coinage Completed as planned and no remedial actions required
Entity‑level controls Completed as planned and no remedial actions required
IT‑general controls under departmental management Completed as planned and no remedial actions required

Items not remediated from the prior year which have been remediated in the current year – the Memorandum of Understanding (MOU) for back‑office accounting functions with the Bank of Canada had not been remediated in 2011‑2012. This document was completed during 2012‑2013, now providing clearer indications of roles and responsibilities in the accounting area.

4.2 Action plan for the next fiscal year and subsequent years

The Department’s rotational on‑going monitoring plan over the next three years, based on an annual validation of high‑risk processes is shown in the following table:

Status and Action Plan for the Next Fiscal Year and Subsequent Years
Key control area Assessed
level of
financial‑reporting risk
2013‑2014
assessment
scope
2014‑2015
assessment
scope
2015‑2016
assessment
scope
Transfer payments High Yes Yes Yes
Domestic debt High Yes Yes Yes
Crown borrowing High Yes Yes Yes
International organizations High Yes Yes Yes
Official International Reserves High Yes Yes Yes
Operating expenses Medium No Yes No
Domestic coinage Medium Yes No Yes
Payroll and benefits Low Yes No No

Entity‑level and IT‑general controls under departmental management will be validated on an annual basis.

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 the Department, they are significant both in terms of quantitative impact and will impact existing systems.