Financial Statements 2014-2015

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2015, and all information contained in these statements rests with the management of the Department. These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

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

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the Department and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

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

A risk-based assessment of the system of ICFR for the year ended March 31, 2015 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department’s system of internal control is reviewed by the Office of the Chief Audit Executive, which conducts audits of various areas of the Department’s operations, as well as audit work specific to annual financial reporting. Management is also supported by a Departmental Audit Committee (DAC). The fundamental role of the DAC is to provide objective advice and recommendations to the Deputy Ministers on the adequacy of the Department’s risk management, control and governance processes.  The DAC confirms their support of the financial statements to the Deputy Ministers.

The Financial Statements of the Department have not been audited.

Daniel Jean
Deputy Minister of Foreign Affairs

T. Christine Hogan
Deputy Minister of International Trade

Malcolm Brown
Deputy Minister of International Development

Arun Thangaraj
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Ottawa, Canada
September 4, 2015

Statement of Financial Position (Unaudited)

Contractual obligations (Note 11)
Contingent liabilities (Note 12)

The accompanying notes form an integral part of the Financial Statements.

Daniel Jean
Deputy Minister of Foreign Affairs

T. Christine Hogan
Deputy Minister of International Trade

Malcolm Brown
Deputy Minister of International Development

Arun Thangaraj
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Ottawa, Canada
September 4, 2015

Statement of Operations and Departmental Net Financial Position (Unaudited)

Segmented Information (Note 15)

The accompanying notes form an integral part of the Financial Statements.

Statement of Change in Departmental Net Debt (Unaudited)

The accompanying notes form an integral part of the Financial Statements.

Statement of Cash Flow (Unaudited)

The accompanying notes form an integral part of the Financial Statements.

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31

1. Authority and objectives

The Department of Foreign Affairs, Trade and Development (hereinafter called "the Department") operates under the legislation set out in the Department of Foreign Affairs, Trade and Development Act, S.C. 2013, c. E-33, s. 174.

The 2014-2015 Report on Plans and Priorities (RPP) was based on the Department of Foreign Affairs, Trade and Development’s (DFATD) Program Alignment Architecture (PAA), as approved by Treasury Board (TB). Financial information in the 2014-2015 Departmental Performance Report (DPR) is reported on a different basis. A crosswalk between the two bases of presentation is provided in the Department's 2014-2015 DPR. The PAA presents the Department’s four strategic outcomes. Strategic outcomes are supported by a cascading matrix of programs, sub-programs and sub-sub-programs, each of which has associated expected results and performance indicators.

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 #1.1: International Policy Advice and Integration  - The Department draws upon its expertise at missions and Headquarters to establish integrated and coherent foreign policy and international trade priorities, and to provide information, intelligence and advice to ministers, senior officials and key partners to support informed decisions that advance Canadian values and interests internationally.
• Program  #1.2: Diplomacy and Advocacy - The Department uses diplomacy, advocacy, and program delivery, informed by consultations with domestic stakeholders, to engage and influence international players in order to advance Canadian interests and values.

Strategic Outcome #2: International Services for Canadians - Canadians are satisfied with commercial and consular services.

• Program #2.1: International Commerce -  Through this program, the Department delivers commercial services and advice to Canadian business and supports their pursuit of international business opportunities.
• Program #2.2: Consular Services and Emergency Management - Through this program, the Department manages and delivers consular services and advice to Canadians and provides a coordinated Government of Canada response to emergencies abroad affecting Canadians.

Strategic Outcome #3: International Development and Humanitarian Assistance - Reduction in poverty for those living in countries in which Canada engages in international development.

