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Financial Statements 2013-2014

Table of Contents

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2014, and all information contained in these statements rests with the management of the Department. These consolidated 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 consolidated financial statements. Some of the information in the consolidated 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 consolidated financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that consolidated 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, 2014 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 consolidated financial statements to the Deputy Ministers.

The Consolidated Financial Statements of the Department have not been audited.

Simon Kennedy
Deputy Minister of International Trade

Daniel Jean
Deputy Minister of Foreign Affairs

Nadir Patel
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Malcolm Brown
Deputy Minister of International Development

Ottawa, Canada
August 29, 2014

Table 1: Consolidated Statement of Financial Position (Unaudited)
As at March 31 (in thousands of dollars)20142013
Liabilities
Accounts payable and accrued liabilities (Note 4)1,129,940242,263
Vacation pay and compensatory leave32,65837,973
Deferred revenue130130
Employee future benefits (Note 5)134,713132,258
Total liabilities1,297,441412,624
Financial Assets
Due from the Consolidated Revenue Fund1,022,298156,369
Accounts receivable and advances (Note 6)96,93095,668
Loans receivable (Note 7)521,486-
Investments and advances to International Financial Institutions (IFI) (Note 8)7,572,845-
Allowance for valuation of investments and advances to IFI (Note 8)(7,572,845)-
Canada Investment Fund for Africa (Note 9)35,856-
Inventory held for resale-12,920
Total gross financial assets1,676,570264,957
Financial assets held on behalf of Government
Accounts receivable and advances (Note 6)(940)-
Loans receivable (Note 7)(521,486)-
Investments and advances to IFI (Note 8)(7,572,845)-
Allowance for valuation of investments and advances to IFI (Note 8)7,572,845-
Canada Investment Fund for Africa (Note 9)(35,856)-
Total financial assets held on behalf of Government(558,282)-
Total net financial assets1,118,288264,957
Departmental net debt179,153147,667
Non-Financial Assets
Prepaid expenses20,51519,847
Consumable inventory-4,042
Tangible capital assets (Note 10)1,323,1781,381,051
Total non-financial assets1,343,6931,404,940
Departmental net financial position1,164,5401,257,273

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

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

Simon Kennedy
Deputy Minister of International Trade

Daniel Jean
Deputy Minister of Foreign Affairs

Nadir Patel
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Malcolm Brown
Deputy Minister of International Development

Ottawa, Canada
August 29, 2014

Table 2: Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31 (in thousands of dollars)Planned Results* 201420142013
* Planned Results as per DFAIT's future-oriented financial statements.
** Operating results prior to the Order-in-Council date of the transferred operations of Passport Canada as a result of a government reorganization.
Expenses
Diplomacy and Advocacy940,150949,223953,502
Fragile States and Crisis-Affected Communities-857,455-
Global Engagement and Strategic Policy-720,626-
Governance, Strategic Direction and Common Service Delivery639,377672,547609,508
Low-Income Countries-611,534-
Middle-Income Countries-290,307-
Government of Canada Benefits210,107242,135219,730
Canadian Engagement for Development-197,877-
International Commerce166,898161,096162,483
International Policy Advice and Integration77,773100,57792,861
Consular Services and Emergency Management54,66558,49258,322
Internal Services179,333268,051182,500
Expenses incurred on behalf of Government-(131,501)-
Total Expenses2,268,3034,998,4192,278,906
Revenues
Sale of goods and services181,885172,213174,308
Gain on disposal of tangible capital assets (net)20,000566,862-
Foreign exchange net gain-52,864-
Amortization of discount on loans-14,399-
Other revenues-8,4439,924
Revenues earned on behalf of Government(146,900)(771,146)(140,803)
Total Revenues54,98543,63543,429
Net cost from continuing operations2,213,3184,954,7842,235,477
Transferred operations (Note 14)**
Expenses340,13494,917315,799
Revenues284,80670,961311,811
Net cost of transferred operations55,32823,9563,988
Net cost of operations before government funding and transfers2,268,6464,978,7402,239,465
Government funding and transfers
Net cash provided by Government2,288,5533,609,1662,439,856
Change in Due from Consolidated Revenue Fund(41,102)865,929(84,229)
Services provided without charge by other government departments (Note 13)72,79488,29079,793
Transfer of assets and liabilities from/to other government departments-322,622(4,577)
Net cost of operations after government funding and transfers(51,599)92,733(191,378)
Departmental net financial position - Beginning of year1,227,8231,257,2731,065,895
Departmental net financial position - End of year1,279,4221,164,5401,257,273

