Financial Statements 2022-2023

Table of contents

• Statement of Management Responsibility including Internal Control over Financial Reporting
• Statement of Financial Position (Unaudited)
• Statement of Operations and Departmental Net Financial Position (Unaudited)
• Statement of Change in Departmental Net Debt (Unaudited)
• Statement of Cash Flow (Unaudited)
• Notes to the Financial Statements (Unaudited)
  • 1. Authority and objectives
  • 2. Summary of significant accounting policies
  • 3. Parliamentary authorities
  • 4. Accounts payable and accrued liabilities
  • 5. Environmental liabilities
  • 6. Employee future benefits
  • 7. Accounts receivable and advances
  • 8. Loans receivable
  • 9. Portfolio investments
  • 10. Risk Management
  • 11. Tangible capital assets
  • 12. Contractual obligations
  • 13. Contingent liabilities and contingent assets
  • 14. Related party transactions
  • 15. Segmented information
  • 16. Comparative information
• Annex to the Statement of Management Responsibility including Internal Control over Financial Reporting
  • 1. Introduction
  • 2. Departmental system of internal control over financial reporting
  • 3. Departmental assessment results
  • 4. Departmental action plan for subsequent fiscal years

Statement of Management Responsibility including Internal Control over Financial Reporting

Year ended March 31, 2023

Responsibility for the integrity and objectivity of the accompanying financial statements and all information contained in these statements rests with management of Global Affairs Canada (the Department). 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 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, 2023 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, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting. The financial statements of the Department have not been audited.

David Morrison
Deputy Minister of Foreign Affairs

Shirley Carruthers, CPA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
September 15, 2023

Statement of Financial Position (Unaudited)

As at March 31

Contractual obligations (note 12)
Contingent liabilities and contingent assets (note 13)
The accompanying notes form an integral part of the financial statements.

David Morrison
Deputy Minister of Foreign Affairs

Shirley Carruthers, CPA
Assistant Deputy Minister and Chief Financial Officer

Ottawa, Canada
September 15, 2023

Statement of Operations and Departmental Net Financial Position (Unaudited)

Year ended March 31

Segmented information (note 15)
The accompanying notes form an integral part of the financial statements.

Statement of Change in Departmental Net Debt (Unaudited)

Year ended March 31

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

Statement of Cash Flow (Unaudited)

Year ended March 31

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

Notes to the Financial Statements (Unaudited)

Year ended March 31, 2023

1. Authority and objectives

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 2023 Departmental Plan was based on the Departmental Results Framework (DRF), as approved by Treasury Board. The DRF presents the core responsibilities, which are supported by program inventories, each of which has associated expected results and result indicators.

The 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 exercises strong leadership in support of Canada’s feminist foreign policy through focused advocacy and diplomacy programs that seek to uphold and advance human rights, gender equality and democratic values; promote biodiversity and climate change action; support sustainable and inclusive economic growth; and build lasting peace and security. Canada also works with its international partners to advance action on common global goals, including the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals.

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.

The Department promotes a more open and inclusive economic environment that responds to the challenges and opportunities posed by the evolving digital and green transitions and that supports a sustainable post-pandemic recovery. The Department focuses on expanding ties with existing and emerging trading partners, resolving trade irritants, opening new markets for Canadian exports and new opportunities for attracting investment into Canada, all while supporting Canadians.

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 Sustainable Development Goals.

Canada is firmly committed to the advancement of gender equality, sustainable development and human rights through the implementation of its Feminist International Assistance Policy.

The Department leads Canada’s response to international emergencies and global food crises with the provision of international humanitarian and development assistance through Canada’s intersectional human rights-based feminist approach. Efforts will continue to improve complementarity in Canada’s humanitarian, development and peace and stabilization programming and to help developing countries address the urgent, twin crises of climate change and biodiversity loss.

Help for Canadians abroad

The Department provides timely and appropriate consular services for Canadians abroad, thereby contributing to their safety and security. The global context in which consular services are provided has become significantly more complex and challenging. As risks inherent to international travel have also become compounded, the Department is increasing its readiness to assist clients and their families and to help Canadians travelling, living and working abroad who may be affected by sudden travel restrictions.

The Department plays an important role in supporting Canadians in all their diversity and in line with Canada’s feminist foreign policy, through international engagement, diplomacy and advocacy in a rapidly changing international landscape. Despite frequent emergencies affecting Canadians in more dangerous locations, the Department is committed to strengthening and improving client-focused services to meet their needs, including the provision of consular and emergency services in both official languages.