• Program #3.1: Fragile States and Crisis-Affected Communities - Fragile States and Crisis-Affected Communities face severe development challenges due to conflict, instability or natural disasters within complex national and regional contexts. This program supports short-term initiatives to ensure access to essential humanitarian services for crisis-affected populations, and medium to long-term activities to foster sustainable economic growth and build the foundation for effective governance and delivery of basic services.
• Program #3.2: Low-Income Countries - Low-Income Countries face pervasive poverty and limited institutional capacity, but generally have stable governance and public security. Programming in these countries seeks to strengthen education and health for children and youth, address food insecurity, foster inclusive and sustainable economic growth, and build the foundations for effective democratic governance.
• Program #3.3: Middle-Income Countries - Middle-Income Countries face challenges in sustainable economic growth and development. Despite stronger economic and social foundations, they still face significant inequality and poverty. This program delivers technical assistance to foster equal access to economic opportunities and to strengthen local economies, to expand service delivery to reach marginalized groups, and to build accountable democratic institutions.
• Program #3.4: Global Engagement and Strategic Policy - The Department engages with multilateral and international organizations to advance Canadian development and humanitarian priorities. These partners have the capacity, expertise, and mandate to address global challenges, achieve sustainable development results, including in fragile and conflict-affected states, and respond effectively and efficiently in humanitarian crises. Initiatives supported by this program help Canada shape international development policy, promote an effective and efficient multilateral development and humanitarian system, and address global problems.
• Program #3.5: Canadian Engagement for Development - This program focuses on cost-effective initiatives that draw on the expertise, networks, and opportunities available to Canadian organizations to increase Canadians' engagement in international development. Programming involves co-investment in development proposals from Canadian civil society organizations, academic institutions, and professional associations to help deliver Canada's development objectives.

Strategic Outcome #4: 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 #4.1: Governance, Strategic Direction and Common Service Delivery - Through this program, the Department provides governance, strategic direction and leadership, manages change, delivers services and provides infrastructure to the mission platform.
• Program #4.2: Government of Canada Benefits - This program is the vehicle through which the Department and central agencies manage statutory payments to Government of Canada employees abroad (Canada-based staff and Locally-Engaged Staff).

The internal services program provides the essential support functions that enable the Department to carry out its mandate, including governance and management support; resource management services and asset management services.

2. Summary of significant accounting policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2014-2015 Report on Plans and Priorities. Planned results are not presented in the “Government funding and transfers” section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2014-2015 Report on Plans and Priorities.

(b) Consolidation

These financial statements include the accounts of the Passport Canada Revolving Fund for which the Deputy Head (DH) was accountable up to and including July 1, 2013. All inter-organizational balances and transactions 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 the CRF

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

(e) Revenues

1. Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
2. 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.
3. 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.
4. Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
5. Revenues that are non-respendable are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(f) Expenses

Expenses are recorded on an accrual basis:

1. Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established  for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
2. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
3. Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.
4. Expenses related to assets that are not available to discharge the Department's liabilities are considered to be incurred on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross expenses. For example, these expenses include related transactions arising from the recording of the loans receivable, including the recording of the discount and the future amortization of the unamortized discount component.

(g) Employee future benefits

1. Pension benefits: Eligible Canada-Based Staff (CBS) participate in the Public Service Pension Plan, a multiemployer  pension 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. 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.  Eligible Locally-Engaged Staff (LES), who are employees hired at Missions abroad, participate in a combination of plans developed and administered based on local laws and practice, or in a worldwide pension scheme, which is administered by the Department. As the Government of Canada is the sponsor of LES pension plans, the funds for the contributions have been provided to the Department (Vote 15).
2. Severance benefits: Employees (both CBS and LES) who are entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by CBS 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 severance obligation is established on the basis of operational requirements of the specific Mission, local laws or practice, and is calculated based on the number of eligible employees multiplied by the estimated value of the severance payment based on historical experience.

(h) Accounts receivable and advances

Accounts receivable and advances are stated at the lower of cost and net recoverable value.  An allowance for doubtful accounts is recorded for accounts receivable where recovery is considered uncertain.

Accounts receivable and advances that are not available to discharge the Department's liabilities are considered to be held on behalf of the Government of Canada.

(i) Loans receivable

Loans to developing countries and IFI for international development assistance and transfer payments recoverable are 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. The discount determined at the date of the issuance is amortized to revenue using a straight-line amortization. Any interest or service fees revenue is recognized with the passage of time and according to the terms of the loan agreement. However, when specific loan balances are deemed uncollectible, interest and service fees revenue cease to be accrued on these loans.

