Future-oriented Statement of Operations and Notes 2011-2012

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Year ended March 31

Statement of Management Responsibility

Departmental management is responsible for this Future-oriented Statement of Operations and Notes, including responsibility for the appropriateness of the assumptions on which this statement is prepared. This statement has been prepared in accordance with Treasury Board Accounting Standard 1.2 and is based on the best information available as at February 1, 2011. Assumptions adopted are consistent with amounts reported in Part 2 of the Main Estimates and reflect the plans described in the Report on Plans and Priorities (RPP).

Estimated results for 2010/11 and forecasted plans for 2011/12 are based on current year forecasted information and planned spending, submitted as part of the 2011/12 ARLU and subsequently approved Treasury Board submissions. The forecasted plans do not take in consideration any Budget 2011 items.

The actual results achieved for the fiscal years covered in the accompanying Future-oriented Statement of Operations will vary from the information presented. Actual results will be reported in the Departmental unaudited financial statements for both 2010/11 and 2011/12 respectively.

Louis Lévesque,
Deputy Minister of International Trade
Ottawa, Canada

Morris Rosenberg,
Deputy Minister of Foreign Affairs
Ottawa,Canada

Gordon White,
Chief Financial Officer & Assistant Deputy Minister
Ottawa, Canada

Future Oriented Statement of Operations (Unaudited)

Table 1: Future Oriented Statement of Operations
Future Oriented Statement of OperationsEstimated Results 2011Forecast 2012
Expenses
Diplomacy and Advocacy1,392,7421,234,807
Governance, Strategic Direction and Common Service Delivery663,712784,965
Passport Canada311,780324,097
International Policy Advice and Integration238,811140,051
International Commerce199,563170,926
Government of Canada Benefits146,404150,482
Internal Services124,250183,116
Consular Services and Emergency Management70,96263,217
Total Expenses3,148,2243,051,661
Revenues
Passport Canada279,162283,697
Consular Services and Emergency Management95,95097,450
Governance, Strategic Direction and Common Service Delivery51,94053,940
Diplomacy and Advocacy11,00012,000
International Commerce10,0506,250
Total Revenues448,102453,337
Net cost of operations2,700,1222,598,324

Segmented information (Note 8)

The accompanying notes form an integral part of this Future-oriented statement.

1. Authority and Objectives

The Department of Foreign Affairs and International Trade (hereinafter called “the Department”) operates under the legislation set out in the Department of Foreign Affairs and International Trade Act,RSC 1985, c. E-22.

The 2011/12 Report on Plans and Priorities (RPP) is based on the Department’s Program Activity Architecture (PAA), as approved by Treasury Board (TB). ThePAA presents the Department’s three strategic outcomes stated as end results. Strategic outcomes are supported by a cascading matrix of program activities, sub-activities and sub-sub-activities.

The Department’s strategic outcomes can be described in general terms as: (a) providing policy advice and coordination as well as conducting diplomacy and advocacy for the benefit of Canada and Canadians, while reflecting the country’s interests and values; (b) assisting Canadians through provision of international commercial, consular and passport services; and (c) managing a network of missions abroad on behalf of the Government of Canada. In short, the strategic outcomes indicate the long-term, enduring benefits for Canadians generated by the Department, as follows:

  • Strategic Outcome #1:Canada’s International Agenda: The international agenda is shaped to Canada’s benefit and advantage in accordance with Canadian interests and values.
    • Program Activity #1: International Policy Advice and Integration - providing strategic direction, intelligence and advice, including integration and coordination of Canada’s foreign and international economic policies.
    • Program Activity #2: Diplomacy and Advocacy - engaging and influencing international players and delivering international programs and diplomacy.
  • Strategic Outcome #2:International Services for Canadians: Canadians are satisfied with commercial, consular and passport services.
    • Program Activity #3: International Commerce - managing and delivering commerce services and advice to Canadian business.
    • Program Activity #4: Consular Services and Emergency Management - managing and delivering consular services and advice to Canadians , and provides a coordinated Government of Canada response to emergencies abroad affecting Canadians.
    • Program Activity #5: Passport Canada - managing and delivering passport services to Canadians through the use of the Passport Canada Revolving Fund.
  • Strategic Outcome #3:Canada’s International Platform: The Department maintains a mission network of infrastructure and services to enable the Government of Canada to achieve its international priorities.
    • Program Activity #6: Governance, Strategic Direction and Common Service Delivery - managing and delivering services and infrastructure to enable Canada’s representation abroad.
    • Program Activity #7: Government of Canada Benefits - managing and administering allowances under the Foreign Service Directives and benefits to locally engaged staff..

