Financial Statements 2008-2009

Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2009, and all information contained in these statements rests with departmental management. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted to the Public Accounts of Canada and included in the department's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal controls designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded, and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the department.

Management is supported by a Departmental Audit Committee (DAC). The fundamental role of the DAC is to ensure the Deputy Ministers have objective advice and recommendations on the adequacy of the department's risk management, control and governance processes. The DAC reviews core areas of departmental management, control and accountability, including reporting. Specifically, the DAC reviews the department's financial statements and all significant accounting estimates and judgements therein with management and advises the Deputy Ministers on any apparent material concerns.

Original signed by:

Louis Lévesque, Deputy Minister of International Trade

Leonard J. Edwards, Deputy Minister of Foreign Affairs

Bruce Hirst, Chief Financial Officer and Assistant Deputy Minister

Ottawa, Ontario
August 19, 2009

Statement of Operations (Unaudited)

Table 1: Statement of Operations
For the year ended March 3120092008 (restated)
Expenses from Operations (Note 4)
Diplomacy and Advocacy1,096,473968,490
Canada's International Platform: Support at Missions Abroad592,342523,202
Canada's International Platform: Support at Headquarters325,633287,624
Passport Canada Special Operating Agency (Revolving Fund)305,770270,080
International Commerce265,276234,313
International Policy Advice and Integration154,749136,687
Consular Affairs55,58349,095
Sub-total expenses from operations2,795,8262,469,491
Canada Account expenses (Note 9)333,1044,414
Total expenses3,128,9302,473,905
Revenue from operations (Note 5)
Passport Canada Special Operating Agency (Revolving Fund)263,135297,096
Consular Affairs94,417106,602
Canada's International Platform: Support at Missions Abroad23,98727,082
Canada's International Platform: Support at Headquarters20,61023,270
Diplomacy and Advocacy13,55115,300
International Commerce5,9606,730
International Policy Advice and Integration2,8633,233
Sub-total revenues from operations424,523479,313
Canada Account revenue (Note 9)783,615367,454
Total revenues1,208,138479,313
Net cost of operations1,920,7921,627,138

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

Statement of Financial Position (Unaudited)

Table 2: Statement of Financial Position
For the year ended March 31 (in thousands of dollars)20092008 (restated)
Contingent liabilities (Note 13)
Contractual obligations (Note 14)
Financial Assets
Temporary Investments (Note 6)3,141-
Accounts receivable and advances (Note 7)219,496125,410
Inventory held for re-sale5,3733,589
Investments in Crown corporations (Note 8)1,341,200991,200
Canada Account loans (Note 9)2,066,5491,717,161
Total Financial Assets3,635,7592,837,360
Non-Financial Assets
Prepaid expenses54,22415,882
Consomable inventory6,9254,024
Tangible capital assets (Note 10)1,176,8911,168,491
Total Non-Financials Assets1,238,0401,188,397
Total Assets4,873,7994,025,757
Liabilities
Accounts payable and accrued liabilities359,709338,589
Vacation pay and compensatory leave45,27645,458
Deferred revenue (Note 11)107373
Employee severance benefits (Note 12)119,774110,392
Total Liabilities524,866494,812
Equity of Canada4,348,9333,530,945
Total4,873,7994,025,757

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

Statement of Equity of Canada (Unaudited)

Table 3: Statement of Equity of Canada
For the year ended March 31 (in thousands of dollars)20092008 (restated)
Equity of Canada, beginning of year3,530,9453,548,113
Net cost of operations(1,920,792)(1,627,138)
Current year appropriations used (Note 3)2,508,0942,670,911
Revenue not available for spending(893,622)(489,522)
Rufund of prior year's expenditures(12,459)(8,002)
Change in net position in the Consolidated Revenue Fund (Note 3)1,043,967(641,417)
Services provided without charge by other governement departments (Note 15)92,80078,000
Equity of Canada4,348,9333,530,945

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

Statement of Cash Flow (Unaudited)

Table 4: Statement of Cash Flow
For the year ended March 31 (in thousands of dollars)20092008 (restated)
Operating Activities
Net cost of operations1,920,7921,627,138
Non-cash items
Amortization of tangible capital assets(87,191)(81,460)
Gain on disposal of tangible capital assets - Net11,97645,033
Services provided without charge by other government departments (Note 15)(92,800)(78,000)
Variations in Statement of Financial Position
Increase in temporary investment3,141-
Increase (decrease) in accounts receivable and advances94,086(403,756)
Increase in inventory held for re-sale1,7841,997
Increase in investment in crown corporation350,000-
Increase (decrease) in Canada Account loans349,388(258,076)
Increase in prepaid expenses38,3427,082
Increase in consumable inventory2,9011,997
Decrease (increase) in accounts payable and accrued liabilities(21,120)463,660
Decrease (increase) in vacation pay and compensatory leave182(3,040)
Decrease in deferred revenue2662,003
Decrease (increase) in employee severance benefits(9,382)30,813
Cash used by operation activities2,562,3651,354,075
Capital investment activities
Aquisition of tangible capital assets100,120225,562
Proceeds from disposal of tangible capital assets(16,505)(47,667)
Cash used by capital investment activities83,615177,895
Financing Activities
Net cash provided by Government of Canada2,645,9801,531,970