An allowance for valuation is further used to reduce the carrying value of the loans to amounts that approximate their net realizable value. 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 debtors.

Any loans written off or forgiven are presented as an expense in the Statement of Operations and Departmental Net Financial Position, under Transfer payments, in the fiscal year during which the required Parliamentary authority is obtained and the Government of Canada writes off or forgives the loan amounts owing to the Department. Should subsequent recoveries arise, they are presented as a revenue in the Statement of Operations and Departmental Net Financial Position, in the fiscal year during which the monies are received.

Loans receivable are not available to discharge the Department's liabilities and therefore considered to be held on behalf of the Government of Canada.

(j) Investments and advances to International Financial Institutions (IFI)

Investments and advances to IFI are recorded at cost.

Investments consist of subscriptions to the share capital of a number of IFI and are composed of both paid-in and callable capital. Subscriptions to international organizations do not provide a return on investment, but are repayable on termination of the organization or upon the Department’s withdrawal from the organization. Paid-in capital is made through a combination of cash payments and the issuance of non-interest bearing, non-negotiable notes payable to the organization. Callable share capital is composed of resources that are not paid to the banks but act as a guarantee to allow them to borrow on international capital markets to finance their lending program.

Advances are issued to IFI that use these funds to issue loans to developing countries at concessionary terms.

For these investments and advances to IFI, an allowance is established based on their estimated realizable value.

Investments and advances to IFI and related allowance are not available to discharge the Department's liabilities and are therefore considered to be held on behalf of the Government of Canada.

(k) Canada Investment Fund for Africa (CIFA)

The Canada Investment Fund for Africa (CIFA) is designed to provide risk capital for private investments in Africa that generate growth. The CIFA is presented at cost.

The investment period ended on January 2009. Returns on investment generated by the CIFA are recorded as revenues while the return of capital and applicable management fees are capitalized in the investment. An allowance was established based on the estimated realizable value of the fund.

CIFA is not available to discharge the Department's liabilities and is therefore considered to be held on behalf of the Government of Canada.

(l) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(m) Prepaid expenses

Prepaid expenses for the Department consist primarily of rent payments. Prepaid expenses are accounted for as non-financial assets until the related services are rendered, goods are consumed, or terms of the contractual agreement are fulfilled.

(n) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are included in either Expenses or Revenues in the Statement of Operations and Departmental Net Financial Position (and in Note 15), depending on whether the net result is a loss or gain.

(o) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost per unit 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.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset 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.

(p) Measurement uncertainty

The preparation of these financial statements requires management (or the Government) 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 future benefits, the allowance for loans, the allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis.

The differences are reconciled in the following tables:

Parliamentary authorities provided are reconciled to Parliamentary authorities 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 payable and accrued liabilities

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

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013.  As a result, the Department has recorded at March 31, 2015, an obligation for termination benefits for an amount of $481,795 ($1,016,000 in 2013-2014) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

(a) Pension benefits

The Department's Canada-Based Staff (CBS) participate in the public service pension plan (the "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 Plan benefits and they are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups - Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013.  Each group has a distinct contribution rate.

The 2014-2015 expense amounts to $75,708,267 ($77,768,314 in 2013-2014). For Group 1 members, the expense represents approximately 1.41 times (1.6 times in 2013-2014) the employee contributions and, for Group 2 members, approximately 1.39 times (1.5 times in 2013-2014) the employee contributions.

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.

For Locally-Engaged Staff (LES), the Government of Canada participates  in local social security programs where possible. Where Canada does not participate in a local social security system providing pension benefits, or Canada participates in the local system  and in addition, employer-sponsored  supplemental pension plans are typically provided in the country, the Government of Canada provides supplemental pension benefits through a combination of local separate pension plans developed and administered based on local law and practice, or through the Pension Scheme for Employees of the Government of Canada, LES which is administered by the Department. Local separate pension plans are pre-funded and are provided on defined benefit or defined contribution basis. The Pension Scheme is a defined benefit plan provided on a pay-as-you-go basis. The Department is responsible  for the expenses related to LES social security and pension via Vote 15 (contributions to social security and separate pension plans and benefits from the Pension Scheme). The 2014-2015 employer contributions were $35,419,210 ($52,363,905 in 2013-2014). The Department’s responsibility with regard to the Plan is limited to its contributions. The Government of Canada, the Plan's sponsor, is responsible for surpluses or deficiencies.