Internal Services are the combination of process and service-related activities that make possible all of the Department’s operations. Overall, Internal Services enable the Department to carry out its mandated functions toward the achievement of its strategic outcomes.

2. Significant Assumptions

The Future-oriented Statement of Operations has been prepared on the basis of the government priorities and the plans of the Department as described in the Report on Plans and Priorities.

The main assumptions are as follows:

  • The Department’s activities will remain substantially the same as in the previous year.
  • Expense and revenues, including the determination of amounts internal and external to the government are based on historical experience. The general historical pattern is expected to continue.
  • Allowances for uncollectibility are based on historical experience. The general historical pattern is expected to continue.
  • Gains and losses from disposal of capital assets, as well as from foreign exchange revaluation, are unpredictable. As such, these gains and losses have been excluded.

These assumptions are adopted as at February 1, 2011.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to accurately forecast the final results for the remainder of 2010/11 and for 2011/12, actual results achieved are likely to vary from the forecast information presented, and this variation could be material.

In preparing this Statement, the Department has made estimates and assumptions concerning the future. These estimates and judgments may differ from the subsequent actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the Future-oriented Statement of Operations and the historical Statement include:

  1. The timing and amounts of acquisitions and disposals of property, plant and equipment may affect amortization expense and create gains/losses.
  2. Economic conditions may affect both the amount of revenue earned and the collectability of receivables. It may also affect the rate of foreign exchange, and thus the associated gain/loss.
  3. Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

Once the RPP is presented, the Department will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report (DPR).

4. Summary of Significant Accounting Policies

The Future-oriented Statement of Operations has been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results of using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

  1. Parliamentary appropriations: The Department is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the Department do not parallel financial reporting according to Canadian generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations are not necessarily the same as those provided through appropriations from Parliament. Note 5 provides a high-level reconciliation between the basis of reporting.
  2. Consolidation: This Future-oriented Statement of Operations includes the accounts of Passport Canada. Revenue and expense transactions between Passport Canada and the department have been eliminated.
  3. Revenues:are presented on an accrual basis:
    • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
    • Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.
    • Revenues that have been received but not yet earned are recorded as deferred revenues.
  4. Expenses:are presented on an accrual basis:
    • Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized 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;
    • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement;
    • Vacation pay and compensatory leave are expensed by the Department in the year that the entitlement occurs.
    • Services provided without charge by other government departments for accommodation, the employer’s contribution to the health and dental insurance plans, legal services and workers’ compensation are reported as operating expenses at their estimated cost.
  5. Employee future benefits:
    1. Pension benefits: Eligible Canada-based staff (CBS) participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor. Current legislation does not require the Department to make contributions for any actuarial deficiencies. Eligible locally engaged staff (LES) participate in a combination of plans developed and administered based on local law and practice, or in a worldwide pension scheme which is administered at the Department's headquarters.
    2. Severance benefits: Employees (CBS and LES) are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The CBS 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. The LES obligation is established on the basis of operational requirements of the mission, local laws or practice and is calculated based on the number of eligible employees multiplied by the estimated severance payment based on historical experience.
  6. 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.
  7. 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, and assets located in museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the assets. The amortization periods are as follows:

Table 2: Tangible capital assets
Asset ClassAmortization Period
Buildings20 to 25 years
Works and infrastructure30 years
Machinery and equipment5 to 25 years
Informatics hardware3 to 15 years
Informatics software3 to 10 years
Vehicles3 to 10 years
Leasehold improvementsTerm of the lease or 25 years
Assets under constructionOnce in service, in accordance with asset type

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and thus begin their amortization period.

