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Financial Statements 2016-2017

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. Investments and advances to IFI
  • 10. Canada Investment Fund for Africa
  • 11. Tangible capital assets
  • 12. Contractual obligations
  • 13. Contingent liabilities
  • 14. Related party transactions
  • 15. Segmented information
  • 16. Comparative information
• Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting - Fiscal Year 2016-17
  • 1. Introduction
  • 2. Departmental System of Internal Control over Financial Reporting
  • 3. Departmental Assessment Results during Fiscal Year 2016-17
  • 4. ¶¶ÒùÊÓƵ's Progress and Action Plan

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, 2017, and all information contained in these statements rests with the management of the Department. These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the Department’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department’s Departmental 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; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the Department and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

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

A risk-based assessment of the system of ICFR for the year ended March 31, 2017 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

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

The Financial Statements of the Department have not been audited.

Ian Shugart
Deputy Minister of Foreign Affairs

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

Ottawa, Canada
September 1, 2017

Statement of Financial Position (Unaudited)

Contractual obligations (Note 12)
Contingent liabilities (Note 13)
The accompanying notes form an integral part of the Financial Statements.

Ian Shugart
Deputy Minister of Foreign Affairs

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

Ottawa, Canada
September 1, 2017

Statement of Operations and Departmental Net Financial Position (Unaudited)

Segmented Information (Note 15)
The accompanying notes form an integral part of the Financial Statements.

Statement of Change in Departmental Net Debt (Unaudited)

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

Statement of Cash Flow (Unaudited)

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

Notes to the Financial Statements (Unaudited)

For the year ended March 31

1. Authority and objectives

The Department of Global Affairs (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 2016-2017 Report on Plans and Priorities (RPP) was based on the ¶¶ÒùÊÓƵ (GAC) Program Alignment Architecture (PAA), as approved by Treasury Board (TB). The PAA presents the Department’s four strategic outcomes. Strategic outcomes are supported by a cascading matrix of programs, sub-programs and sub-sub-programs, each of which has associated expected results and performance indicators. 

Strategic Outcome #1: Canada’s International Agenda - The international agenda is shaped to advance Canadian security, prosperity, interests and values.

• Program #1.1: Integrated Foreign Affairs, Trade, and Development Policy - The Department draws upon its expertise at missions and headquarters to establish integrated foreign policy, international trade and development priorities and to provide information, intelligence and  advice to ministers, senior officials and key partners to support decisions that advance Canadian values and interests.
• Program  #1.2: Diplomacy, Advocacy, and International Agreements - The Department uses diplomacy, advocacy and program delivery, informed by consultations with domestic and international stakeholders, to engage and influence international decision makers in order to advance Canadian interests and values.

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

• Program #2.1: International Commerce - The Department delivers commercial services and advice to Canadian businesses and supports their pursuit of international business opportunities. This is primarily achieved through Canada’s Trade Commissioner Service, which organizes sector-specific, targeted trade missions to priority markets, helps Canadian businesses access global value chains, and supports the facilitation, expansion or retention of foreign direct investment, international innovation, and science and technology partnerships.
• Program #2.2: Consular Services and Emergency Management - The Department delivers high-quality consular assistance and travel advice to Canadians travelling, working and living abroad. This program also enables the department to coordinate the Government of Canada’s response to international emergencies.

Strategic Outcome #3: International Assistance and Poverty Alleviation - Poverty is reduced, and security and democracy are increased for those living in countries where Canada engages.

• Program #3.1: International Security and Democratic Development - This program contributes to increased international security and stability by enhancing the capacity of foreign governments, civil society and international organizations to manage international peace and security challenges and build stable, democratic foundations necessary for peace, sustainable development and poverty alleviation.
• Program #3.2: International Development - This program contributes to poverty alleviation by providing long-term support in developing countries that have demonstrated a capacity to effectively plan and advance poverty reduction initiatives. Priority programming themes draw on Canada’s expertise, including sustainable economic growth, children and youth, and food security. A key Canadian initiative included in the international development program is Canada’s commitment to maternal, newborn, and child health.
• Program #3.3: International Humanitarian Assistance - The Department reduces the vulnerability of people in crisis situations, such as armed conflicts, acute food insecurity and natural disasters, by providing timely and appropriate funding for food, water, shelter, protection and other humanitarian assistance. It also provides long-term institutional support to key humanitarian assistance partners to support their ability to fulfill their mandates.