Segmented Information (Note 15)

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

Table 3: Consolidated Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31 (in thousands of dollars)Planned Results* 201420142013
* Planned Results as per DFAIT's future-oriented financial statements.
Net cost of operations after government funding and transfers(51,599)92,733(191,378)
Change due to tangible capital assets
Acquisition of tangible capital assets165,510132,206251,216
Amortization of tangible capital assets(111,036)(105,709)(89,891)
Proceeds from disposal of tangible capital assets(37,704)(573,089)(12,296)
Net (loss) gain on disposal of tangible capital assets - net20,000524,709(1,141)
Transfers to other government departments-(35,990)(347)
Total change due to tangible capital assets36,770(57,873)147,541
Change due to prepaid expenses5826685,664
Change due to consumable inventory(3,200)(4,042)1,002
Net increase (decrease) in departmental net debt(17,447)31,486(37,171)
Departmental Net Financial Position - Beginning of Year140,619147,667184,838
Departmental Net Financial Position - End of Year123,172179,153147,667

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

Table 4: Consolidated Statement of Cash Flow (Unaudited)
For the year ended March 31 (in thousands of dollars)20142013
Operating activities
Net cost of operations before government funding and transfers4,978,7402,239,465
Non-cash items:
Amortization of tangible capital assets(105,709)(89,891)
Services provided without charge by other government departments (Note 13)(88,290)(79,793)
Net gain (loss) on disposal of tangible capital assets524,709(1,141)
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances322(7,056)
Increase (decrease) in inventory held for re-sale(12,920)7,569
Increase in prepaid expenses6685,664
Increase (decrease) in consumable inventory(4,042)1,002
Decrease (increase) in accounts payable and accrued liabilities(887,677)88,175
Decrease in vacation pay and compensatory leave5,3152,315
Decrease (increase) in employee future benefits(2,455)30,397
Transfer to/from other government departments(358,612)4,230
Cash used in operating activities4,050,0492,200,936
Capital investing activities
Acquisitions of tangible capital assets (Note 10)132,206251,216
Proceeds from disposal of tangible capital assets(573,089)(12,296)
Cash used in capital investing activities(440,883)238,920
Net cash provided by Government of Canada3,609,1662,439,856

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

Notes to the Consolidated Financial Statements (Unaudited)

For the Year Ended March 31

1. Authority and objectives

The Department of Foreign Affairs, Trade and Development Canada (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 2013-2014 Report on Plans and Priorities (RPP) was based on the Department of Foreign Affairs and International Trade’s (DFAIT) and the Canadian International Development Agency's (CIDA) Program Alignment Architecture (PAA), as approved by Treasury Board (TB). Financial information in the 2013-2014 Departmental Performance Report (DPR) is reported on this basis. The PAA presents the Department’s four strategic outcomes. Strategic outcomes are supported by a cascading matrix of programs, sub-activities and sub-sub-activities, 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.

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

Strategic Outcome #3: International Development - Reduction in poverty for those living in countries in which the Department engages in international development.

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.

The internal services program activity 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 consolidated 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 Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated 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 Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Debt are the amounts reported in the future-oriented financial statements included in the 2013-2014 Report on Plans and Priorities. The future-oriented financial statements have been reclassified to conform to the current year presentation.

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

Export Development Canada (EDC), a federal Crown corporation named in Part I of Schedule III to the Financial Administration Act, is accountable for its affairs to Parliament through the Minister of International Trade. The Minister of International Trade, via a trust in the name of Her Majesty, is the sole shareholder of EDC. As the Department does not own the shares of EDC, this investment is not included within the Department’s Consolidated Financial Statements. In accordance with Government Accounting Policies, transactions between EDC and the Government of Canada are not recorded in the Department’s Consolidated Financial Statements.

The Department also makes payments on behalf of the Government of Canada to three Crown Corporations: the Canadian Commercial Corporation (CCC), the National Capital Commission (NCC), and the International Development and Research Centre (IDRC). As per the Treasury Board Accounting Standards (TBAS), these payments are not recorded in the Department's financial statements as the Department's DM is not accountable for the Crown corporations and these funds do not relate to the Department's activities. The Department is simply acting as a flow-through mechanism for administrative purposes so that the Crown Corporation can receive its Parliamentary authorities.