5. Parliamentary Appropriations

The Department receives most of its funding through expenditure authorities provided by Parliament. Items recognized in the Statement of Operations in one year may be funded through parliamentary appropriations in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables.

a) Authorities requested

Table 3: Parliamentary Appropriations - Authorities requested
Authorities requested (in thousands of dollars)Estimated 2011Forecast 2012
Vote 11,720,1171,428,708
Vote 5224,912238,368
Vote 10952,301901,417
Statutory amounts87,033139,281
Forecast authorities available2,984,3632,707,774

Forecast authorities requested for the year endingMarch 31, 2012 are the planned spending amounts presented in the 2011/12 Report on Plans and Priorities ($3,040.4 million), excluding net voted revenues ($332.7 million). Estimated authorities requested for the year ending March 31, 2011 include amounts presented in the 2010/11 Main Estimates and Supplementary Estimates (A) and (B), planned for presentation in Supplementary Estimates (C) and estimates of amounts to be allocated at year-end from Treasury Board central votes.

b) Reconciliation of net cost of operations to requested authorities

Table 4: Parliamentary Appropriations - Reconciliation of net cost of operations to requested authorities
Reconciliation of net cost of operations to requested authorities (in thousands of dollars)Estimated 2011Forecast 2012
Net cost of operations2,700,1222,598,324
Adjustments for items affecting net cost of operations but not affecting authorities:
Revenue not available for spending122,950120,650
Amortization of tangible capital assets(96,706)(87,376)
Services provided without charge by other government departments(99,200)(87,850)
Decrease (increase) in employee severance benefits(13,804)(12,472)
Decrease (increase) in the allowance for bad debt expenses(1,604)(1,449)
Decrease (increase) in vacation pay and compensatory leave(101)(91)
Refunds of prior year expenditures14,78713,360
Other2,9472,663
Total adjustments for items not affecting authorities(70,731)(52,565)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets157,805162,015
Estimated lapses for votes 1, 5 and 10 as of December 31, 2010197,167-
Forecast authorities available2,984,3632,707,774

6. Employee Benefits

a) Pension benefits

The Department's CBS participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. The forecasted expenses are $85,217,450 in 2010/11 and $82,766,902 in 2011/12, representing approximately 1.9 times 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.

Locally engaged staff participate in a combination of pension plans developed and administered based on local law and practice, or in the worldwide pension scheme which is administered at the Department's headquarters. The Government of Canada is the sponsor of all plans which may be defined contribution, defined benefit and either prefunded or pay-as-you go. The forecasted expenses are $19,295,692 in 2010/11 and $18,657,196 in 2011/12.

b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and final salary. The severance benefit liability for Canada-based staff is based on a percentage provided by Treasury Board, applied to the eligible payroll as at March 31. Treasury Board determines the percentage based on an actuarial evaluation of the future liability for the entire government's eligible employees. For locally engaged staff, the liability is based on historical data whereby an average severance payment per locally engaged staff is calculated. This cost is multiplied by the total number of eligible locally engaged staff and a layoff/payout rate.

These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

Table 5: Employee Benefits - Pension benefits
Severance Benefits (in thousands of dollars)Estimated 2011Forecast 2012
Accrued benefit obligation, beginning of year135,078148,882
Expense for the year27,64327,191
Expected benefits payments during the year(13,839)(14,719)
Accrued benefit obligation, end of year148,882161,354

The estimated CBS severance benefits liability amounts to $59.1 million, whereas the LES liability is $89.7 million.