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. The Department aims to increase continuously its capacity to deliver its services digitally and with more enhanced collaboration capabilities, so employees can better serve Canadians through missions abroad and at home.

Internal services

Internal services support program delivery and enable the Department in meeting its corporate obligations. These services fall into the following categories: management and oversight, communications, legal, human resources management, financial management, information management, information technology, real property management, material management and acquisition management.

2. Summary of significant accounting policies

The financial statements are stated in thousands of Canadian dollars, unless otherwise indicated and 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.

(a) Accounting changes

The Department adopted the new accounting standards issued by the Public Sector Accounting Board (PSAB) that became effective for the Department on April 1, 2022, namely: PS 3450 Financial Instruments and PS 2601 Foreign Currency Translation, as well as consequential amendments to other PSAB accounting standards. PS 3450 addresses the recognition and derecognition, classification, measurement and disclosure of financial instruments, while PS 2601 addresses the accounting for transactions that are denominated in a foreign currency.

As a result of these new standards, the Department changed some accounting policies for financial instruments effective April 1, 2022. In accordance with PS 3450 and PS 2601, the financial statements of prior periods were not restated upon adoption of the standards. Rather, upon adoption of these standards on April 1, 2022, the Department:

1. Recognized and classified all financial assets and financial liabilities in accordance with PS 3450;
2. Elected, commencing April 1, 2022 and prospectively, to recognize all exchange gains and losses resulting from foreign currency transactions in the Statement of Operations and Departmental Net Financial Position, including those exchange gains and losses arising prior to settlement or derecognition. This elected treatment is consistent with the policy applied prior to 1 April 2022 for exchange gains and losses resulting from foreign currency transactions;
3. Included any unamortized discounts or premiums previously recognized as at March 31, 2022, in the instruments’ opening carrying amounts as at April 1, 2022;
4. Adopted a prospective approach to identifying embedded derivatives in contracts.

(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

1. Revenues are recorded in the period in which the underlying transaction or event that gave rise to the revenue takes place.
2. Revenues that are non-respendable are not available to discharge the Department’s liabilities. While the Deputy Head is expected to maintain accounting control, the Deputy Head 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

1. Expenses are recorded on an accrual basis.
2. Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.
3. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
4. 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.
5. 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

1. 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.
2. 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) Financial instruments

A contract establishing a financial instrument creates, at its inception, rights and obligations to receive or deliver economic benefits. The Department recognizes a financial instrument when it becomes a party to a financial instrument contract. The Department derecognizes a financial liability, or parts thereof, when the liability is extinguished through payment of the obligation or the Department is otherwise legally released from the liability.

The Department classifies its financial instruments according to their measurement bases as summarized in the following table:

Whether the financial instruments are measured at cost or amortized cost, the transaction costs are added to the carrying value upon initial recognition.

(h) 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. In cases where the account receivable or advance is not available to discharge the Department's liabilities, they are reported as Financial assets held on behalf of Government of Canada.

(i) Loans receivable

Loans receivable are measured, subsequent to initial recognition, at amortized 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. Loans receivable written off are presented as an expense upon debt deletion being approved. Should subsequent recoveries arise for a written-off loan, these are recognized as a revenue in the fiscal year during which the funds are received.

Interest revenue is recognized using the effective interest method.

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.

(j) Portfolio investments

Investments are recorded at cost less amounts written off to reflect a permanent decline in value. Investment income is recorded as revenue when earnings are received in the form of a payment to the Receiver General of 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.

(k) 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 then. 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.

(l) Prepaid expenses

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.

(m) Contingent liabilities and assets

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 is 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.

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 management’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 liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

(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 foreign currencies are translated into Canadian dollars using the rate of exchange in effect at March 31. The Department has elected to recognize gains and losses resulting from foreign currency translation, including those arising prior to settlement or derecognition of the financial instrument, directly on the Statement of Operations and Departmental Net Financial Position according to the activities to which they relate. The carrying amounts of financial instruments denominated in a foreign currency are disclosed in the respective financial statement notes.

(p) 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:

1. 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.
2. Certain services received on a without charge basis are recorded as expenses at the estimated cost of the services received.

(q) 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 management'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.

3. 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.

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

The Department’s net cost of operations before government funding and transfers, as presented in the Statement of Operations and 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 authorities provided to and used by the Department are presented in the following table:

4. Accounts payable and accrued liabilities

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

5. Environmental liabilities

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 2022) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 1 site (1 site in 2022) where action is required and for which a gross liability of $17 ($17 in 2022) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts. In addition, there are approximately 31 sites (17 sites in 2022) that have not been assessed by environmental experts for which the Department has estimated a liability of $0 ($0 in 2022).

