Financial Statements 2021-2022

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, 2022, and all information contained in these statements, rests with management of Global Affairs Canada. These financial statements have been prepared by management using the Government of Canada's accounting policies, which are based on Canadian public sector accounting standards.

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 Results 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. This is accomplished through organizational arrangements that provide appropriate divisions of responsibility, communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the department and 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, 2022 was completed in accordance with the Treasury Board Policy on Financial Management 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 work of internal audit staff, who conduct periodic audits of different areas of the department's operations, and by the Departmental Audit Committee (DAC), which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting. The DAC confirms their support of the financial statements to the Deputy Minister of Foreign Affairs.

The financial statements of the department have not been audited.

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette, CPA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
August 26, 2022

Statement of Financial Position  (Unaudited)

As at March 31

Contractual obligations (note 11)
Contingent liabilities and contingent assets (note 12)
The accompanying notes form an integral part of the financial statements.

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette, CPA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
August 26, 2022

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the year ended March 31

Segmented information (note 14)
The accompanying notes form an integral part of the financial statements.
* Planned Results as per GAC's future-oriented statement of operations.

Statement of Change in Departmental Net Debt (Unaudited)

For the year ended March 31

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

Statement of Cash Flow (Unaudited)

For the year ended March 31

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

Global Affairs 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 2022 Departmental Plan was based on the department’s Departmental Results Framework (DRF), as approved by Treasury Board. The DRF presents the department’s core responsibilities, which are supported by program inventories, each of which has associated expected results and result indicators.

The core business of the department is currently organized around the following core responsibilities:

International Advocacy and Diplomacy – The department promotes Canada’s interests and values through policy development, diplomacy, advocacy, and effective engagement.

The department will continue to focus its advocacy and diplomacy efforts on fostering and upholding human rights, democracy and international law; promoting nature, biodiversity, climate action and ocean health; and supporting sustainable and inclusive growth and lasting peace and security. Through support for a renewed rules-based international system and reinvigorated multilateralism, Canada’s feminist foreign policy will help shape a world that is better able to confront collective challenges, including those posed by authoritarianism and increased geopolitical competition. Canada will also work with its international partners to advance action on common global goals, including the United Nations (UN) 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), the Women, Peace and Security agenda, and international efforts to address the COVID-19 pandemic and its impacts.

Trade and Investment – The department supports increased and more diverse trade and investment to raise the standard of living for all Canadians and to enable Canadian businesses to grow internationally and to create economic opportunities.

To ensure that Canadian businesses are able to contribute their ingenuity and value to the global marketplace, the department will continue work to strengthen international trade structures, support the modernization of critical trade institutions and helps exporters adapt and thrive in international digital marketplaces and the wider knowledge-based economy. The COVID-19 pandemic has shown how interconnected the world is, as closed borders and limited travel have had a major impact on the flow of goods, capital and people, and consequently on the ability of countries to respond to the pandemic. To strengthen our commercial relationships, the department will focus on finding common ground with existing and emerging trading partners, resolving irritants, honouring commitments and opening up new markets. All while aiming to support Canadians, including small businesses, women entrepreneurs and Indigenous peoples, through the recovery and thus enabling them to fully share in the benefits of international trade, investment and innovation.

Development, Peace and Security Programming – The department programming contributes to reducing poverty, increasing opportunity for people around the world, alleviating suffering in humanitarian crises, and fostering peace and security, and in so doing, advances the SDGs.

Canada will continue to prioritize implementation of its Feminist International Assistance Policy which aims to contribute to building a more peaceful, inclusive and prosperous world, predicated on the conviction that gender equality and the empowerment of women and girls – both at home and abroad – is the best way to achieve this goal. The department will continue to support Canada’s developing country partners in their efforts to tackle serious and pressing issues, including those related to climate change, poverty, poor governance, gender inequality, health, education, women’s economic empowerment and human rights. Canada’s human rights-based and intersectional feminist approach provides a solid framework for Canada’s efforts to meet the challenges of COVID-19 and address the disproportionate impact of the pandemic on marginalized groups and people in vulnerable situations. Efforts will continue to improve coherence in Canada’s humanitarian, development assistance and peace and stabilization programming.