(b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. The severance benefit liability for CBS is based on a percentage provided by Treasury Board of Canada Secretariat (TBS), applied to the eligible payroll as at March 31. TBS determines the percentages  based on an actuarial evaluation of the future liability for the government's  eligible  employees. As part of collective agreement negotiations with all employee groups, and changes to conditions of employment for executives and certain non-represented  employees, the accumulation of severance benefits under the employee severance pay program has ceased for these employees commencing in 2012. Employees subject to these changes were given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

For LES, the estimated future cash flow for severance benefits is based on an average severance payment determined from experience. This average severance payment is multiplied by a percentage to reflect the notion that not all LES receive a severance at end-of-service. Finally, this amount is multiplied by the total number of LES. These future severance benefits are not pre-funded so benefits will be paid from future authorities.

Information about the severance benefits, measured as at March 31, is as follows:

CBS severance benefit liability amounts to $41,104,222, whereas the LES liability is $77,369,000.

(c) Locally-Engaged Staff insurance benefits

The Department is responsible for the expenses (premiums to local insured plans and benefits from local self-insured plans) related to LES insurance benefits, which include medical, dental, disability and life insurance (via Vote 15). The 2014-2015 expense was $16,816,576 ($13,000,097 in 2013-2014).

6. Accounts receivable and advances

The following table presents details of the Department's accounts receivable and advances:

7. Loans receivable

The following table presents details of the Department’s loans and transfer payments recoverable to developing countries and IFI:

The grace period refers to interval from date of issuance of the loan to first repayment of loan principal.

Final repayment on Cuba loan was due in March 2005. In default of payment, the country has been in arrears since that date. No repayment is anticipated. The allowance for uncollectibility of loans is adjusted to reflect this situation.

The loan with the Philippines was issued in Canadian dollars. However, it is reimbursable in Philippine pesos, in equivalent Canadian dollar semi-annual instalments of $48,580 until September 2024. The instalments are converted to Philippine pesos using the foreign exchange rate in effect at the time of repayment.

In 2006-2007, the Government of Canada, as represented by the Department, entered into an agreement with the Government of Pakistan to forgive its outstanding $447,500,000 loan. In order to expire its debt obligation, the Government of Pakistan is required to make education sector investments over an estimated period of five years, that are equivalent to the current present value of its debt of $122,600,000. According to the agreement, Pakistan’s debt is to be written down proportionally by DFATD as the investments are made.  In 2014-2015, the Government of Pakistan invested in its education sector program. This investment permitted the Department to forgive $47,612,000 of the Government of Pakistan’s debt. Since 2009-2010, the Government of Pakistan's debt has been reduced by a total amount of $324,893,000.

Transfer payments recoverable relate to contributions made to outside parties which are repayable based on conditions specified in the contribution agreement that have come into being.

8. Investments and advances to IFI

The following table presents details of the Department’s investments and advances to IFI:

The allowance for valuation reduces the net realizable value of the investments and advances to IFI to zero, as it is not expected that the Department will recover these investments and advances in the future.

9. Canada Investment Fund for Africa

The Canada Investment Fund for Africa (CIFA) is a joint public-private sector initiative designed to provide risk capital for private investments in Africa that generate growth. The CIFA is a direct response to the New Partnership for Africa’s Development (NEPAD) and the G8 Africa Action Plan.  The main objectives of the CIFA are to optimize public-private investments in the Fund, to confer a beneficial development impact on Africa by way of increased foreign direct investments and to optimize the beneficial impact of the Fund’s activities on Canadian interests.