These amounts represent 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 31 sites (17 sites in 2022), 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, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2023. The nature of these liabilities relate to fuel practices and the source of contamination is associated with leaks/spills from fuel storage tanks.

When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using an expected CPI rate of 2.0% (2.0% in 2022). The Government of Canada's cost of borrowing by reference to the actual zero-coupon yield curve for Government of Canada bonds has been used to discount the estimated future expenditures. The March 2023 rates range from 4.50% (1.88% in 2022) for 1-year term to 3.01% (2.35% in 2022) for a 30 or greater year term.

6. Employee future benefits

(a) Pension benefits

The Department's Canada-Based Staff (CBS) participate in 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 2.0% 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 2023 expense amounts to $88,800 ($84,900 in 2022). For Group 1 members, the expense represents approximately 1.02 times (1.01 times in 2022) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2022) 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 $67,500 ($59,900 in 2022).

(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. Substantially all settlements for immediate cash out were completed by March 31, 2023 and 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 obligation during the year were as follows:

CBS severance benefit liability amounts to $20,000 ($22,700 in 2022), whereas the LES liability is $137,000 ($131,000 in 2022).

(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 $21,500 ($20,300 in 2022).

7. Accounts receivable and advances

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

The following table provides an aging analysis of accounts receivable from external parties and the associated valuation allowances used to reflect their net recoverable value:

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.

Unconditionally repayable contributions (URC) are, in most cases, signed with Multilateral Development Banks 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 helps strengthen markets to support investments in sustainable development for the benefit of underserved populations in developing countries.

Fixed URCs contain specific terms pertaining to the amount and timing of repayments of the loan receivable unlike reflow-based URCs, which only contain specific terms pertaining to timing of repayments. Amount of repayments (i.e. the reflows) is subject to the timing of actual proceeds from underlying transactions entered into by the recipient as part of the objectives of the project; therefore, the repayment amount will differ on each payment date.

The Department’s portfolio includes 7 fixed URCs (7 in 2022), 12 reflow-based URCs (10 in 2022) and 2 loans to international organizations (2 in 2022), which are denominated as follow:

• All fixed URCs are in USD, for a total of USD 1,159,124 (USD 957,000 in 2022)
• One reflow-based URC is in CAD, for a total of CAD 38,312 (CAD 38,900 in 2022)
• One reflow-based URC is in EUR, for a total of EUR 64,756 (EUR nil in 2022)
• Other reflow-based URCs are in USD, for a total of USD 1,256,088 (USD 1,127,782 in 2022)
• Loans to international organizations are in USD, for a total of USD 41,854 (USD 64,218 in 2022)

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 $447,500. 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 $132,600. 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 $427,300.

The following table provides an aging analysis of loans receivable that are either past due or impaired and the associated valuation allowances used to reflect their net recoverable value:

9. Portfolio investments

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 USD and the total amount outstanding is USD 41,506 (USD 41,506 in 2022).

The BlueOrchard investment consists of a contribution to the BlueOrchard Latin America and the Caribbean Gender, Diversity, and Inclusion Fund, which will focus on increasing the access to finance to underserved groups by providing financing mainly to financial institutions. The Fund aims on increasing access to finance for women-led and/or -owned micro, small and medium sized enterprises, indigenous groups, people with disabilities, older people and companies at the forefront of implementation of diversity policies. The investment is denominated in USD and the total amount outstanding is USD 27,421 (USD nil in 2022).

The ResponsAbility investment consists of a contribution to the ResponsAbility Climate-Smart Agriculture and Food Systems Fund, which aims to provide long-term expansion debt to innovative businesses operating in the food value chain in Asia Pacific, Latin America and Africa, with the goal of mitigating climate change, reducing food loss and promoting climate change resilience of smallholder farmers. The investment is denominated in USD and the total amount outstanding is USD 25,041 (USD nil in 2022).

The Mirova investment consists of a contribution to the Mirova Gigaton Fund, which is a private debt fund targeting energy access, clean energy transition and climate investments in underserved and emerging markets in developing countries globally, with a strong focus on sub-Saharan Africa. The investment is denominated in USD and the total amount outstanding is USD 22,549 (USD nil in 2022).