Strategic Outcome #4: Canada’s Network Abroad - The Department maintains a mission network of infrastructure and services to enable the Government of Canada to achieve its international priorities.

• Program #4.1: Mission Network Governance, Strategic Direction and Common Services - The Department works with 32 partner departments and co-locators, such as the Government of Australia and the provinces of Quebec and Ontario, to provide strategic governance, deliver efficient and cost-effective services, and provide infrastructure for its network of 177 missions in 109 countries.
• Program #4.2: Management of Government of Canada Terms and Conditions of Employment Abroad - The Department and central agencies manage and administer statutory payments to Government of Canada employees abroad, both Canada-based staff (CBS) and locally engaged staff (LES). This includes Foreign Service Directive (FSD) payments, which are the benefits and allowances for CBS serving abroad, as well as pension and insurance benefits and affiliation in local social security programs for LES.

The internal services program provides essential support functions to all ¶¶ÒùÊÓƵ programs and includes the following services: Management and Oversight; Communications; Legal; Human Resources Management; Financial Management; Information Management; Information Technology; Real Property; Materiel Services; and Acquisition Services.

2. Summary of significant accounting policies

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

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented  Statement of Operations included in the 2016-2017 Report on Plans and Priorities. Planned results are not presented in the “Government  funding and transfers” section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2016-2017 Report on Plans and Priorities.

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

(c) Amounts due from the CRF

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

(d) Revenues

1. Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
2. Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
3. Funds that have been received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
4. Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
5. Revenues that are non-respendable are not available to discharge the Department's  liabilities. While the Deputy Head is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(e) Expenses

Expenses are recorded on an accrual basis:

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

(f) Employee future benefits

1. Pension benefits:  Eligible Canada-Based Staff (CBS) participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government of Canada. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor. Eligible Locally-Engaged Staff (LES), who are employees hired at Missions abroad, participate in a combination of plans developed and administered based on local laws and practice, or in a worldwide pension scheme, which is administered by the Department. As the Government of Canada is the sponsor of LES pension plans, the funds for the contributions have been provided to the Department (Vote 15).
2. Severance benefits: Employees who are entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services  necessary  to earn them are rendered. The obligation  relating to the benefits earned by CBS employees  is calculated using information derived from the results of the actuarially determined liability for employee  severance  benefits for the Government  as a whole. The LES severance obligation is established on the basis of operational  requirements  of the specific Mission, local laws or practice, and is calculated based on the number of eligible  employees  multiplied  by the estimated value of the severance payment based on historical experience.

(g) Accounts receivable and advances

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

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

(h) Environmental liabilities

Environmental  liabilities  reflect the estimated costs related to the management and remediation of environmentally  contaminated sites. Based on management's  best estimates,  a liability is accrued and an expense recorded when the contamination occurs or when the Department becomes aware of the contamination  and is obligated, or is likely to be obligated to incur such costs. 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.

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

Contaminated Sites:

A liability for 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 cash flows required to settle or otherwise extinguish a liability are expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the government’s  consolidated  revenue fund monthly lending rates for periods of one year and over. The discount rates used are based on the term rate associated with the estimated number of years to complete  remediation. For remediation  costs with estimated future cash flows spanning more than 25 years, the 25-year Government of Canada lending rate is used as the discount rate.

(i) Loans receivable

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

An allowance for valuation is further used to reduce the carrying value of the loans to amounts that approximate their net realizable value. The allowance is determined based on the Government's  identification and evaluation of countries that have formally applied for debt relief, estimated probable losses that exist on the remaining portfolio, and changes in the economic conditions of sovereign debtors.

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

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

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

Investments and advances to IFI are recorded at cost.