The Government of Canada is a limited partner in the CIFA and its commitment towards the Fund was subject to matching mechanism of other investors and was to be equal to the lesser of: (i) $100 million or (ii) the aggregated commitments of all other limited partners of the partnership. The investment period in the CIFA ended January 1, 2009.  From there on, and until the term of the partnership is reached on December 31, 2015, the Department will only receive income and returns of capital. Since its inception, the Department received capital reimbursement from CIFA amounting to $55,400,000 and investment income of $8,200,000.

The fair value of the CIFA has declined. An allowance of $40,600,000 is recorded to that effect.

The following table presents details of the CIFA:

10. Tangible capital assets

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 in order to carry out its transfer payment programs or when the services or goods are received. There are a significant number of small dollar value leases for residential and office building rentals abroad. Significant contractual obligations that can be reasonably estimated are summarized as follows:

12. Contingent liabilities

(a) Claims and litigation

The Department is involved in various legal actions in the ordinary course of business and also as a result of its role in administering the North American Free Trade Agreement (NAFTA) treaty. These claims include items where the amount of damages is specified, and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. Pending claims and legal proceedings for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $27,175,000 ($2,500,000 in 2013-2014) at March 31, 2015.

An allowance for claims and litigation is established when it becomes likely that the Department is liable and it will incur an expense and the amount can be reasonably estimated. In management's opinion, the ultimate disposition of these actions, individually or in the aggregate, will not have a material adverse affect on the financial condition of the Department.

(b) Callable share capital

The Department is liable for callable share capital in certain international organizations that could require future payments to those organizations. Callable share capital is composed of resources that are not paid to the organizations but act as a guarantee to allow them to borrow on international capital markets to finance their lending program. Callable share capital would only be utilized in extreme circumstances to repay unrecoverable loans, should the organization's reserves not be sufficient. Callable share capital has never been drawn on by the organizations. For this reason, despite the difficult international economic environment, these contingent liabilities represent no additional risk to the Department. As at March 31, 2015, the callable share capital is valued at $21.0 billion and no provision was recorded for this amount.

Also, different methods are used by the Department and by the Asian Development Bank (ADB) to calculate the value of the Department’s callable shares for disclosure as a contingent liability. The Department uses the US foreign exchange rate at the time of the investments and revalues its shares at the end of every fiscal year using the year-end US exchange rate. On the basis of this method, the Department's valuation of its ADB callable shares is $8,059,851,554 as at March 31, 2015. However, ADB decided to use the Special Drawing Right (SDR) for purposes of denominating its capital in lieu of the US dollar. The value of the SDR against the US and Canadian dollar exchange rates at the time of inception was used to establish the par value of SDR. This par value of the Department's callable shares is then translated using the latest exchange rate of SDR against the US and Canadian dollar exchange rates. Valuation of these callable shares on this basis amounts to $9,229,017,789 representing a difference of $1,169,166,235 with the Department's own valuation as at March 31, 2015.

13. Related party transactions

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

(a) Common services provided without charge by other government departments

During the year, the Department received services without charge from certain common service organizations related to accommodation, legal services, the employer’s contribution to the health and dental insurance plans and workers' compensation coverage. These services provided without charge have been recorded in the Department’s Statement of Operations and Departmental Net Financial Position as follows:

The Government has centralized some of its administrative  activities to enhance the efficiency and cost-effectiveness delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada, and audit services provided by the Office of the Auditor General are not included in the Department’s Statement of Operations and Departmental Net Financial Position.

(b) Management and administration of Common Services

In accordance  with the Treasury Board Common Service Policy (February 1997), and the Department of Foreign Affairs, Trade and Development Act, S.C. 2013, c. E-33, s. 174., 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.

Memoranda of Understanding (MOUs) are in force to cover the roles and responsibilities of the Department, 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 (the Generic MOU) was standardized and signed in February 2009.

In the fiscal year ended March 31, 2015, expenses related to changes made to partner departments’ representation abroad are reflected in the Financial Statements of the Department. Authorities for the Department are adjusted via the Annual Reference Level Updates (ARLU) and 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 the Department’s missions abroad.