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

Notes to the Financial Statements (Unaudited)

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 2008-2009 Report on Plans and Priorities (RPP) was based on the department’s new, Treasury Board (TB) approved, Program Activity Architecture (PAA). Financial information in the 2008-2009 Departmental Performance Report (DPR) is reported on this basis. The PAA 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 Affairs - managing and delivering consular services and advice to 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: DFAIT maintains a mission of infrastructure and services to enable the Government of Canada to achieve its international priorities.
    • Program Activity #6: Canada’s International Platform: Support at Headquarters - managing and delivering services and infrastructure at headquarters to enable Canada’s representation abroad.
    • Program Activity #7: Canada’s International Platform: Support at Missions Abroad - managing and delivering services and infrastructure at missions to enable Canada’s representation abroad.

The department is also responsible for the Canada Account, which is administered by Export Development Canada (EDC) pursuant to section 23 of the Export Development Act. The Budget Implementation Act, 2009, amended the Export Development Act to expand the mandate of the Corporation for a two-year period to include the support and development of domestic trade, in addition to its traditional mandate related to export trade. The Canada Account supports transactions which, though within the scope of EDC’s authority, are considered to be outside of the organization’s risk parameters. Such transactions may be conducted under the Canada Account if they are deemed to be in Canada’s national interest by the Minister of International Trade and the Minister of Finance.

2. Summary of significant accounting policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

(a) Parliamentary appropriations: The department 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 and the Statement of Financial Position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

(b) Consolidation: These financial statements include the accounts of Passport Canada. Revenue and expense transactions and asset and liability accounts between Passport Canada and the department have been eliminated. The department has recorded investments in the three Crown corporations: Canadian Commercial Corporation, Export Development Canada and the International Development Research Centre. These investments are recorded at cost. The results of the Crown corporations are not consolidated in these financial statements due to the fact that the department is deemed not to control these entities.

(c) 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 federal government.

(d) Change in net position in the Consolidated Revenue Fund: The change in the net position of the CRF is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non-respendable revenue recorded by the department. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

(e) Revenues: Revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenues occurred. The department also receives revenues from regulatory fees that are recognized in the period in which the service is provided. Revenues that have been received but not yet earned for specified purposes are recorded as deferred revenues.

(f) Expenses: Expenses are recorded on the accrual basis:

  1. 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;
  2. Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement. Advance payments can be made to recipients in cases where the advance criteria has been met; and when all of the terms of the contractual agreement have not yet been fulfilled;
  3. Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment;
  4. Services provided without charge by other government departments for accommodation, the employer’s contribution to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

(g) Employee future benefits:

  1. Pension benefits:Eligible Canada-based staff 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. Current legislation does not require the department to make contributions for any actuarial deficiencies. Eligible locally engaged staff 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 (Canada-based and locally engaged) 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 Canada-based staff 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 locally engaged staff obligation is established on the basis of operational requirements of the mission, local laws or in practice and is calculated based on the number of eligible employees multiplied by the estimated severance payment based on historical experience.

(h) Cash: Cash for the department consists of the funds in transit from missions and funds received and not yet deposited, partially offset by credits in imprest accounts. This cash is for the facilitation of operations. All foreign currency accounts are valued at the rate as of March 31.

(i) Temporary investments: Temporary investments for the department consist of shares received by the Canada Account that represent concessions provided to a borrower to assist them in exiting from bankruptcy protection. They are recorded at cost and their quoted market value at year-end is disclosed.

(j) Accounts and loans receivable: Accounts and loans receivable are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain. An allowance for loans, resulting in a provision, is applied against the loans receivable balance. An allowance for doubtful accounts, resulting in a charge to bad debt, is applied to the accounts receivable balance.

Loans 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 (unamortized discount). An allowance for valuation is further used to reduce the carrying value of the loans to amounts that approximate their net realizable value. Interest on loans receivables is applied in accordance with the policy that governs the account or the loan. Interest revenue is recognized at the time it is applied to the account.