(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

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

(g) Employee future benefits

(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 consolidated 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) Inventory
Inventory consists of parts, materiels and supplies held for future program delivery and not intended for resale, as well as inventory for sale. Inventory is valued at the lower of cost (using the average cost method) 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 at year-end. Gains and losses resulting from foreign currency transactions are included in either Expenses or Revenues in the Consolidated Statement of Operations and Departmental Net Financial Position (and in Note 15), depending on if the net result is a loss or gain.

(p) 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:

Table 5: Amortization of tangible capital assets
Asset CategoriesAmortization Period
Buildings10 to 25 years
Works and infrastructure30 years
Machinery and equipment3 to 25 years
Informatics hardware3 to 15 years
Informatics software3 to 10 years
Vehicles5 to 10 years
Leasehold improvementsTerm of the lease or 25 years

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.

(q) Measurement uncertainty
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, 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 Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated 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:

Table 6: Reconciliation of net cost of operations to current year authorities used
(in thousands of dollars)20142013
Net cost of operations before government funding and transfers4,978,7402,239,465
Adjustments for items affecting net cost of operations but not affecting authorities:
Services provided without charge by other government departments(88,290)(79,793)
Amortization of tangible capital assets(105,709)(89,891)
Refund of prior years' expenditures22,8069,941
Decrease in accrued liabilities for workforce adjustment costs22,68413,900
Increase in accrued liability for Matching Fund program(22,717)-
Bad debt expense(9,281)(1,120)
Loss on disposal of tangible capital assets(45,174)(1,141)
Decrease in vacation pay and compensatory leave8,6162,315
Decrease in employee future benefits4,03230,397
Increase in advances to IFI230-
Increase in other accrued liabilities(276)-
Other adjustments-457
 4,765,6612,124,530
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets132,206251,216
Interdepartmental transactions1,0884,898
Debt forgiveness of loans on behalf of Government98,238-
Losses on foreign exchange-IFI on behalf of Government46,520-
Transfer payments to IFI on behalf of Government29,205-
Increase in prepaid expenses6515,664
Increase (decrease) in inventories(6,861)8,571
Gains on foreign exchange(1,570)-
Increase in accountable advances72-
Revenues held on behalf of Government affecting authorities67-
Current year authorities used5,065,2772,394,879
Table 7: Authorities provided and used
(in thousands of dollars)20142013
Authorities provided:
Vote 1 - Operating Expenditures1,529,0421,393,631
Vote 5 - Capital Expenditures212,622341,230
Vote 10 - Grants and Contributions3,256,638822,927
Vote 15 - Payments, in respect of pension, insurance and social security programs or other arrangements for LES65,38072,668
Vote 16c - Debt forgiveness8,306-
Statutory - Passport Canada13,578138,820
Other Statutory464,52591,631
 5,550,0912,860,907
Less:
Authorities available for future years173,543116,442
Lapsed authorities: Operating87,771123,371
Lapsed authorities: Capital72,70173,143
Lapsed authorities: Grants and Contributions150,783150,490
Lapsed authorities: Payments, in respect of pension, insurance and social security programs or other arrangements for LES162,582
 484,814466,028
Current year authorities used5,065,2772,394,879

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:

Table 8: Accounts payable and accrued liabilities
(in thousands of dollars)20142013
Accounts payable to external parties1,022,992129,058
Accounts payable to other government departments and agencies47,81633,722
Total accounts payable1,070,808162,780
Accrued liabilities59,13279,483
Total accounts payable and accrued liabilities1,129,940242,263

In Canada’s Economic Action Plan 2012 (Budget 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 as at March 31, 2014, an obligation for termination benefits for an amount of $1,016,000 ($23,700,000 in 2012-2013) 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 and Québec Pension Plans 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 the 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 2013-2014 expense amounts to $77,768,314 ($79,214,900 in 2012-2013). For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2012-2013) the employee contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2012-2013) 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, Locally Engaged 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 2013-2014 employer contributions were $52,363,905 ($58,270,000 in 2012-2013). 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 certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program 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:

Table 9: Employee future benefits - Severance benefits
(in thousands of dollars)20142013
Accrued benefit obligation, beginning of year132,258162,655
Transferred from CIDA, effective June 26, 2013 (Note 14)11,425-
Transferred to CIC and ESDC, effective July 2, 2013 (Note 14)(5,209)-
Subtotal138,474162,655
Expense for the year30,7126,954
Benefits paid during the year(34,473)(37,351)
Accrued benefit obligation, end of year134,713132,258

CBS severance benefit liability amounts to $57,244,000, whereas the LES liability is $77,469,000.

(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 2013-2014 expense was $13,000,097 ($11,817,000 in 2012-2013).