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

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

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

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

(k) Canada Investment Fund for Africa (CIFA)

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

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

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

(l) Contingent liabilities

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

(m) Prepaid expenses

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

(n) Foreign currency transactions

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

(o) Tangible capital assets

All tangible capital assets and leasehold  improvements  having an initial cost per unit of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value.

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

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

(p) Measurement uncertainty

The preparation of these financial statements requires management (or the Government) to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee future benefits, the allowance for loans, the allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary authorities

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

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

(b) Authorities provided and used

Parliamentary authorities provided are reconciled to Parliamentary authorities used in the current year and agree with amounts shown as "Available for Use and Authorities Used" as reflected in the "Summary of Source and Disposition of Authorities" in Volume II of the Public Accounts.

4. Accounts payable and accrued liabilities

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

5. Environmental Liabilities

Remediation of contaminated sites

The government has developed a “Federal Approach to Contaminated Sites”, which incorporates a risk-based approach to the management of contaminated sites. 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 aides 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 1 site (1 site in 2016) where contamination may exist and assessment, remediation and monitoring may be required. The Department has assessed 1 site (1 site in 2016) where action is possible and for which a liability of $15,000 ($15,000 in 2016) has been recorded. This liability estimate has been determined after the sites are assessed and is based on environmental experts reviewing the results of site assessments, and proposing possible remediation solutions.

In addition, there are 23 unassessed sites (26 sites in 2016) where estimates have been calculated using a modelling technique based on contaminated sites with similar functions and a liability estimate of $0 ($0 in 2016) has been estimated.

These two estimates combined, totalling $15,000 ($15,000 in 2016), 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 statement date.

As part of the 2017 fiscal year program, 13 additional sites were investigated, 12 of these sites were closed following the historical review. Of the remaining 26 sites that were open in 2016, 4 sites were closed, as these sites were divested.

The Department’s ongoing efforts to assess contaminated sites may result in additional environmental liabilities. Any additional liabilities will be accrued in the year in which they become known and can be reasonably estimated.

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, 2017 and March 31, 2016. 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 2017 rates range from 0.89% for 2 year term to 2.55% for a 25 or greater year term.

Nature and Source of the Liability

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 2016-2017 expense amounts to $70,629,114 ($73,187,949 in 2015-2016). For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015-2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015-2016) the employee contributions.

The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the Financial Statements of the Government of Canada, as the Plan's sponsor.

For Locally-Engaged Staff (LES), the Government of Canada participates in local social security programs where possible. Where Canada does not participate in a local social security system providing pension benefits, or Canada participates in the local system and in addition, employer-sponsored supplemental pension plans are typically provided in the country, the Government of Canada provides supplemental pension benefits through a combination of local separate pension plans developed and administered based on local law and practice, or through the Pension Scheme for Employees of the Government of Canada, LES which is administered by the Department. Local separate pension plans are pre-funded and are provided on defined benefit or defined contribution basis. The Pension Scheme is a defined benefit plan provided on a pay-as-you-go basis. The Department is responsible for the expenses related to LES social security and pension via Vote 15 (contributions to social security and separate pension plans and benefits from the Pension Scheme). The 2016-2017 employer contributions were $43,811,534 ($45,898,508 in 2015-2016). The Department’s responsibility with regard to the Plan is limited to its contributions. The Government of Canada, the Plan's sponsor, is responsible for the plan's deficit.

(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, 2017, 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.

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

CBS severance benefit liability amounts to $28,378,068, whereas the LES liability is $92,931,000.

(c) Locally-Engaged Staff insurance benefits

The Department is responsible for the expenses (premiums to local insured plans and benefits from local self-insured plans) related to LES insurance benefits, which include medical, dental, disability and life insurance (via Vote 15). The 2016-2017 expense was $18,573,498 ($18,133,639 in 2015-2016).