In the fiscal year ended March 31, 2015, this activity amounted to approximately $25,788,523 ($31,110,119 in 2013-2014) of in-year funds received via the Specified Purpose Accounts and Net-Voted Revenues.

(c) Administration of programs on behalf of other government departments

The Department has a number of MOUs with partner departments for the administration of unique, in-year programs delivered abroad. The Department issued approximately $52,000,000 ($58,000,000 in 2013-2014) in payments for operational and program activities on behalf of several partner departments. The Department also collected approximately $169,000,000 ($184,000,000 in 2013-2014) in revenues on behalf of Citizenship and Immigration Canada. These expenses and the revenues are not reflected in these Financial Statements, but rather in the Financial Statements of the respective government departments.

(d) Other transactions with related parties

Expenses and revenues disclosed in (d) exclude common services provided without charge, which are already disclosed in (a).

14. Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-2015. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Department. However, it did result in the use of additional spending authorities by the Department. Prior to year end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Works and Government Services Canada, who is responsible for the administration of the Government pay system.

15. Segmented information

Presentation by segment is based on the Department's Strategic Outcomes and Programs as presented in Note 1. 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 programs, by major object of expenses and by major type of revenues. The segmented results for the period are as follows:

Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting - Fiscal Year 2014-15

1.0 Introduction

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

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

2.0 Departmental System of Internal Control over Financial Reporting

2.1 Internal Control Management

In support of the Policy on Internal Control, an effective system of ICFR has the objective to provide reasonable assurance that:

• Transactions are appropriately authorized;
• Financial records are properly maintained;
• Assets are safeguarded; and
• Applicable laws, regulations and policies are followed.

A fully assessed system of ICFR requires DFATD to document the processes that are significant to the compilation of the financial statements, identify the key controls and then test those controls for design and operating effectiveness.

DFATD has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Head, is in place and includes:

• Organizational accountability structures as they relate to internal control management, including the roles and responsibilities of senior managers for control management;
• DFATD’s ICFR assessment approach and methodology;
• External and internal reporting responsibilities including engagement with senior management and the Departmental Audit Committee (DAC).

The Department’s control environment also includes:

• A departmental Values and Ethics Code and a Code of Conduct for Canadian Representatives Abroad.
• Six governance committees ensure that senior managers across DFATD share the responsibility for managing and integrating the department’s policies, programs and resources at headquarters, in our regional offices and across Canada’s network of missions abroad. The senior committee is the Executive Board to which DFATD’s five other governance committees report. 
• A DAC which provides advice to the Deputy Minister(s) on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.
• A dedicated unit under the CFO to conduct risk-based assessments of the system of ICFR.
• A multi-year risk-based audit plan, reviewed by the DAC and approved by the Deputy Minister.
• Senior managers' performance agreements with clear commitments to sound financial management.
• Intranet based communication tools for policy instruments and procedures.
• Mandatory training for financial officers.

2.2 Service Arrangements relevant to Financial Statements

Common Arrangements

DFATD relies on other government departments for the processing of many of the transactions that are recorded in its financial statements:

• Public Works and Government Services Canada centrally administers the payments of Canada based salaries and the procurement of goods and services in accordance with the departmental Delegation of Authority, and provides accommodation services;
• The Treasury Board of Canada Secretariat provides DFATD with information used to calculate various accruals and allowances, such as the accrued severance liability;
• The Department of Justice provides legal services to DFATD; and
• Shared Services Canada provides information technology (IT) infrastructure services in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and DFATD.

Specific Arrangements:

• In accordance with the Treasury Board Common Services Policy and with the Department of Foreign Affairs, Trade and Development Act, DFATD is mandated to manage the procurement of goods, services and real property when required for diplomatic and consular purposes. Partner departments provide DFATD with agreed levels of funding for the delivery of common services. The costs associated with delivering these common services are included in DFATD’s expenses.
• DFATD is also responsible for managing the payment of program-specific expenditures and the collection of program-specific revenues on behalf of partner departments. These revenues and expenses flow back to the other departments and appear on their financial statements.
• DFATD provides Passport Canada with a SAP financial system platform to capture and report all financial transactions.