6. Accounts receivable and advances

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

Table 10: Accounts receivable and advances
(in thousands of dollars)20142013
Advances to Missions abroad38,61637,859
Employee advances
Posting advances20,69021,939
Other employee advances681609
Total employee advances21,37122,548
Receivables from other government departments and agencies16,74617,976
Receivables from external parties23,72018,944
Cash in transit6,1367,117
Other advances6,5866,586
Subtotal113,175111,030
Allowance for doubtful accounts on external receivables and advances(16,245)(15,362)
Gross accounts receivable and advances96,93095,668
Accounts receivable held on behalf of Government(940)-
Net accounts receivable and advances95,99095,668

7. Loans receivable

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

Table 11: Loans receivable
(in thousands of dollars)20142013
(a) 30-year term, 7-year grace period, unsecured, 3.0 percent interest per annum, with the agreed final repayment in March 2005:
Cuba9,547-
(b) 35-year term, 4-year grace period, unsecured, 5.0 percent interest per annum, semi-annual interest repayments with first
principal repayment due January 2017 and final repayment in July 2026:
Egypt44,996-
(c) 50-year term, 10-year grace period, unsecured, non-interest bearing, with final repayments between March 2015 and
September 2035:
African Development Bank844-
Algeria4,037-
Andean Development Corporation1,188-
Argentina65-
Bolivia339-
Central American Bank for Economic Integration268-
Chile392-
Colombia118-
Dominican Republic2,326-
Ecuador2,366-
Guatemala1,281-
Indonesia125,514-
Malaysia1,105-
Malta250-
Mexico10-
Morocco3,994-
Pakistan170,226-
Paraguay60-
Peru17-
Philippines1,063-
Sri Lanka58,197-
Thailand10,393-
Tunisia32,106-
(d) 50-year term, 13-year grace period, unsecured, non-interest bearing, with the final repayment in March 2023:
Algeria11,206-
 481,908-
Unamortized discount(294,097)-
 187,811-
Allowance for uncollectibility(77,758)-
Total – Loans to developing countries and IFI110,053-
(e) Transfer payments recoverable525,000-
Unamortized discount(113,567)-
Total – Transfer payments recoverable411,433-
Gross loans receivable521,486-
Loans receivable held on behalf of Government(521,486)-
Net loans receivable--

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 $132,600,000. According to the agreement, Pakistan’s debt is to be written down proportionally by Department as the investments are made. In 2013-2014 Government of Pakistan invested in its education sector program. This investment permitted the Department to forgive $89,932,000 of the Government of Pakistan’s debt. Since 2009-2010, the Government of Pakistan's debt has been reduced by a total amount of $277, 281,000.

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 (transferred from CIDA):

Table 12: Investments and advances to IFI
(in thousands of dollars)20142013
Investments
African Development Bank237,881-
Asian Development Bank314,701-
Caribbean Development Bank44,184-
Inter-American Development Bank243,939-
Inter-American Investment Corporation1,645-
 842,350-
Advances
African Development Fund2,549,333-
Asian Development Bank - Special27,027-
Asian Development Fund2,210,505-
Caribbean Development Bank - Agricultural Development Fund2,000-
Caribbean Development Bank - Commonwealth Caribbean Regional4,422-
Caribbean Development Bank - Special Development Fund302,554-
Global Environment Facility Trust Fund726,320-
Inter-American Development Bank - Fund for Special Operations358,511-
International Bank for Reconstruction and Development22,110-
International Fund for Agriculture Development366,884-
International Monetary Fund12,127-
Montreal Protocol Multilateral Fund99,394-
Multilateral Investment Fund49,308-
 6,730,495-
Investments and advances to IFI7,572,845-
Allowance for valuation(7,572,845)-
Net 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 March 31, 2015, the Department will only receive income and returns of capital. Since its inception, the Department received capital reimbursement from CIFA amounting to $34,000,000 and investment income of $6,800,000.

The fair value of the CIFA has declined. An allowance of $37 million is recorded to that effect.