(k) Investments in Crown corporations: Investments in Crown corporations are recorded at cost. If there is a permanent impairment in value, an allowance is recorded to reduce the carrying value of the investment to a nominal amount.

(l) Repayable contributions: Repayable contributions are contributions where the recipient is expected to repay the amount advanced. The contributions of the department include conditionally repayable contributions, which become either all or partly repayable, when conditions specified in the contribution agreement come into effect. Repayable contributions are recorded as a receivable and a reduction in transfer payment expense based on the terms and conditions outlined in the agreements. An estimated allowance for un-collectibility is recorded where appropriate.

(m) Prepaid expenses: Prepaid expenses for the department consist primarily of rent payments and transfer payments when a recipient requires payment in advance and some of the terms and conditions will be fulfilled in a future fiscal year. Prepaid expenses shall be accounted for as non-financial assets until the related services are rendered, goods are consumed, or terms of the contractual agreement are fulfilled.

(n) Inventories: Inventories consist of parts, material and supplies held for future program delivery and not intended for resale, as well as inventory for sale. All inventories are valued at cost. If they no longer have service potential, they are valued at the lower of cost or net realizable value.

(o) 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 on March 31. Foreign exchange gains and losses have been netted together and the net result is presented in either Note 4 - Expenses or Note 5 - Revenues, depending on if the net results is a loss or gain, respectively.

(p) 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. Some of the amortization periods have been changed on a prospective basis this year. The amortization periods are as follows:

Table 5: Amortization of 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
Vehicles5 to 10 years
Aircraft20 years
Leasehold improvementsTerm of the lease or 25 years
Assets under constructionOnce in service, in accordance with asset type

(q) Contingent liabilities: Contingent liabilities are potential liabilities which 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.

(r) Measurement uncertainty: The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Appropriations

The department receives most of its funding through annual parliamentary appropriations. Items recognized in the Statement of Operations and the Statement of Financial Position in one year may be funded through parliamentary appropriations in prior, current or future years. Accordingly, the department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The purpose of Note 3 is to reconcile the differences from the two bases of reporting. The differences are reconciled in the following tables:

Table 6: Parliamentary Appropriations - Reconciliation of net cost of operations to current year appropriations
(a) Reconciliation of net cost of operations to current year appropriations (in thousands of dollars)20092008 (restated)
Net cost of operations1,920,7921,627,138
Adjustments for items affecting net cost of operations but not affecting appropriations
Services provided without charge by other government departments(92,800)(78,000)
Amortization of tangible capital assets(87,191)(81,960)
Refunds of prior year’s expenditures12,4598,002
Revenue not available for spending893,622489,522
Gain on disposal and write down of tangible capital assets11,97645,033
Decrease (increase) in the allowance for loans receivable(253,107)327,081
Decrease (increase) in the allowance for bad debt expenses(37,274)35,693
Decrease in accoutns payable and accrued liabilities10,30010,000
Decrease (increase) in the allowance for loan guarantees(4,641)38,916
Decrease (increase) in vacation pay and compensatory182(3,040)
Decrease (increase) in employee secerance benefits(9,382)30,813
Other11(14,109)
 2,364,9472,435,389
Adjustments for items not affecting net cost of operations but affecting appropriations
Acquisitions of tangible capital assets100,120225,562
Increase in prepaid expenses38,3427,082
Increase in inventory held for re-sale1,7841,997
Increase in consumable inventory2,9011,181
 143,147235,822
Current Year Authorities Used
Current year appropriations used2,508,0942,670,911

Appropriations are provided on cash basis while the net cost of operations is reported on an accrual accounting basis. As a result, the two will always be different. The variance is mainly explained by accruals and revenue not available for spending as they do not affect appropriations, but are included in the net cost of operations. The variance is also explained by various elements classified as Assets in the Statement of Financial Position (i.e. inventory, prepaid expenses and capital assets) that affect appropriations used, but are not included in the net cost of operations.

Table 7: Parliamentary Appropriations - Authorities Provided and Used
b) Appropriations provided and used (in thousands of dollars)20092008
Appropriations Provided
Vote 1 - Operating Expenditures1,372,6981,275,298
Vote 5 - Capital Expenditures182,001206,221
Vote 10 - Grants and Contributions817,142782,158
Vote 11b - Passport Canada - Capital expenditures13,516-
Vote 13c - Passport Canada - Operating expenditures12,888-
Statutory187,931610,928
 2,586,1762,874,605
Less
Appropriations available for future years52,95575,337
Lapsed appropriations: Operating11,17153,322
Lapsed appropriations: Capital9,11935,299
Lapsed appropriations: Grants and Contribution1,14539,736
Lapsed appropriations: Passport Canada Capital expenditures3,692-
 78,082203,694
Appropriations Used
Total appropriations used2,508,0942,670,911

Parliamentary appropriations provided (i.e. appropriations available from prior years for Passport Canada and proceeds from the disposal of surplus crown assets and funds provided through the Main Estimates and Supplementary Estimates in the current year) are reconciled to Parliamentary appropriations used in the current year and agree with amounts shown as "Available for Use and Authorities Used" as reflected in the "Summary of Source and Disposition of Authorities" in Volume II of the Public Accounts.