Global efforts toward achieving progress on the UN 2030 Agenda and its 17 SDGs are at risk of being set back by a decade due to the pandemic. In line with advancing the whole-of-government, whole-of-society approach to sustainable development, the department will ensure that its policies and programs are progressive and responsive to the needs of vulnerable and marginalized populations, and will continue to do its part to accelerate progress toward the SDGs throughout the UN Decade of Action. To that end, the department will support developing countries in their sustainable economic recoveries and improve their resilience to respond to the current global crisis. It will also seek to mobilize new and innovative forms of financing, encouraging private capital to expand to emerging and frontier markets.

Help for Canadians Abroad – The department provides timely and appropriate consular services for Canadians abroad, contributing to their safety and security.

The unprecedented COVID-19 pandemic has called for an unprecedented response, including the largest peacetime repatriation operation in our history. This and other concurrent world events have highlighted the vital importance of the department’s consular services for millions of Canadians who travel, live and work abroad. The department remains strongly committed to providing responsive bilingual consular and emergency services in a complex and evolving international landscape. The department will continue to provide client-focused services to Canadians abroad, as committed to in our established consular service standards.

Support for Canada’s Presence Abroad – The department manages and delivers resources, infrastructure and services enabling Canada’s presence abroad, including at embassies, high commissions, and consulates.

Given the current global context, it has become increasingly crucial to ensure the effective and efficient operations of Canada’s robust and agile global network of missions, embassies, high commissions and consulates abroad. These missions are essential to serve Canadians, to support Canadian businesses to reach global markets, and to improve the lives of the poorest and people in vulnerable situations around the world. The department will deliver more robust security measures and efficient and cost effective common services and infrastructure to achieve and monitor progress against planned results.

Internal Services – Internal services are those groups of related activities and resources that the federal government considers services in support of programs and/or required to meet corporate obligations of the department. Internal services refers to the activities and resources of the 10 distinct services that support program delivery in the department. These services are: Management and Oversight Services, Communications Services, Legal Services, Human Resources Management Services, Financial Management Services, Information Management Services, Information Technology Services, Real Property Management Services, Material Management Services and Acquisition Management Services.

2. Summary of significant accounting policies

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

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 does not parallel financial reporting according to Canadian PSAS, 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 2022 Departmental Plan.

(b) 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 the Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.

(c) Amounts due from or to the CRF

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

(d) Revenues

i. Revenues are recorded in the period in which the underlying transaction or event that gave rise to the revenue takes place.

ii. Revenues that are non-respendable are not available to discharge the department’s liabilities. While the Deputy Minister is expected to maintain accounting control, the Deputy Minister has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are presented as a reduction of the department's gross revenues.

(e) Expenses

i.Expenses are recorded on an accrual basis.

ii.Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.

iii. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.

iv. 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.

v. 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 department's gross expenses.

(f) Employee future benefits

i. Pension benefits: Eligible Canada-based staff participate in the public service pension plan (the "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 department’s total 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, which is administered by the department.

ii. Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government of Canada 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.

(g) Accounts receivable and advances

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

Accounts receivable and advances that are not available to discharge the department's liabilities; therefore, they are reported as Financial assets held on behalf of Government of Canada.

(h) Loans receivable

Loans receivable are initially recorded at cost. Loans receivable with significant concessionary terms are partially considered as grants and are recorded on the date of issuance at face value, discounted by the amount of the concessionary terms (grant portion). The grant portion is recognized as an expense at the date of issuance of the loan receivable, while the resulting discount is amortized to revenue using the effective interest method.

An allowance for valuation is used to reduce the carrying value of loans receivable, when collectability and risk of loss exist, to the amount that approximates their net recoverable value. Any loans receivable written off are presented as an expense, when the formal debt deletion action has been approved. Should subsequent recoveries arise, they will be presented as a revenue, in the fiscal year during which the funds are received.