The following table presents details of the CIFA:

Table 13: Canada Investment Fund for Africa
(in thousands of dollars)20142013
CIFA opening balance--
Transferred from CIDA, effective June 26, 201373,024-
Returns of capital(878)-
Capitalized management fees710-
 72,856-
Allowance for valuation(37,000)-
Gross Canada Investment Fund for Africa35,856-
CIFA held on behalf of Government(35,856)-
Net Canada Investment Fund for Africa--

10. Tangible capital assets

Table 14: Tangible capital assets
(in thousands of dollars)Opening BalanceAcquisitionsAdjustments1Disposals & Write-offs2Closing Balance
1 Adjustments include assets under construction of $251,194 that were transferred to other asset categories upon completion of the assets and assets transferred to/from other government departments.
2 Includes the sale of a property in London (MacDonald House) with a net book value of $4,104, for proceeds of $561,859 resulting in a total gain on disposal of $557,755.
Cost
Land234,06752628,195(1,560)261,228
Buildings1,249,67817,505107,463(24,959)1,349,687
Works and infrastructure3,507117505-4,129
Machinery and equipment51,2962,856(18)(2,992)51,142
Informatic hardware21,492162(7,882)(9,968)3,804
Informatic software63,7389,68334,986(144)108,263
Vehicles52,6669,849171(5,357)57,329
Leasehold Improvements244,9842,980(10,271)(28,717)208,976
Assets under construction520,66388,528(264,507)(18,074)326,610
 2,442,091132,206(111,358)(91,771)2,371,168
Accumulated amortization
Buildings782,04655,735-(15,439)822,342
Works and infrastructure325135-8468
Machinery and equipment38,3592,627(474)(3,699)36,813
Informatic hardware19,194503(6,253)(10,144)3,300
Informatic software44,08611,984(10,190)(145)45,735
Vehicles28,4495,291150(5,075)28,815
Leasehold Improvements148,58129,434(58,601)(8,897)110,517
 1,061,040105,709(75,368)(43,391)1,047,990
Net book value2013   2014
Land234,067   261,228
Buildings467,632   527,345
Works and infrastructure3,182   3,661
Machinery and equipment12,937   14,329
Informatic hardware2,298   504
Informatic software19,652   62,528
Vehicles24,217   28,514
Leasehold Improvements96,403   98,459
Assets under construction520,663   326,610
 1,381,051   1,323,178

Effective June 26, 2013, the Canadian International Development Agency (CIDA) transferred tangible capital assets with a net book value of $6,816,000 to the Department. This transfer is included in the adjustment column. Refer to note 14 for further details on the transfer from CIDA.

Effective July 2, 2013, the Department transferred tangible capital assets of Passport Canada with a net book value of $42,742,000 to Citizenship and Immigration Canada (CIC) and Employment and Social Development Canada (ESDC). These transfers are included in the adjustment column. Refer to note 14 for further details on the transfers to CIC and ESDC.

The Department also transferred tangible capital assets with a net book value of $64,000 to/from other government departments. These transfers are included in the adjustment column.

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:

Table 15: Contractual obligations
(in thousands of dollars)20152016201720182019 and thereafterTotal
Chancery Lease in Moscow4,6004,7004,8004,800149,200168,100
Chancery Lease in Hong Kong1,9751,9751,9751,97510,75018,650
Chancery Lease in Madrid1,6001,8001,8601,9256,34213,527
Chancery Annex Lease in Hong Kong2,1702,1702,1702,17010,31018,990
Chancery Lease in Dublin55055055055012,50014,700
Chancery Lease in New York3,1003,1003,1001,520-10,820
Chancery Lease in Sao Paulo3,2003,5002,600--9,300
Transfer payments1,364,659878,051526,485253,86048,3393,071,394
Encashment of notes by IFI163,176110,67664,405--338,257
 1,545,0301,006,522607,945266,800237,4413,663,738

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 $2,500,000 ($0 in 2012-2013) at March 31, 2014.

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, 2014, the callable share capital is valued at $19.6 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 $7,031,158,909 as at March 31, 2014. 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 $9,011,533,662 representing a difference of $1,980,374,753 with the Department's own valuation as at March 31, 2014.

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 Consolidated Statement of Operations and Departmental Net Financial Position as follows:

Table 16: Related party transactions - Common services provided without charge by other government departments
(in thousands of dollars)20142013
Employer's contribution to the health and dental insurance plans51,25048,806
Accommodation35,70429,430
Legal services1,0301,242
Workers' compensation306315
 88,29079,793

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 Consolidated 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.

Memorandums 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, 2014, expenses related to changes made to partner departments’ representation abroad are reflected in the Consolidated 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, 2014, this activity amounted to approximately $31,110,119 ($23,615,187 in 2012-2013) 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 $58,000,000 ($89,000,000 in 2012-2013) in payments for operational and program activities on behalf of several partner departments. The Department also collected approximately $184,000,000 ($185,000,000 in 2012-2013) in revenues on behalf of Citizenship and Immigration Canada. These expenses and the revenues are not reflected in these Consolidated Financial Statements, but rather in the Financial Statements of the respective government departments.