Table 8: Parliamentary Appropriations - Reconciliation of net cash provided by Government to current year authorities used
c) Reconciliation of net cash provided by Government to current year authorities used (in thousands of dollars)20092008 (restated)
Net cash provided by Governement2,645,9801,531,970
Revenue not available for spending893,622489,522
Refunds of prior years’ expenditures12,4598,002
 3,552,0612,029,494
Change in net position in the Consolidated Revenue Funds
Increase in temporary investments(3,141)-
Decrease (increase) in account recivable and advances(94,086)403,756
Increase in investment in crown corporation(350,000)-
Decrease (increase) in Canada Account loans349,388258,035
Increase (decrease) in accounts payable and accrued liabilities21,120(463,660)
Decrease in deferred revenue(266)(2,003)
Adjustment for the allowance for loans receivable(253,107)327,081
Adjustment for accounts payable not affecting appropriations10,30010,000
Adjustment for the allowance for loan guarantees(4,641)38,916
Other adjustements(20,758)69,292
 (1,043,967)641,417
Current year appropriations used2,508,0942,670,911

The net cash provided by the Government is reconciled to the current year appropriations used by including the revenue not available for spending and the changes that have occurred within the Statement of Financial Position. Only items within the Statement of Financial Position for which the amounts affects either net cash provided by Government or appropriations used are included. Most of the accrued liabilities, such as contingent liabilities and employees severance benefits, are not included as they do not affect net cash nor appropriations.

4. Expenses

The following table presents details of expenses (in thousands of dollars) by category:

Table 9: Expenses
Expenses (in thousands of dollars)20092008 (restated)
Transfer Payments
Other countries and international organizations399,488333,231
Non-profit organizations356,654378,963
Other level of government in Canada11,40411,279
Industry1,5992,336
Individuals129182
Other5,59714,391
Total transfer payments774,871740,382
Operating expenses
Salaries and employee benefits1,084,611923,449
Provision for loans and guarantees287,237(332,707)
Professional and special services249,253194,952
Rentals207,205182,194
Transportation and telecommunications195,257177,480
Amortization87,19181,960
Acquisition of machinery and equipment, including parts and consumables77,52680,130
Utilities, materials and supplies46,56641,130
Repairs and maintenance41,13238,134
Bad debt35,627(35,693)
Information33,24621,168
Loan administration charges7,53414,584
Foreign exchange loss - Net-344,360
Other1,6742,382
Total operating expenses2,354,0591,733,523
Total expenses3,128,9302,473,905

5. Revenues

The following table presents details of revenues (in thousands of dollars) by category:

Table 10: Revenues
Revenues (in thousands of dollars)20092008
Foreign exchange gain - Net602,822-
Sale of goods and services408,918432,206
Interest on non-tax revenues142,21176,942
Amortization of discounts26,41327,220
Gain on disposal of tangible capital assets - Net11,97645,033
Other non-tax revenue8,2869,782
Lease revenue7,5125,584
Dividend revenue-250,000
Total revenues1,208,138846,767

6. Temporary Investments

On February 19, 2009 the Canada Account was awarded, by the bankruptcy court, 435,033 shares of an airline subject to bankruptcy proceedings at United States dollar $5.73 pershare, or approximately $7.22 Canadian, for a total of $3,141,350 Canadian.These shares represent concessions provided to a borrower to assist them in exiting from bankruptcy protection. The shares will be soldand proceeds used to reduce the impact of the concessions granted to the airline and other restructuring costs. The quoted market value as at March 31 was United States dollar $5.63 per share, or approximately $7.10 Canadian, for a total of $3,089,221 Canadian.

7. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

Table 11: Accounts Receivable and Advances
Accounts Receivable and Advances (in thousands of dollars)20092008
Receivables from external parties273,126223,575
Other advances46,07632,882
Employee advances18,73415,147
Cash in transit14,10211,469
Receivables from other government departments and agencies94,66632,271
Sub-total446,704315,344
Allowance for doubtful accounts on external receivables and advances(227,208)(189,934)
Total receivables and advances, net of allowances219,496125,410

8. Investments in Crown Corporations

Table 12: Investments in Crown Corporations
Investments in Crown Corporations (in thousands of dollars)20092008
Export Development Canada1,333,200983,200
Canadian Commercial Corporation8,0008,000
International Development Research Centre--
Total investments in Crown corporations1,341,200991,200

The Crown Corporations are not consolidated in the department’s financial statements as they are not under the control of the department (do not meet the control criteria of the Public Sector Accounting Handbook Section 1300). Part X of the Financial Administration Act sets out the accountability of Crown Corporations to Parliament as being through the responsible minister, not the department.