Interest revenue is recorded in the period earned.

Loans receivable are not available to discharge the department’s liabilities or issue new loans; therefore, they are reported as Financial assets held on behalf of the Government of Canada.

(i) Portfolio investments 

Investments are recorded at amortized cost less amounts written off to reflect a permanent decline in value. When the department does not expect the return of its capital in the future, allowances for non-recovery are established against the investments. Investment income is recorded as revenue when earnings are received in the form of a payment to the Receiver General for Canada.

Portfolio investments are not available to discharge the department’s liabilities; therefore, they are reported as Financial assets held on behalf of the Government of Canada.

(j) Tangible capital assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense on straight-line basis over the estimated useful lives of the assets, as detailed below.

Assets under construction are recorded in the applicable asset class in the year they are put into service and are not amortized until they are put into service. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include works of art, museum collection, Crown land to which no acquisition cost is attributable and intangible assets.

(k) 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.

(l) Contingent liabilities

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

(m) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future confirming event is likely to occur, the contingent asset is disclosed in the notes to the financial statements.

(n) Environmental liabilities

An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government’s best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government’s cost of borrowing, associated with the estimated number of years to complete remediation.

The recorded environmental liabilities are adjusted each year, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

If the likelihood of the department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

(o) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar 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 as at March 31st. Gains and losses resulting from foreign currency transactions are reported on the Statement of Operations and Departmental Net Financial Position.

(p) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the department's best estimate of the related amount at the end of the reporting period. The most significant items where estimates are used are contingent liabilities, employee future benefits, valuation allowance for loans and 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.

(q) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

i. Services provided or received on a recovery basis are recognized as revenues and expenses, respectively, on a gross basis and measured at the exchange amount.

ii. Certain services received on a without charge basis are recorded as expenses at the estimated cost of the services received.

3. Parliamentary authorities

(a) Reconciliation of net cost of operations to current year authorities used

The department’s net cost of operations before government funding and transfers in the Statement of Operations and the Departmental Net Financial Position is reconciled with the current-year authorities used by the department in the following table:

(b) Authorities provided and used

The department receives most of its funding through annual parliamentary authorities. The authorities provided to and used by the department are presented in the following table:

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 details of the department's accounts payable and accrued liabilities:

5. Environmental Liabilities

Remediation of contaminated sites

The Government's ''Federal approach to contaminated sites'' set out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried  the contaminated sites on federal lands that have been identified, allowing them to be classified, managed and recorded in a consistent  manner. This systematic approach aids in the identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to the environment and human health.

The department has identified a total of 3 sites (3 sites in 2021) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the department has identified 1 site (1 site in 2021) where action is required and for which a gross liability of $16,909 ($16,578 in 2021) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

In addition, there are approximately 17 unassessed sites (21 sites in 2021) that have not been assessed by environmental experts for which the department has estimated a liability of $0 ($0 in 2021).

These two estimates combined, totalling $16,909 ($16,578 in 2021), represents management’s best estimate of the costs required to remediate the sites to the current minimum standard for its use prior to contamination, based on information available at the financial statements date.

For the remaining 17 sites (21 sites in 2021), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, the department does not expect to give up any future economic benefits (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2022 and March 31, 2021. When the liability estimate is based on a future cash requirement and where material, the amount is adjusted for inflation using a forecast CPI rate of 2%. Inflation is included in the undiscounted amount. The Government of Canada lending rate applicable to loans with similar terms to maturity is to be used to discount the estimated future expenditures. The March 2022 rates range from 2.24% (0.24% in 2021) for 2 year term to 2.35% (2.01% in 2021) for a 30 or greater year term.

Nature and Source of the Liability

(1) Contamination associated with leaks/spills from fuel storage tanks.