(d) Other transactions with related parties

Table 17: Related party transactions - Other transactions with related parties
(in thousands of dollars)20142013
Revenues - other government departments and agencies9,84020,319
Expenses - other government departments and agencies257,881275,348

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

14. Transfers from/to other government departments

(a) Merger of the Canadian International Development Agency (CIDA) and the Department of Foreign Affairs and International Trade (DFAIT)

In Canada’s Economic Action Plan 2013, the Government announced its intention to amalgamate the DFAIT and the CIDA. The new Department, the Department of Foreign Affairs, Trade and Development (DFATD), continues to serve the same functions as those of previously served by DFAIT and CIDA.

Economic Action Plan 2013 Act, No. 1., the act that implemented the amalgamation, received Royal Assent on June 26, 2013. As a result of this amalgamation, the following assets and liabilities from CIDA were merged with those of DFAIT:

Table 18: Merger of the Canadian International Development Agency (CIDA) and the Department of Foreign Affairs and International Trade (DFAIT)
(in thousands of dollars) 
Assets
Accounts receivable and advances3,241
Loans receivable529,046
Investments and advances to IFI7,442,198
Allowance for valuation of investments and advances to IFI(7,442,198)
Canada Investment Fund for Africa45,024
Prepaid expenses572
Tangible capital assets (net book value) (Note 10)6,816
Total assets transferred584,699
Liabilities
Accounts payable and accrued liabilities218,745
Vacation pay and compensatory leave8,235
Employee future benefits (Note 5)11,425
Other liabilities605
Total liabilities transferred239,010
Adjustment to the departmental net financial position345,689

(b) Transfer of Passport Canada from the Department of Foreign Affairs, Trade and Development Canada (DFATD) to Citizenship and Immigration Canada (CIC) and Employment and Social Development Canada (ESDC).

Effective July 2, 2013, the Department transferred responsibility for Passport Canada to Citizenship and Immigration Canada (CIC) and Employment and Social Development Canada (ESDC) in accordance with Order-in -Council 2013-0540, including the stewardship responsibility for the assets and liabilities related to Passport Canada to CIC and ESDC on July 2, 2013:

Table 19: Transfer of Passport Canada from the Department of Foreign Affairs, Trade and Development Canada (DFATD) to Citizenship and Immigration Canada (CIC) and Employment and Social Development Canada (ESDC)
(in thousands of dollars) 
Assets
Accounts receivable8,552
Prepaid expenses863
Inventories13,053
Tangible capital assets (net book value) (Note 10)42,742
Total assets transferred65,210
Liabilities
Accounts payable and accrued liabilities31,806
Vacation pay and compensatory leave5,192
Employee future benefits (Note 5)5,209
Total liabilities transferred42,207
Adjustment to the departmental net financial position23,003

In addition, the 2013 comparative figures have been reclassified on the Statement of Operations and Departmental Net Finanical Position to present the revenues and expenses of the transferred operations.

During the transition period, the Department continued to administer the transferred activities on behalf of CIC and ESDC. The administered revenues and expenses amounted to $462,859,602 and to $268,849,585 respectively, for the year. These revenues and expenses are not recorded in these consolidated financial statements.

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:

Table 20: Segmented information
(in thousands of dollars)Canada's International AgendaInternational Services for CanadiansInternational DevelopmentCanada's International PlatformInternal ServicesTotal 2014Total 2013
International Policy Advice and Integration (PA # 1.1)Diplomacy and Advocacy (PA # 1.2)International Commerce (PA # 2.1)Consular Services and Emergency Management (PA # 2.2)Fragile States and Crisis-Affected Communities (PA # 3.1)Low-Income Countries (PA # 3.2)Middle-Income Countries (PA # 3.3)Global Engagement and Strategic Policy (PA # 3.4)Canadian Engagement for Development (PA # 3.5)Governance, Strategic Direction and Common Service Delivery (PA # 4.1)Government of Canada Benefits (PA # 4.2)Internal Services (PA # 5)
Transfer payments
Other countries and international organizations12,038456,721-----1,830----470,589403,818
Non-profit organizations1,042185,0059,106---------195,153244,617
Other levels of government in Canada-13,067----------13,06712,789
International Development Assistance-1,537--850,591573,734277,640654,742189,016---2,547,2605,283
Individuals-1,560--------120-1,6803,994
Industry-7361,956---------2,6922,015
Refund of prior years' transfer payments(37)(1,831)(33)-(3,631)(2,517)(1,219)(2,433)(829)---(12,530)(3,831)
Transfer payments incurred on behalf of Government------(1,830)(83,151)----(84,981)-
Total transfer payments13,043656,79511,029-846,960571,217274,591570,988188,187-120-3,132,930668,685
Operating expenses
Salaries and employee benefits71,971170,134115,35438,2939,14926,61411,76217,1058,479209,469185,544201,1851,065,059929,920
Professional and special services6,93888,52120,33015,0633431,03557846026452,20914,73914,896215,376194,314
Rentals3,34912,9695,9822,1285031,485644924468159,4145,53719,267212,670198,540
Transportation1,63010,6263,9111,3044822,0828281,01734435,66235,8987,885101,669104,311
Amortization of tangible capital assets31315661------96,997-5,662103,18978,312
Acquisition of machinery and equipment, including parts and consumables2,4443,9861,54595562114929,0971368,96027,17524,829
Utilities, materials and supplies2942,16472725951194451136,866522,72343,56639,947
Repair and maintenance50812243835--2-23,351153,35127,91225,100
Information2481,6011,4381501122513,654461,9069,0649,557
Bad debt-----9,034--7713-1579,2811,120
Telecommunications221404618-116-150042521,0001,052
Loss on disposal of tangible capital assets1125622------40,845-1,21542,250812
Foreign exchange loss13797631512411246,520-3,0223743551,57020
Other2628793115-1141-431,44871572,2282,387
Expenses incurred on behalf of Government-------(46,520)----(46,520)-
Total operating expenses87,534292,428150,06758,49210,49540,31713,88619,9679,690672,547242,015268,0511,865,4891,610,221
Total expenses100,577949,223161,09658,492857,455611,534288,477590,955197,877672,547242,135268,0514,998,4192,278,906
Revenues
Sale of goods and services-3,4572,832103,788-----62,136--172,213174,308
Gain on disposal of tangible capital assets2,0411,020397------541,181-22,223566,862-
Foreign exchange gain1731,234402157---46,520-3,7903855052,864-
Amortization of discount on loans-----1310,2054,181----14,399-
Other revenues291124413285871,7311,189194,46232268,4439,924
Revenues earned on behalf of Government(2,243)(2,366)(3,675)(100,921)(28)(600)(11,936)(51,890)(19)(574,428)(41)(22,999)(771,146)(140,803)
Total revenues-3,457-3,037-----37,141--43,63543,429
Net cost from continuing operations100,577945,766161,09655,455857,455611,534288,477590,955197,877635,406242,135268,0514,954,7842,235,477

16. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting Fiscal Year 2013-2014

1. 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. 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:

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:

The DAC provides advice to the Deputy Head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service Arrangements relevant to 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:

Specific Arrangements:

3. DFATD's Assessment Results during Fiscal Year 2013-14

During 2013-14, DFATD completed all design effectiveness testing including the introduction of the Mission Inventory of Risks and Key Controls. Operating effectiveness testing is progressing according to the previous year’s commitments and the ongoing monitoring approach has been developed.

The following section will summarize the significant findings of the internal control assessment activities undertaken during Fiscal year 2013-14.

3.1 Design Effectiveness Testing of Key Controls

During 2013-14, DFATD completed the design effectiveness of three business processes: Foreign Service Directives (FSDs), Capital Assets, and Transfer Payments for the former CIDA.

In addition, DFATD developed and distributed the Mission Inventory of Risks and Key Controls which is a list of controls that missions are expected to have in place in order to demonstrate that they have an effectively designed system of internal control. This “toolkit” will support Heads of Mission in discharging their responsibilities as outlined in the Framework for the Management of Internal Control over Financial Reporting.

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

Foreign Service Directives (FSDs)

Transfer Payments (former CIDA)

Capital Assets

3.2 Operating Effectiveness Testing of Key Controls

During 2013-14, the Department completed operating effectiveness testing of three processes: Entity Level Controls (ELCs), Payments at HQ, and Revenues.

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

Entity Level Controls (ELCs)

Revenues

Payments at Headquarters

Remediation identified from departmental self-assessments is addressed through risk based management action plans prepared by the business process owners. Recommended remediation has been completed for ELCs and revenues, and is substantially advanced for payment application controls.

3.3 On-going Monitoring of Key Controls

DFATD plans to complete the overall assessment of its system of internal control over financial reporting by the end of fiscal year 2014-15. On-going monitoring of key controls is scheduled to begin in 2015-16.

