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5. Accountability

Financial Statements 2009-2010

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 Program Activity Architecture (PAA), as approved by Treasury Board (TB). Financial information in the 2009-2010 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: The Department maintains a mission network 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.

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. 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. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles. As a result of changes to Treasury Board accounting policy TBAS 1.2, the 2008-2009 comparative figures have been restated to reflect changes as detailed in Note 14.

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 basis 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.

(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 Government.

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

(e) Revenues: Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.

1. Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.  
2. Funds that have been received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.   
3. Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.

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, provided that the transfer is authorized and a reasonable estimate can be made. Advance payments can be made to recipients in cases where the advance criteria have 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, legal services and workers' compensation are recorded as operating expenses at their estimated cost.  

 (g) 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 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 of exchange in effect on March 31.   

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

(j) 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.

(k) 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.  

(l) 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.  

(m) 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 Expenses or Revenues in the Statement of Operations (and in note 13), depending on if the net result is a loss or gain, respectively.

(n) 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:

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

(o) 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 basis of reporting.  The differences are reconciled in the following tables (in thousands of dollars): 

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.

(in thousands of dollars)

Parliamentary appropriations provided (i.e. appropriations available from prior years for Passport Canada, 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.

4. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances (in thousands of dollars):

5. Inventory

The following table presents details of the inventory measured at the average cost method (in thousands of dollars):

The cost of consumed inventory recognized as an expense in the Statement of Operations is $23,313,519 in 2009-2010 ($19,320,127 in 2008-2009).

6.Tangible Capital Assets

(in thousands of dollars)

Amortization expense for the year ended March 31, 2010 is $89,478,773 (2009 - $83,463,608).    

Disposals of assets under construction represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable.

7. Accounts Payable and accrued liabilities

The following table presents the details of the Department's accounts payable and accrued liabilities (in thousands of dollars):

8. 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 (in thousands of dollars):

9. 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 2009-2010 Departmental expense amounts to $86,945,252 ($76,138,004 in 2008-2009), which represents approximately 1.9 times (2.0 in 2008-2009) 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 2009-2010 employer contributions amount to $19,412,613 ($17,236,287 in 2008-2009).

(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, 2010 was 27.36% (26.92% as at March 31, 2009). 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, 2010 and a layoff/payout rate of 65%.   

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 (in thousands of dollars):

The Canada-based staff severance benefits liability amounts to $52 million, whereas the locally engaged staff liability is $83 million. 

10. Contingent Liabilities 

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. Based on the Department's assessment, legal proceedings for claims estimated at $18,383,029,488 ($15,729,334,907 as at March 31, 2009) were pending at March 31, 2010. Pending claims and litigation legal proceedings in which the outcome is not determinable totaled approximately $6,335,989,084 as at March 31, 2010 ($14,668,602,897 as at March 31, 2009). Of this amount, $501,111,600 ($765,837,540 as at March 31, 2009) 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 $3,000,000 ($3,153,010 as at March 31, 2009) has been recorded in the Statement of Financial Position.

11. 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, and transfer payments. Significant contractual obligations that can be reasonably estimated are summarized as follows (in thousands of dollars):

12. 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, the employer's contribution to the health and dental insurance plans and workers' compensation coverage). These services without charge have been recognized in the Department's Statement of Operations (in thousands of dollars) as follows:

(b) Payables and receivables outstanding at year end with related parties (in thousands of dollars):

(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. The Department administered approximately $179,000,000 ($224,000,000 in 2008-2009) for operational and program activities on behalf of our partner departments. The Department also collected approximately $227,000,000 ($267,000,000 in 2008-2009) in revenues on behalf of our partner departments. These expenses and the revenues remitted to the partner departments are reflected in the financial statements of those departments and are not recorded in these financial statements.

(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, the 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 (the Generic MOU) was signed in April 2004.  

In the fiscal year ended March 31, 2010, 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 $8,570,000 ($24,854,000 in 2008-2009) of permanent funding handled through the ARLU and $17,193,000 ($27,018,000 in 2008-2009) of in-year funding received via Supplementary Estimates.

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 with each co-locator.  Co-locators comprise all non-departmental entities, and include Crown corporations, provincial or territorial governments, foreign governments, and non-governmental organizations co-located at DFAIT’s missions abroad.  

In the fiscal year ended March 31, 2010, this activity amounted to approximately $15,565,000 ($9,065,000 in 2008-2009) of in-year funds received via the Specified Purpose Accounts 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.  

13. 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 (in thousands of dollars):

14. Adoption of new Treasury Board accounting policies

As indicated in Note 2, the Department adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements effective for the 2009-2010 fiscal year. As a result, the 2008-2009 comparatives figures were restated. The major change in the accounting  policies of the Department required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position and the removal of the investments in Crown corporations (Canadian Commercial Corporation, Export Development Canada, International Development Research Centre). In addition, as per a recommendation from the Office of the Comptroller General, the Department's financial statements no longer include the Canada Account. As such, the 2008-2009 figures were restated to reflect only DFAIT and Passport Canada's figures.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on the comparative results for 2008-2009 (in thousands of dollars):

15. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation. In 2009-2010, the Department did not have to reallocate the Internal Services revenues and expenses to all the other Program Activity Architecture. In addition, transportation and telecommunications expenses were disclosed separately this fiscal year. For more information on 2008-2009 financial statements, visit Financial Statements 2008-2009 .

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Date Modified:

2012-12-28