Export Development Canada

Export Development Canada (EDC) is a Canadian Crown corporation that provides financing and risk-management services to Canadian exporters and investors in up to 200 markets worldwide. EDC is financially self-sufficient and operates on commercial principles. It is wholly owned by the Government of Canada, and is listed in Schedule III to the Financial Administration Act, Part 1. EDC reports to Parliament through the Minister of International Trade. Included in this account are 13.3 million EDC shares issued to the Government of Canada at a value of $100 per share; of which 3.5 million new shares were added this year. Total authorized capital of EDC is $3,000,000,000, 30 million shares at a par value of $100 each.

During the year, the department did not receive dividend revenue from EDC ($250,000,000 in 2008).

Canadian Commercial Corporation

The Canadian Commercial Corporation (CCC) is an agent Crown corporation listed in Part 1 of Schedule III of the Financial Administration Act. Included within the Corporation’s contributed surplus is paid up capital by the department of $8,000,000.

International Development Research Centre

The International Development Research Centre (IDRC) is a Crown corporation that was created by the Parliament of Canada in 1970. IDRC reports to Parliament through the Minister of Foreign Affairs. IDRC is principally funded by parliamentary appropriations. IDRC was incorporated with no share capital.

9. The Canada Account

Under the Canada Account, the Government of Canada is able to authorize support for transactions which, on the basis of Export Development Canada’s risk management practices, would not be supported under EDC’s Corporate Account and are in the national interest. Canada Account transactions are assessed, entered into and managed by EDC, and the Government effectively assumes the associated financial risks by providing all monies required for any transaction from the Consolidated Revenue Fund. Canada Account consists of the class of transactions undertaken by EDC pursuant to Section 23 of the Export Development Act. Such transactions can and do include business in all of EDC’s product categories (financing, guarantees, accounts receivable insurance, contract insurance and bonding, and political risk insurance) except equity. Conversely, such transactions cannot include any business that cannot be undertaken by EDC pursuant to Section 10 of the Act. As with other EDC support, interest on loans (which are fully repayable), insurance premiums and fees apply to Canada Account transactions.

Pursuant to Section 23 of the Act, the Minister for International Trade, with the concurrence of the Minister of Finance may authorize EDC to undertake certain financial and contingent liability transactions. Under current operational procedures, transactions exceeding $50 million or those of a sensitive nature are first referred to Cabinet.

Section 24(1) of the Act allows the Canada Account to have outstanding commitments to borrowers, the principal amount of obligations owed to the Account and contingent liabilities under contracts of insurance and other arrangements up to an aggregate of $20 billion. This limit was increased from $13 billion with the 2009 Federal Budget (via the Budget Implementation Act). All monies required by the Corporation to discharge its obligations under Canada Account are paid to the Corporation by the Minister of Finance, out of the Consolidated Revenue Fund. Such draws are accounted for separately and do not impinge on the Corporation’s borrowing limits.

For more information on the Canada Account transactions, visit Export Development Canada Web site.

(a) Statement of Revenue and Expenses:

This section represents the Canada Account’s revenue and expenses. The expense and revenue amounts are included Note 4 - Expenses, and Note 5 - Revenues, respectively.

Table 13: The Canada Account - Statement of Revenue and Expenses
a) Statement of Revenue and Expenses (in thousands of dollars)20092008
* Allowances for Canada Account exposures are calculated by the Government of Canada’s central agencies and recorded by the department.
Revenue
Gain on foreign currency translation - net603,645-
Loan interest and guarantee fees146,04584,651
Amortization of discount26,41327,219
Lease revenue7,5125,584
Dividend revenue-250,000
Total revenue783,615367,454
Expenses
Loss on foreign currency translation - net-354,912
Provision on losses on loans and loan guarantees (recovery)*287,237(332,707)
Administrative charges7,53414,584
Leasing and financing related expenses3,7273,320
Bad debt expenses34,606(35,695)
Total operating expenses333,1044,414
Net gain/(loss)450,511363,040

(b) Loans:

This category consists of loans made to national governments and loans made to commercial entities. Loan transactions with long repayment terms and/or low or zero interest rates are recorded in part as expenses (amortized discount) when the economic value is reduced by such concessionary terms.