The Energy Access Relief Fund investment consists of a contribution to the Energy Access Relief Fund, which was designed to provide loans with a term of up to 3.5 year, subordinated, unsecured and low-cost subsidized loans to companies that had viable business models prior to COVID-19 and that are facing liquidity challenges due to the pandemic. The investment is denominated in USD and the total amount outstanding is USD 22,166 (USD 22,166 in 2022).

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. Risk Management

The Department has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk.

(a) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Department’s maximum exposure to credit risk is the carrying amount of its financial assets as detailed below:

The Department has concentrations of credit risk related to accounts receivable with external parties. An analysis of the age of these financial assets and the associated valuation allowances used to reflect these accounts at their net recoverable value is disclosed in note 7. The Department intentionally takes on counterparty risk related to certain loans receivable with concessionary terms in order to support various policy aims. Valuation allowances are applied accordingly to reflect these accounts at their net recoverable value, as explained in note 8.

(b) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of currency risk and interest rate risk.

Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates. The Department is exposed to currency risk through its foreign denominated loans receivable and portfolio investments. The effect of an increase or decrease in the prevailing exchange rate at March 31 would have resulted in the following exchange gains or losses:

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Department’s loans receivable only bear fixed interest rates, when applicable. There is no impact on the Department’s financial statements as loans receivable are measured at amortized cost.

(c) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities. As the funding for the Department’s financial liabilities is drawn from the Consolidated Revenue Fund, its exposure to liquidity risk is fully mitigated.

11. Tangible capital assets

The following table presents details of the Department's tangible capital assets:

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.

12. 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. Significant contractual obligations that can be reasonably estimated are summarized as follows:

13. Contingent liabilities and contingent assets

(a) Claims and litigation

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $28,250 as at March 31, 2023 ($40,650 in 2022).

(b) Contingent assets

Further to completion of a real estate transaction during fiscal year 2019, which consisted of the exchange of a previously owned building located in Paris, France, the value added tax (VAT) paid in the amount of EUR 32,000 was not deemed recoverable. While management is confident that a portion of the VAT will be recovered eventually, the amount is not estimable. 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, 2023, the callable share capital is valued at $27.5 billion ($25.5 billion in 2022) and no provision was recorded for this amount.

14. 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. The Department enters into transactions with these entities in the normal course of business and on normal trade terms.

(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. Such services have been recorded at the carrying value in the Statement of Operations and Departmental Net Financial Position as follows:

In addition to the above, the Government of Canada has centralized some of its administrative activities for efficiency and cost-effectiveness purposes in the 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 Statement of Operations and Departmental Net Financial Position.

(b) Management and administration of common services

In accordance with the Treasury Board Common Service Policy (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 2021.

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

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 $45,100 ($40,700 in 2022) 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 $45,000 ($27,900 in 2022) in payments for operational and program activities on behalf of several partner departments. The Department also collected approximately $7,300 ($5,200 in 2022) in revenues on behalf of Immigration, Refugees and Citizenship Canada. These expenses and 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).

15. Segmented information

Presentation by segment is based on the Department's core responsibilities. The following table presents the expenses incurred and revenues generated for the core responsibilities, by major object of expense and by major type of revenue. The segment results for the period are as follow:

16. Comparative information

Certain 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

Year ended March 31, 2023

1. Introduction

This document provides summary information on the measures taken by the Department 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 the Department’s authority, mandate, and core responsibilities can be found in the Departmental Results Report and the Departmental Plan.

2. Departmental system of internal control over financial reporting

(a) Internal control management

The Department has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its overall system of internal control. A departmental internal control management framework, is in place and comprises:

1. Organizational accountability structures as they relate to the management of internal controls, including the roles and responsibilities of senior managers for internal control management;
2. A departmental Values and Ethics Code and a Code of Conduct for Canadian Representatives Abroad; and
3. External and internal reporting responsibilities including engagement with senior management and the Departmental Audit Committee (DAC).

The DAC is an independent advisory committee to the Deputy Head. It is responsible to provide advice to the Deputy Head on the adequacy and functioning of the Department's risk management, control, and governance frameworks and processes.

The Department’s control environment also includes:

1. 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 governance committees (including the Diversity and inclusion council), ensure that senior managers across the Department 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;
2. As part of the Department’s governance framework, several operational committees provide guidance and advice to various corporate and business line functions;
3. A dedicated unit under the Chief Financial Officer which conducts risk-based assessments of the system of internal control over financial management;
4. A multi-year risk-based audit plan reviewed by the DAC and approved by the Deputy Head;
5. Senior managers' performance agreements with clear commitments to sound financial and internal control management;
6. Intranet based communication tools for policy instruments and procedures; and
7. Mandatory training for financial officers, and those managers with delegated financial authority.