6. 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 2022 expense amounts to $84.9 million ($91.6 million in 2021). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2021) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2021) 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 program and/or employer-sponsored supplemental pension plans are typically provided in the country, the Government of Canada will provide supplemental pension benefits. This is offered through separate local pension plans or through the Pension Scheme for Employees of the Government of Canada (the "Pension Scheme") for LES. Separate local pension plans are pre-funded and are provided on defined benefit or defined contribution basis, while the Pension Scheme is a defined benefit plan provided on a pay-as-you-go basis. The department is responsible for contributions to social security, separate local pension plans and to the Pension Scheme. Employer contributions were $59.9 million ($55.2 million in 2021).

(b) Severance benefits

Severance benefits provided to the department’s employees were previously based on an employee’s eligibility, years of service and salary at termination of employment. However, since 2011, the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2022, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

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. The LES future severance benefits are not pre-funded, so benefits will be paid from future authorities.

The changes in the obligations during the year were as follows :

CBS severance benefit liability amounts to $22.7 million ($25.2 million in 2021), whereas the LES liability is $131.0 million ($125.9 million in 2021).

(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 (Vote 15). Expenses total $20.3 million ($19.1 million in 2021).

7. Accounts receivable and advances

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

8. Loans receivable

The following table presents details of the department's loans receivable:

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

Unconditionally repayable contributions (URC) are, in most cases, entered into with Multilateral Development Banks (MDB) under two specific programs:

• International climate finance, which helps developing countries in mitigating the effects of and adapting to climate change; and
• International assistance innovation, which contributes in building markets to benefit the underserved, by creating conditions for better investmentsin developing countries.

The department's portfolio includes 7 fixed URC (5 in 2021), 10 reflow-based URC (9 in 2021) and 2 loans to international organizations (2 in 2021), which are all denominated in US dollars, except for one reflow-based URC valued at $38.9 million ($39.0 million in 2021). Total amount of loans receivable outstanding in US dollars, net of the valuation allowance, is:

• Fixed URCs = US$ 957 million (US$ 572 million in 2021)
• Reflow-based URCs = US$ 1,192 million (US$ 1,213 million in 2021)

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 loan of $447.5 million. In order to expire its debt obligation, the Government of Pakistan is required to make education sector investments, which are equivalent to the present value of its debt of $132.6 million. According to the agreement, Pakistan's debt is to be written down proportionally by the department as the investments are made. Since 2009-2010, the Government of Pakistan's debt has been reduced by a total amount of $427.3 million.

9. Portfolio investments and advances

The following table presents details of the department's portfolio investments and advances to International Financial Institutions (IFI) pursuant to International Development (Financial Institutions) Assistance Act:

(a) Investments

These consist of subscriptions to the share capital of a number of IFIs, which are composed of both paid-in and callable capital. Subscriptions do not provide a return on investment and are only repayable on termination of the IFIs or upon the department’s withdrawal from the IFIs.

Paid-in share capital is made through a combination of cash payments and the issuance of non-interest bearing, non-negotiable notes payable to the IFIs. Callable share capital is composed of resources that are not paid to the IFIs, but act as a guarantee to allow them to borrow on international capital markets to finance their lending program.

A valuation allowance is recorded, as the department does not expect the return of its capital in the future.

(b) Advances

These consist of advances issued to IFIs to enable them to issue loans to developing countries at concessionary terms. A valuation allowance is recorded, as the department does not expect the return of its capital in the future.

(c) Other investments

The LDN Catalytic 2 investment consists of a contribution to the Land Degradation Neutrality Fund, an investment fund initiated to support sustainable land management and restoration. The investment is denominated in US dollars and the total amount outstanding is US$ 41.5 million (US$ 41.5 million in 2021).

The Energy Access Relief Fund (EARF) investment consists of a contribution to EARF, which has been designed to provide up to 3.5 year tenure, subordinated, unsecured, and low-cost subsidized loans to companies that had viable business models prior to COVID-19 pandemic, but are now facing liquidity challenges. The investment is denominated in US dollars and the total amount outstanding is US$ 22.2 million.