Table 14: The Canada Account - Loans
b) Loans (in thousands of dollars)20092008
* Pursuant to an agreement with the Ontario Financing Authority (OFA), the OFA contributed one-third ($83,333,333) of the balance of the term loan issued ($250,000,000). As interest and principal are received on the term loan, the corresponding one-third will be remitted to the OFA. This agreement is administered by the Department of Finance.
Loans to national governments
1 to 5 year term, 0 percent (London Interbank Offered Rate, or LIBOR) interest per annum, with final repayment December 20101,027838
6 to 10 year term, 0.5 percent to 9 percent interest per annum, with final repayments between March 2007 and June 201439,78032,540
11 to 15 year term, 0.5 percent (LIBOR) to 5.1 percent (LIBOR) interest per annum, with final repayments between April 2018 to November 202490,52582,901
16 to 20 year, 0 percent interest per annum, with final repayment March 20113,0234,452
21 to 25 year term, 0 percent to 3.0 percent interest per annum, with final repayments between November 2015 and April 201827,72927,041
31 to 55 year term, 0 percent to 8.97 percent interest per annum, with final repayements between December 2010 and February 2045872,641733,786
 1,034,725881,558
Loans to commercial entities
1 to 5 year term, 8.5 percent interest per annum, with final repayment April 200023,0703,399
6 to 10 year term, 8.97 to 9.0 percent interest per annum, with final repayment Febreary 200820,97317,107
11 to 15 year term, 0 percent to 5.89 percent interest per annum, with final repayments between April 2008 and March 20222,129,1611,859,753
16 to 20 year term, 0 percent interest per annum, with final repayments between June 2012 and November 201421,44421,791
Term loan, interest based on the Canadian dealer offred rate + 3 percent interest per annum, with final repayment no later than March 30, 2012*166,667-
 2,361,3151,902,050
Other loans21,74331,680
Less:
Unamortized discount(650,158)(676,572)
Allowance for valuation(701,076)(421,555)
 (1,351,234)(1,098,127)
Total2,066,5491,717,161

10. Tangible Capital Assets

Table 15: Tangible Capital Assets
Tangible Capital Assets (in thousands of dollars)Opening Balance (restated)AcquisitionsDisposals, and Write-offsClosing Balance
* Aircrafts consists of planes that were returned to the Canada Account due to the restructuring of loan agreements in 2007-2008. While the department does not in the ordinary course of business act as lessor, it has engaged in leasing activities to maximize recoveries on these returned assets and minimize potential losses. Operating lease revenue is recognized on a straight-line basis over the terms of the underlying leases.
Cost
Land225,26257(945)224,374
Buildings1,148,4013,781(4,591)1,147,591
Works and Infrastructure2,642-(1,190)1,452
Machinery and Equipment72,3125,693(175)77,830
Infromatic Hardware57,8454,733-65,578
Vehicles39,5156,362(3,549)42,328
Aircrafts*89,335--89,335
Leasehold Improvements166,01610,566-176,582
Assets under construction89,79968,928-158,727
Total1,891,127100,120(10,460)1,980,797
Accumulated Amortization
Land----
Buildings527,30952,124(2,652)576,781
Works and Infrastructure3648-84
Machinery and Equipment53,8193,343(108)57,054
Infromatic Hardware45,4255,108-50,533
Vehicles20,4404,859(3,161)22,138
Aircrafts*3,3203,728-7,048
Leasehold Improvements72,28717,981-90,268
Assets under construction----
Total722,63687,191(5,921)803,906
Table 16: Tangible Capital Assets
Net book value (in thousands of dollars)20092008 (restated)
* Aircrafts consists of planes that were returned to the Canada Account due to the restructuring of loan agreements in 2007-2008. While the department does not in the ordinary course of business act as lessor, it has engaged in leasing activities to maximize recoveries on these returned assets and minimize potential losses. Operating lease revenue is recognized on a straight-line basis over the terms of the underlying leases.
Land224,374225,262
Buildings570,810621,092
Works and Infrastructure1,3682,606
Machinery and Equipment20,77618,493
Infromatic Hardware12,04512,420
Vehicles20,19019,075
Aircrafts*82,28786,015
Leasehold Improvements86,31493,729
Assets under construction158,72789,799
Total1,176,8911,168,491

Amortization expense for the year ended March 31, 2009 is $87,190,559 (2008 - $81,960,035).