3.0 DFATD's Assessment Results during Fiscal Year 2014-15

During 2014-15, DFATD completed all design and operating effectiveness testing of the remaining key control areas, with the exception of the Transfer Payments – Development Programs process.

The following sections will summarize the significant findings of the internal control assessment activities undertaken during fiscal year 2014-15.

3.1 Design Effectiveness Testing of Key Controls

During 2014-15, DFATD re-documented and re-performed the design effectiveness testing of the Year-end Procedures and Financial Statement Preparation process, based on the first set of financial statements for the newly amalgamated department. Design effectiveness testing for all other processes was completed during previous fiscal years.

As a result of the design effectiveness testing, the department identified the following required remediation:

Year-end procedures and financial statement preparation

• More formalized review, reconciliation and approval procedures for the preparation of the departmental Financial Statements and Plates.

Remediation identified from departmental self-assessments is addressed through risk based management action plans prepared by the business process owners. Recommendations pertaining to the Year-End process have been incorporated into the 2014-15 year-end procedures.

Recommended remediation from the previous year’s (2013-14) testing is either complete (Transfer Payments – Development Programs), or substantially advanced (Capital Assets). Recommendations pertaining to the Foreign Service Directives management system are being implemented concurrent with the continued development of the system and are further addressed under operating effectiveness testing.

3.2 Operating Effectiveness Testing of Key Controls

During 2014-15, the Department completed operating effectiveness testing of five processes: Year-end procedures and financial statement preparation, Transfer payments – Other programs, Mission specific processes, Capital assets, and Foreign Service Directives.

As a result of the operating effectiveness testing, the department identified the following required remediation:

Year-end procedures and financial statement preparation

• Ensure the consistent application of review and sign-off procedures.

Transfer payments – Other programs

• A more consistent use of checklists to ensure the application of review and sign-off procedures.

• Ensure compliance with departmental delegation instruments.

Mission specific processes

• Ensure proper segregation of duties within the payment process and the Locally Engaged Staff (LES) payroll process.
• Ensure all capital assets are accurately reflected on the year-end certification document.

Capital assets

• Further elaboration of review procedures to ensure that all capital items are accurately reflected.
• Further elaboration of procedures for an annual count of IT assets.
• Ensure compliance with departmental delegation instruments.
• Stricter adherence to Treasury Board Accounting Standard 3.1 with respect to capital leases, future restoration costs and impairments.

Foreign Service Directives               

• Strengthen the FSD management system (the FSD Portal) application controls to ensure that duties are adequately segregated, access is restricted and data integrity is protected.
• Ensure adequate supporting documentation is provided for all payments and any exceptions are well documented.  This is in support of section 34 of the Financial Administration Act.
• Ensure that all payments made via the FSD Portal will be subject to either pre or post payment verification (section 33).
• Strengthen the process of recording and monitoring posting loans.

Remediation identified from departmental self-assessments is addressed through risk based management action plans prepared by the business process owners.

Recommended remediation from last year’s testing of the payments process, with respect to weaknesses in post payment verification, have not yet been addressed due to amalgamation challenges. 

3.3 Ongoing Monitoring of Key Controls

DFATD’s ongoing monitoring approach was further elaborated during 2014-15 and now includes the listing of key controls over significant risks that are planned to be reviewed on an annual basis. Ongoing monitoring of key controls will begin in 2015-16

4.0 DFATD's Progress and Action Plan

4.1 Progress during Fiscal year 2014-15

During 2014-15, DFATD continued to make progress in assessing and improving its key controls.

Below is a summary of the progress made by the Department based on the plans identified in the previous fiscal year’s Annex.

4.2 Action Plan

Building on progress to date, DFATD is positioned to implement its ongoing monitoring plan during 2015-16. This plan is based on a new Financial Statement Risk Assessment, updated for the amalgamated department. The plan envisions a triennial review of each process in conjunction with an annual assessment of key controls over significant risks. DFATD will also complete the operating effectiveness testing of the new Transfer Payment process.

The action plan for next fiscal year and subsequent fiscal years is shown in the following table.