7. Related Party Transactions

The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Department received services which were obtained without charge from other Government departments as follows:

a) Common services provided without charge by other government departments

During the year, the Department is forecasted to receive without charge from other departments, accommodation, legal fees, the employer’s contribution to the health and dental insurance plans, and administration costs and commissions paid to provincial workers’ compensation boards. These services without charge have been recognized in the Department’s Future-oriented Statement of Operations as follows:

Table 6: Related Party Transactions - Common services provided without charge by other government departments
Common services provided without charge by other government departments (in thousands of dollars)Estimated 2011Forecast 2012
Employer’s contribution to the health and dental insurance plans provided by Treasury Board Secretariat67,30056,300
Accommodation provided by Public Works and Government Services Canada30,10029,475
Legal services provided by Justice Canada1,400(1,725)
Administration costs and commissions paid to provincial workers’ compensation boards by Social Development Canada400350
Total services provided without charge99,20087,850

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the Department‘s Future-oriented Statement of Operations.

b) Administration of programs on behalf of other government departments

The Department has a number of memorandums of understanding (MOUs) with partner departments for the administration of unique, in-year programs delivered abroad. The Department is forecasting expenses of $190,000,000 in 2010/11 and $197,000,000 in 2011/12 for operational and program activities on behalf of our partner departments. The Department is forecasting revenues of $287,000,000 in 2010/11 and $282,000,000 in 2011/12 on behalf of our partner departments. These forecasted expenses and revenues are remitted to the partner departments and are reflected in the financial statements of those departments and not recorded in this financial statement.

8. Segmented Information

Presentation by segment is based on the Department's PAA. The presentation by segment is based on the same accounting policies as described in the Summary of Significant Accounting Policies in Note 4. 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:

Table 7: Segmented Information
Segmented Information (in thousands of dollars)Diplomacy and AdvocacyGov, Strategic Direction & Common Service DeliveryPassport CanadaInternal ServicesInternational CommerceGovernment of Canada BenefitsInternational Policy Advice and IntegrationConsular Services and Emergency ManagementForecast 2012 TotalEstimated 2012 Total
Transfer payments
Other countries and international organizations465,393-----4,022-469,415453,575
Non-profit organizations377,993---6,9072820,000-404,928391,249
Other levels of government in Canada13,463-------13,46310,354
Other Transfers to any Other Sector9,006-----35-9,04111,054
Industry----1,764---1,7641,704
International Development Assistance409-------409395
Individuals-----139--139134
Total Transfer payments866,264---8,67116724,057-899,159868,465
Operating expenses
Salaries and employee benefits200,900264,127176,031122,922121,455102,74186,78138,2611,113,2181,121,237
Professional and special services40,287157,45631,08317,18113,7922,6005,3944,952272,745390,858
Rentals58,665147,35818,2096,23514,755-6,0344,719255,975251,123
Transportation22,62715,17828,1035,93974544,97413,45011,616142,632137,108
Acquisition of machinery and equipment, including parts and consumables18,85324,86048,48622,1021,561-547626117,03584,511
Amortization23470,3569,5294,9821,652-5457887,37696,706
Utilities, materials and supplies14,76360,1374512,3823,354-1,3091,62484,02093,529
Telecommunications5,59821,4303,6022641,874-1,08161534,46433,151
Repairs and maintenance3,17011,6874,0647091,837-43934822,25429,384
Information3,17511,4874,5023821,072-36834821,33440,548
Bad debt2718893718158-46301,4491,604
Total operating expenses368,543784,965324,097183,116162,255150,315115,99463,2172,152,5022,279,759
Total expenses1,234,807784,965324,097183,116170,926150,482140,05163,2173,051,6613,148,224
Revenues
Sale of Goods and Services11,90453,511281,438-6,200--96,675449,728444,425
Other non-tax revenue964292,259-50--7753,6093,677
Total revenues12,00053,940283,697-6,250--97,450453,337448,102
Net cost of operations1,222,807731,02540,400183,116164,676150,482140,051(34,233)2,598,3242,700,122

Footnotes

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