11. Deferred Revenue

Deferred revenue is comprised of monies received as prepayment for services to be performed by the department on behalf of third parties and deposits and unclaimed cheques for passport fees. Details of the transactions related to this account are as follows:

Table 17: Deferred Revenue
Deferred Revenue (in thousands of dollars)20092008
Opening Balance3732,376
Funds Received-262
Revenue Recognized(266)(2,265)
Closing Balance107373

12. Employee Benefits

(a) Pension benefits:

The department’s Canada-based staff 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/Québec Pension Plans benefits and are indexed to inflation.

Both the employees and the department contribute to the cost of the Plan. The 2008-09 departmental expense amounts to $76,138,004 ($69,837,802 in 2007-2008), which represents approximately 2.0 times (2.1 times in 2007-2008) 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 2008-2009 employer contributions amount to $17,263,287 ($14,513,129 in 2007-2008).

(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. The rate as at March 31, 2009 was 23.19% (23.27% as at March 31, 2008). 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 as at March 31, 2009 and a layoff/payout rate of 60%.

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 18: Employee Benefits
Employee Benefits (in thousands of dollars)20092008
Accrued benefit obligation, beginning of year110,392141,205
Expense or adjustment for the year(7,034)(18,021)
Benefits paid during the year16,416(12,792)
Accrued benefit obligation, end of year119,774110,392

The Canada-based staff severance benefits liabilityamounts to $49 million, whereas the locally engaged staff liability is $71 million.

13. Contingent Liabilities

(a) Claims and litigation:

Pending legal proceedings in which the outcome is not determinable totaled approximately $14,668,602,897 as at March 31, 2009 ($11,951,613,584 as at March 31, 2008). Of this amount, $765,837,540 ($655,424,250 as at March 31, 2008) relates to litigation where another Government department has been named as a co-defendant. Some of these potential liabilities may translate into actual liabilities as a result of court decisions or out-of-court settlements. To the extent to which future legal decisions are assessed as unfavourable, and a reasonable estimate of the loss can be made, estimated liabilities are accrued and an expense is recorded in the financial statements. An accrual of $3,153,010 ($1,825,663 as at March 31, 2008) has been recorded in the Statement of Financial Position.

(b) Loan guarantees:

Loan guarantees relate to guarantees rendered on loans made to national governments and loans to commercial entities which are administered by EDC through the Canada Account.

Loan guarantees by the department at March 31, 2009 amount to $447,712,357 ($467,964,715 as at March 31, 2008), for which an allowance of $38,145,413 ($33,504,028 as at March 31, 2008) has been recorded. These loan guarantees are subject to payment in the event of the default of the debtor. The allowance 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 and non-sovereign debtors.

14. 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 when the services/goods are received. These obligations include long-term rental agreements for chancery offices, transfer payments, and loan commitments under the Canada Account. Significant contractual obligations that can be reasonably estimated are summarized as follows:

Table 19: Contractual Obligations
Contractual Obligations (in thousands of dollars)201020112012201320142015 and ThereafterTotal
Purchase of passport materials15,0004,000----19,000
Lease of office space in Gatineau, Quebec6,0006,0006,0006,0005,0008,00037,000
Lease of office and parking space in Moscow3,0007,0007,0007,0007,000157,000188,000
Chancery lease Consul General in New York3,1003,2003,200800--10,300
Chancery lease in Chicago1,0001,0001,0001,0001,0004,0009,000
Chancery lease Permanent Mission of Canada to the United Nations in New York1,4001,5001,6001,6001,6007,80015,500
Undisbursed Canada Account Loan Commitments751,0006,000----757,000
Obligation from Loan Restructuring3,0141,576650---5,240
Transfer payments for the purpose of assistance to countries of the former Soviet Union23,59912,135----35,764
Transfer payments for dismantlement of nuclear submarines10,4892,116----12,605
Transfer payments to the International Organization of La Francophonie10,769-----10,769
Transfer payments to the International Centre for Human Rights and Democratic Development5,0005,0004,000---14,000
Total883,37149,52723,45016,40014,600176,8001,114,148

15. 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. Also, during the year, the department received services which were obtained without charge from other Government departments as presented in part (a).

(a) Services provided without charge by other government departments:

During the year, the department received services without charge from other government departments (accommodation, legal fees and the employer’s contribution to the health and dental insurance plans). These services without charge have been recognized in the department’s Statement of Operations as follows:

Table 20: Related Party Transactions - Services provided without charge by other government departments
Services provided without charge by other government departments (in thousands of dollars)20092008
Accommodation31,00028,700
Employer’s contribution to the health and dental insurance60,00047,500
Legal services1,4001,500
Workers compensation charges400300
Total92,80078,000

(b) Payables and receivables outstanding at year end with related parties:

Table 21: Related Party Transactions - Payables and receivables outstanding at year end with related parties
Payables and receivables outstanding at year end with related parties (in thousands of dollars)20092008
Receivables from other government departments and agencies94,66632,271
Payables to other government departments and agencies43,35743,477

(c) 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. These expenses are reflected in the financial statements of our partner departments and not those of the department.  The department administered approximately $224,000,000 ($261,000,000 in 2007-2008) for operational and program activities on behalf of partner departments. The department also collected approximately $333,000,000 ($267,000,000 in 2007-2008) in revenues on behalf of our partner departments. These revenues were remitted to the partner departments and are reflected in the financial statements of our partners departments and not those of the department.