(b) Service arrangements relevant to financial statements

Common arrangements

The Department relies on other government departments for the processing of certain transactions that are recorded in its financial statements:

1. 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;
2. 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;
3. The Department of Justice which provides legal services; and
4. Shared Services Canada (SSC), which provides information technology infrastructure services. The scope and responsibilities are addressed in the interdepartmental arrangement between SSC and the Department.

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

1. In accordance with the Treasury Board Common Services Policy and the Department of Foreign Affairs, Trade and Development Act, the Department is mandated to manage the procurement of goods, services and real property when required for diplomatic and consular purposes. Partner departments provide the Department with agreed levels of funding for the delivery of services. The costs associated with delivering these services are included in the Department’s expenses presented in the departmental financial statements.
2. The Department is also responsible for managing the payment of program-specific expenditures and the collection of program-specific revenues on behalf of partner departments at missions abroad. These revenues and expenses flow back to the other departments and appear on their respective financial statements.

3. Departmental assessment results

(a) Progress during the 2023 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.

(b) New or significantly amended key controls

In the current fiscal year, there were no significantly amended key controls over financial reporting in existing processes that required a reassessment.

Internal controls over financial management processes

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, 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, the Department 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:

1. Budgeting and forecasting;
2. Chief Financial Officer attestation;
3. Costing; and
4. Investment planning.

Currently, assessment work for each ICFM business process has started, with more work planned in the upcoming fiscal year (see Implementation assessment update of ICFM provided in section 4(b)) to reach the ongoing monitoring stage by March 31st, 2024, in line with Management Accountability Framework (MAF) expectations.

(c) Ongoing monitoring program

The Department’s risk-based ongoing monitoring program is designed to continuously monitor the effectiveness of internal controls over financial management. The program is an approach that envisions:

1. A rotational assessment of entity-level controls, information technology (IT) general controls and business process controls covering a four-year ongoing monitoring cycle. Each process is subject to a full review at the frequency set by the risk rating assigned to that process;
2. An annual environmental scan, with the results used to update the ongoing monitoring plan and identify follow-up reviews for the given fiscal year; and
3. An annual risk-based assessment of mission-specific processes.

Annual risk-based assessment

During fiscal year 2023, the Department reassessed key ICFR related to the following business processes:

1. ITGCs review specific to the Department’s Finance and Administration System;
2. Loans receivable – Loans to developing countries and unconditionally repayable contributions;
3. Investments and advances to International Financial Institutions;
4. Year-end procedures and financial statement preparation; and
5. Key controls for mission-specific processes for two missions.

The follow-up of outstanding items listed in the management action plans were also carried out 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:

1. The periodic review of appropriateness and the timely revocation of IT user access privileges;
2. Access to privileged and sensitive roles, which impact numerous control points and elevate the risk of unauthorized access and changes to the Finance and Administration System;
3. A formalized IT Business Continuity Plan and Disaster Recovery Plan for missions’ locally managed IT solutions;
4. The effectiveness of the certification required under section 34 of the Financial Administration Act and strengthening of the audit trail related to payables at year end;
5. Adequacy of the supporting documentation required to ensure the use of acquisition cards at mission is in compliance with applicable policies and directives;
6. Updated standard procedures as they relate to the financial management of assets, including the year end capital asset certification to improve the accuracy and reliability of capital asset financial information at missions abroad;
7. The Department's payment verification framework to include a significant part of payments made to Canada-based staff through the Foreign Service Directives (FSD); and
8. The formalization and documentation of key controls as they relate to specific FSD sub-processes.

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 subsequent fiscal years

For the fiscal year ending March 31, 2024, rotational reviews (on a 4-year cycle) of mature internal control processes will continue along with follow-up reviews based on an annual validation of high-risk processes and controls as well as mission processes. Furthermore, remediation strategies identified in ongoing management action plans will continue to be monitored.

(a) The rotational ongoing monitoring plan is provided in the table below:

(b) Assessment and monitoring plan for financial management processes

As mentioned in section 3(b), the Department continues to assess its main financial management business processes with the view to reach the ICFM “ongoing monitoring” stage by 2024, as per the MAF expectations.

As a result of the operating effectiveness assessment performed during fiscal year 2023, three out of the four processes have reached the ongoing monitoring stage with a few remedial actions to be taken and monitored over the next fiscal year. Work will continue to be performed for the Investment Planning process to reach the ongoing monitoring in line with TBS timelines.

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

Implementation update of assessment of internal controls over financial management