3.4 Concurrent Activities to strengthen DFATD’s Internal Controls over Financial Reporting

In addition to the assessment activities identified in the previous section, DFATD is also working on a variety of initiatives designed to strengthen financial processes and associated controls through standardized solutions. These initiatives include:

4. DFATD's Progress and Action Plan

4.1 Progress during Fiscal year 2013-14

During 2013-14, 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.

Element in previous year’s action plan: Develop a departmental Internal Control Management Framework to be approved by the Deputy Head.

Status: The Framework was developed, approved by the Deputy Minister and communicated to senior management.

Element in previous year’s action plan: Reassess DFAIT and CIDA’s future year commitments and develop a new departmental Policy on Internal Control approach reflecting the combined departments (DFATD).

Status: Financial processes for former DFAIT and former CIDA were reviewed and a new list of processes was developed for DFATD. This new list is reflected in section 4.2.

Element in previous year’s action plan: Develop an internal control monitoring strategy for DFATD.

Status: Based on the new list of processes, an on-going monitoring strategy was developed.

Element in previous year’s action plan: HQ Payments Process: Perform Operating Effectiveness testing of both manual and automated controls.

Status: Operating effectiveness testing was completed for both manual and automated controls.

Element in previous year’s action plan: Capital Asset Management Process: Update documentation, perform the design effectiveness testing and begin the testing of the operating effectiveness of controls related to the capital assets process at headquarters.

Status: Design effectiveness testing of Capital Assets was completed and Operating Effectiveness testing will begin in 2014-15 once the Design Effectiveness weaknesses have been addressed.

Element in previous year’s action plan: Foreign Service Directives Process: Complete the documentation and perform design effectiveness testing of controls.

Status: Both the documentation of the process and the design effectiveness testing of controls were completed.

Element in previous year’s action plan: Budgeting and Forecasting Process: Document the budgeting and forecasting process (including the role of the FMA).

Status: Budgeting and Forecasting will not be documented during the initial assessment of Internal Controls over Financial Reporting, however those direct and precise controls inherent to the process will be addressed as part of Entity Level Controls. Specific Entity Level Controls that will be monitored include: 1) procedures are in place to provide managers with accurate and timely financial information, 2) entity-wide operating results are reviewed and compared against budgets and 3) budgets and forecasts are updated during the year to reflect changing conditions.

Element in previous year’s action plan: Revenue Process: Perform the operating effectiveness testing of revenue controls.

Status: Operating effectiveness testing of controls was completed.

Element in previous year’s action plan: Mission Specific Processes: As identified in the Policy on Internal Control Methodology for Missions Abroad, the inventory of risks and related key controls will be validated and rolled out to all missions.

Status: The inventory of risks and related key controls for all six mission specific processes were validated and rolled out to all missions.

4.2 Action Plan

Building on progress to date, DFATD is positioned to complete the full assessment of its system of internal control over financial reporting by the end of 2014-15. At that point the department will be able to apply its rotational ongoing monitoring plan. This plan will be further elaborated during 2014-15 to reconfirm control areas within the newly amalgamated department based on the new department’s first set of financial statements.

The Department will also perform a mission financial analysis in order to prioritize individual mission significance, by process. Operating effectiveness testing of mission key controls will begin during 2014-15 based on this analysis.

The status and action plan for the completion of the identified control areas for the next fiscal year and for subsequent years are shown in the following table.

4.2.1 Assessment and monitoring plan for 2014-15 and subsequent years:
Business Process - Entity-level controls (ELCs)

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2015-16

Business Process - Information technology general controls (ITGCs)

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2016-17

Business Process - Transfer Payments Development Programs

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2017-18

Business Process - Transfer Payments Other Programs

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2017-18

Business Process - Salaries and benefits

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2016-17

Business Process - Capital assets at HQ

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2017-18

Business Process - Payments at HQ

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2016-17

Business Process - Loans to developing countries and International Financial Institutions

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2015-16

Business Process - Investments and advances to International Financial Institutions

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2015-16

Business Process - Foreign Service Directives

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2017-18

Business Process - Revenues

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: Complete

Monitoring Rotation to begin: 2015-16

Business Process - Year End Procedures and Financial Statement Preparation

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2017-18

Business Process - Mission Specific Processes

Document: Complete

Design Effectiveness: Complete

Operating Effectiveness: 2014-15

Monitoring Rotation to begin: 2015-16

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