The Government of Canada is a limited partner in the Canada Investment Fund for Africa, which is a joint public-private sector initiative designed to provide risk capital for private investments in Africa that generate growth. This initiative was finalized in 2021 and a write-off process was initiated by the department.

10. Tangible capital assets

(1) Adjustments include assets under construction transferred to other asset categories upon completion of the projects, assets transferred to and from other government departments, reclassifications of assets and post capitalizations.

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. The expected payments to be made under the department's significant contractual obligations, that can be reasonably estimated, are summarized by the year of payment as follows:

12. Contingent liabilities and contingent assets

(a) Claims and litigation

The department is involved in various legal actions in the ordinary course of business. Pending claims and legal proceedings for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $28.3 million as at March 31, 2022 ($28.0 million in 2021).

In management's opinion, the ultimate disposition of these actions, individually or in the aggregate, will not have a material adverse effect on the financial condition of the department.

(b) Contingent assets

Upon completion of a real estate exchange in Paris during the fiscal year 2018-2019, the Value Added Tax (VAT) component valued at 32 million EUR or $50 million CAD was not considered as recoverable and thus not accounted for by the department. Upon further review of the transaction, the department is confident that it would be able to recover at least 90% (29 million EUR or $45 million CAD) of the total estimated amount. This is contingent upon finalization of negotiations with the government of France as the latter is also claiming some reciprocal tax exemptions in Canada.

(c) Callable share capital

The department is liable for callable share capital in certain international organizations that could require future payments to these 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. In the event of the capital being called, the likelihood of which is low, payments to these organizations would be required. As at March 31, 2022, the callable share capital is valued at $25.5 billion ($25.7 billion in 2021) and no provision was recorded for this amount.

13. Related party transactions

The department is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include  individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

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

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. The services received without charge from other government departments have been recorded as expenses in the Statement of Operations and Departmental Net Financial Position as follows:

The Government of Canada 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 of Canada 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 Services and Procurement 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 (October 2006), 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.

Memorandum 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 the 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, an Interdepartmental Memorandum of Understanding on Operations and Support at missions Abroad (the Generic MOU) was signed in September 2014.

In the fiscal year ended March 31, 2022, 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 and Supplementary Estimates.ii. Common services provided to co-locators

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.

This activity amounted to approximately $40.7 million ($37.6 million in 2021) of in-year funds received via the 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 $27.9 million ($71.1 million in 2021) in payments for operational and program activities on behalf of several partner departments. The department also collected approximately $5.2 million ($7.0 million in 2021) in revenues on behalf of Immigration, Refugees and Citizenship 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 other government departments and agencies

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

(1) During the year, the department facilitated the transfer of medical equipment and medicines between the Public Health Agency of Canada and The Indian Red Cross Society for an amount of $217.6 million.

(2) The loan receivable has been restated in 2021 and is included under the Statement of Financial Position section in Note 15 (d).

14. Segmented information

Presentation by segment is based on the department's core responsibilities as presented in note 1. Segmented information is based on the same accounting policies described in the summary of significant accounting policies (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 segment results for the period are as follows:

15. Restatement

(a) Comparative information

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

(b) Accounting policy change

The department elected to revise its accounting policy for loans receivable, portfolio investments and other repayable contributions. The adoption of the revised accounting policy has been accounted for retrospectively.

The department previously accounted for the grant portion, the concessionary terms and the expected losses as the concessionality component (i.e. discount) of the loan or investment, which was then amortized over the life of the instrument. The department now accounts for these items separately, which better aligns with guidance outlined in PSAS and the Directive on Accounting Standards.

In addition, the department recorded concessionary terms as a discount, regardless of the significance of such concessionary terms in comparison to the loan face value or the investment cost. The department now only accounts for concessionary terms that are deemed significant (i.e. over 25% of the loan face value or the investment cost), which aligns with guidance in the Directive on Accounting Standards.