(d) Management and administration of Common Services:

In accordance with the Treasury Board Common Service Policy (February 1997), and the Department of Foreign Affairs and International Trade Act (1985), the department has the mandate to manage the procurement of goods, services and real property at missions abroad. These common services are mandatory for departments to use when required to support Canada’s diplomatic and consular missions abroad.

MOUs are in force to cover the roles and responsibilities of DFAIT, partner departments, Crown corporations and non-federal organizations.  These MOUs outline the principles and operational guidelines for the management and administration of the common services regime, specifications with respect to services and service delivery standards, the funding of common services, the responsibilities of parties, and dispute resolution.

i. Common Services provided to Other Government Departments

To facilitate the efficient and cost effective delivery of common services in support of the international programs of all federal departments and agencies of the Government of Canada, the Interdepartmental Memorandum of Understanding on Operations and Support at Missions Abroad was signed in April 2004.

In the fiscal year ended March 31, 2009, expenses related to changes made to partner departments’ representation abroad are reflected in the financial statements of the department. Appropriations for the department are adjusted via the Annual Reference Level Updates (ARLU) and the fiscal year’s supplementary estimates.

This activity amounted to approximately $27,018,000 ($20,552,000 in 2007-2008) of in-year funding received via Supplementary Estimates and $24,854,000 ($17,776,000 in 2007-2008) of permanent funding handled through the ARLU.

ii. Common Services provided to co-locators

To facilitate the efficient and cost effective delivery of common services in support of the international programs of co-locators, individual MOUs are signed. Co-locators are comprised of non-departmental entities, Crown corporations, provincial or territorial governments, foreign governments and non-governmental organizations co-located at the department’s missions abroad.

In the fiscal year ended March 31, 2009, this activity amounted to approximately $9,065,000 ($7,920,000 in 2007-2008) of in-year funds received via the Specified Purpose Accounts (SPAs) and Net-Voted Revenues.

This activity represents the recovery of costs incurred, where a portion can be re-spent under the TB Decision Letter on Net-Voting.  Only those funds which were net-voted appear in the financial statements of the Department.

16. Subsequent Event

a) In support of the restructuring and renewal of the automotive industry in Canada, on December 20, 2008, Prime Minister Harper and Premier McGuinty announced that Canada and Ontario would provide General Motors and Chrysler with up to $4 billion in short-term repayable loans. One-third of the support would be provided by Ontario and two thirds by Canada, via the Canada Account. To preserve Canada’s share of the industry, the financing assistance was equivalent to 20% of the overall assistance provided by the Government of the United States of America to the two companies at that time. Subsequent to the initial announcement, additional support was approved to maintain the proportion of the U.S. government‘s increased support to the companies. By fiscal year-end, the Canada Account had signed a loan agreement with and commenced disbursements to Chrysler on behalf of the Government of Canada. At the end of March 31, 2009, $250 million had been disbursed and $750 million was committed for disbursement.

Subsequent to the year end, additional loan agreements for support to General Motors and Chrysler were closed and insurance cover was provided to suppliers of the Detroit-3 (General Motors, Chrysler and Ford).

b) On April 23, 2009 a notice of intent to submit a legal claim with a face amount of $245,000,000 (denominated in United States dollars) was filed. The estimated liability associated with this case is currently not determinable. Although this case did not exist at the date of the financial statements, this liability may translate into an actual payment for the department in future years as a result of a future court decision or out-of-court settlement.

17. Comparative information

Comparative figures have been reclassified to conform to the current year’s presentation. In 2008-2009, the department’s Program Activity Architecture (PAA) model changed from 14 program activities to 3 strategic outcomes with 7 program activities. To review the 2007-2008 financial statements, visit Treasury Board of Canada Secretariat Web site.

18. Correction of an error

During the fiscal year, a misclassification of an acquisition was discovered. This error has been corrected, and as such, the opening balances in land and buildings have been restated. An opening balance restatement has also occurred in accumulated amortization and hence the related Statements and Notes have been restated accordingly.

Table 22: Correction of an error
Correction of an error (in thousands of dollars)2008
Decrease - Tangible Capital Assets407
Increase - Amortization Expense407