This change accounts for a cumulative increase in assets of $364.4 million on the comparative figures, which is summarized for specific line items in the table below.

(c) Prior period errors

The department did not take into account that repayments, for some loans and investments, are to be made in US dollars. As such, the department has not accounted for changes in foreign exchange upon receipt of repayments or as at the financial statement date. The correction accounts for cumulative net realized foreign exchange gains of $22.7 million and net unrealized foreign exchange gains of $46.0 million on the comparative figures.

In addition, the department recorded interest income for some of the reflow-based URCs, although arrangements do not specify any interest charged on the loan provided to Multilateral Development Banks. The correction accounts for a cumulative decrease in other revenues of $54.9 million on the comparative figures.

The corrections have been accounted for retrospectively and the impacts on the comparative figures are summarized for specific line items in the table below.

(d) Summary of restatement

Loans receivable and portfolio investments are deemed financial assets held on behalf of the Government, as such, the corrections have no impact on the department’s net debt and its net financial position.

The financial statements of prior periods have not been restated.

Annex to the statement of management responsibility including internal control over financial reporting – Fiscal Year 2021-2022

1. Introduction

This document provides summary information on the measures taken by Global Affairs Canada (GAC) 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 GAC’s authority, mandate, and program activities can be found in the Departmental Results Report and the Departmental Plan. 

2. Departmental system of internal control over financial reporting

2.1 Internal Control Management

GAC 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 comprises:

• Organizational accountability structures as they relate to the management of internal controls, including the roles and responsibilities of senior managers for internal control management;
• GAC’s ICFR assessment approach and methodology; and
• 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;
• A corporate governance framework that brings together expertise and perspectives of senior managers from headquarters and the mission network, to manage and integrate the department’s policies and resources. Eight (8) governance committees (including the Diversity and Inclusion Council), ensure that senior managers across GAC 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 most senior committee is the Executive Committee;
• As part of GAC’s governance framework, several operational committees provide guidance and advice to various corporate and business line functions;
• The Departmental Audit Committee 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 Chief Financial Officer (CFO) which conducts risk-based assessments of the system of internal control over financial management;
• 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 and internal control management;
• Intranet based communication tools for policy instruments and procedures; and
• Mandatory training for financial officers, and those managers with delegated financial authority.

2.2 Service Arrangements relevant to Financial Statements

Common Arrangements:

Global Affairs Canada relies on other government departments for the processing of certain transactions that are recorded in its financial statements:

• Public Services and Procurement Canada (PSPC), which administers the payment of salaries for Canada based staff and the procurement of goods and services, and provides accommodation services;
• Treasury Board of Canada Secretariat (TBS), which provides information on public service insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans;
• The Department of Justice, which provides legal services; and
• Shared Services Canada (SSC), which provides information technology infrastructure services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and GAC.

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of internal control over financial reporting related to these specific services.

Specific Arrangements:

• In accordance with the Treasury Board Common Services Policy and the Department of Foreign Affairs, Trade and Development Act, GAC is mandated to manage the procurement of goods, services and real property when required for diplomatic and consular purposes. Partner departments provide GAC with agreed levels of funding for the delivery of services. The costs associated with delivering these services are included in GAC’s expenses presented in the departmental financial statements.
• GAC 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.

3. Departmental Assessment Results for Fiscal Year 2021-2022

3.1 Progress during the 2021-22 fiscal year

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational and risk-based plan.

3.2 New or significantly amended key controls

Internal Controls over Financial Management

The TB Policy on Financial Management, published in 2017, puts greater emphasis on the importance of internal control over financial management (ICFM), defined as “a set of measures and activities that provide reasonable assurance of the effectiveness and efficiency of the financial management activities of the department”. Internal control over financial reporting (ICFR), defined as “a set of measures and activities that allow senior management and users of financial statements to have reasonable assurance of the accuracy and completeness of the department’s financial statements” is just one subset of ICFM. Further to updating the department’s internal control over financial management framework, GAC has been working to incorporate its key financial management business processes into its internal control activities. Specifically, the monitoring plan will include the following financial management business processes:

• Budgeting and Forecasting (including Pay Administration [Non – ICFR part]);
• Chief Financial Officer Attestation;
• Costing; and
• Investment Planning.

Currently, assessment work for each ICFM business process has started, with more work planned in the upcoming fiscal years (See Implementation assessment update of ICFM provided in section 4.2) to reach the ongoing monitoring stage by March 31^st, 2024, in line with Management Accountability Framework (MAF) expectations.

3.3 Ongoing Monitoring Program

GAC’s risk-based ongoing monitoring program of internal controls over financial reporting (ICFR) encompasses three control areas: Entity Level Controls, IT General Controls and business process controls. The program is designed to continuously monitor the effectiveness of internal controls over financial reporting. The program is a two-pronged approach that envisions:

• A four-year rotational assessment of Entity level controls, IT general controls and business process controls. This cycle is currently under review.
• An annual risk based review of key controls at missions, and key controls over significant risks at Headquarters.

3.3.1 Annual Risk-Based Assessment

During fiscal year 2021-22, the department assessed key ICFR related to GAC’s business processes which are Transfer Payments - Development, Capital assets at Headquarters and Foreign Service Directives. Key controls over significant risks within the processes related to Salaries and benefits, Accounts Receivable and Mission-specific processes – Payment process, were also assessed. A monitoring of outstanding items listed in the management action plans was also performed as planned.

As a result of the design and operating effectiveness testing of key controls inherent to the processes mentioned above no significant control deficiencies, which would expose the department to a high risk of material misstatement of its financial statements, have been identified.

There are however some control areas that offer opportunities for strengthening for which additional actions are being currently taken and monitored:

• The documentation and/or updating of procedures related to IT security;
• The periodic review of appropriateness and the timely revocation of IT user access privileges;
• The effectiveness of the completion of certification required under section 34 of the Financial Administration Act (FAA) related to pay expenditures, as per the TB Guideline on financial management of pay administration;
• The department's payment verification framework not including a significant part of payments made to Canada-based staff through the Foreign Service Directives (FSDs);
• The formalization and documentation of key controls as they relate to specific FSD sub-processes;
• The timely accounting transfer of some assets-under construction; and
• The update of the requirements of the departmental Policy on Capital Assets and the related standard procedures.

Management action plans addressing the recommendations have been developed by the process owners. The status of these actions plans to ensure the remediation occurs within a reasonable timeframe is monitored through the internal control team’s monitoring of management action plans process.

4. Departmental action plan for the next fiscal year and subsequent fiscal years

For the fiscal year ending March 31, 2023, rotational reviews (on a 4-year cycle) of mature internal control processes will continue along with key control over significant risk reviews based on an annual validation of high-risk sub-processes and controls as well as mission processes. Furthermore, remediation strategies identified in ongoing management action plans will continue to be monitored.

As was the case during the last two years, the department will continue to give particular attention to the potential impact of the department’s response to the public health crisis on its internal controls over financial management.

4.1 The assessment and monitoring plan of the business processes for 2022-23, and subsequent fiscal years is provided in the table below.

Legend:

F Denotes the processes that will be subject to a full review during the identified fiscal year.

R Denotes the processes that will be subject to a key control over significant risk review.

X Denotes the processes that have not reached the on-going monitoring stage (See section 4.2 for the implementation timeline)

4.2 Assessment and monitoring plan for financial management processes

GAC continues to assess its main financial management business processes and will reach the ICFM “ongoing monitoring” stage by 2023-24, as per the Management Accountability Framework (MAF) expectations.

As a result of the design assessment performed during fiscal year 2021-22 for three out of the four processes, a few remedial actions will be taken and monitored over the next fiscal year, prior to the operating effectiveness assessment.

The following table summarizes the assessment progress and plan for GAC’s internal controls over financial management by business process:

Implementation Update of Assessment of Internal Controls over Financial -Management (ICFM)