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 and transfer payments recoverable to developing countries and IFI:

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

In 2006-2007, the Government of Canada, as represented by the Department, entered into an agreement with the Government of Pakistan to forgive its outstanding $447,500,000 loan. In order to expire its debt obligation, the Government of Pakistan is required to make education sector investments over an estimated period of five years, that are equivalent to the present value of its debt of $132,600,000. According to the agreement, Pakistan’s debt is to be written down proportionally by GAC as the investments are made. Since 2009-2010, the Government of Pakistan's debt has been reduced by a total amount of $364,839,000.

Transfer payments recoverable relate to contributions made to outside parties which are repayable without or with conditions specified in the contribution agreement that have come into being.

9. Investments and advances to IFI

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

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

10. Canada Investment Fund for Africa

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

The Government of Canada is a limited partner in the CIFA and its commitment towards the Fund was subject to a matching mechanism of other investors and was to be equal to the lesser of: (i) $100 million or (ii) the aggregated commitments of all other limited partners of the partnership. The investment period in the CIFA ended January 1, 2009. From there on, and until the term of the partnership is reached, the Department will receive income and returns of capital. Since its inception, the Department received capital reimbursement from CIFA amounting to $60,240,000 and investment income of $8,206,000.

This partnership has been officially dissolved on December 31, 2015 and is currently closing its operations.

The fair value of the CIFA has declined. An allowance of $45,600,000 is recorded to that effect.

The following table presents details of the CIFA:

11. Tangible capital assets

Other adjustments include assets transferred to and from other government departments, asset reclassifications, post capitalizations and unplanned depreciations.

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. There are a significant number of small dollar value leases for residential and office building rentals abroad. Significant contractual obligations that can be reasonably estimated are summarized as follows:

13. Contingent liabilities

(a) Claims and litigation

The Department is involved in various legal actions in the ordinary course of business and also as a result of its role in administering the North American Free Trade Agreement (NAFTA) treaty. These claims include items where the amount of damages is specified, and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. Pending claims and legal proceedings for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $35,222,853 at March 31, 2017 ($30,283,818 in 2015-2016).

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

(b) Callable share capital

The Department is liable for callable share capital in certain international organizations that could require future payments to those organizations. Callable share capital is composed of resources that are not paid to the organizations but act as a guarantee to allow them to borrow on international capital markets to finance their lending program. Callable share capital would only be utilized in extreme circumstances to repay unrecoverable loans, should the organization's reserves not be sufficient. Callable share capital has never been drawn on by the organizations. For this reason, despite the difficult international economic environment, these contingent liabilities represent no additional risk to the Department. As at March 31, 2017, the callable share capital is valued at $21.8 billion and no provision was recorded for this amount.

Also, different methods are used by the Department and by the Asian Development Bank (ADB) to calculate the value of the Department’s callable shares for disclosure as a contingent liability. The Department uses the US foreign exchange rate at the time of the investments and revalues its shares at the end of every fiscal year using the year-end US exchange rate. On the basis of this method, the Department's valuation of its ADB callable shares is $8,462,653,230 as at March 31, 2017. However, ADB decided to use the Special Drawing Right (SDR) for purposes of denominating its capital in lieu of the US dollar. The value of the SDR against the US and Canadian dollar exchange rates at the time of inception was used to establish the par value of SDR. This par value of the Department's callable shares is then translated using the latest exchange rate of SDR against the US and Canadian dollar exchange rates. Valuation of these callable shares on this basis amounts to $9,526,258,404 representing a difference of $1,063,605,174 with the Department's own valuation as at March 31, 2017.

14. Related party transactions

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

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

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

The Government has centralized some of its administrative activities to enhance the efficiency and cost-effectiveness delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public 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 (February 1997), and the Department of Foreign Affairs, Trade and Development Act, S.C. 2013, c. E-33, s. 174., the Department has the mandate to manage the procurement of goods, services and real property at missions abroad. These common services are mandatory for departments to use when required to support Canada's diplomatic and consular missions abroad.

Memoranda of Understanding (MOUs) are in force to cover the roles and responsibilities of the Department, partner departments, Crown corporations and non-federal organizations. These MOUs outline the principles and operational guidelines for the management and administration of the common services regime, specifications with respect to services and service delivery standards, the funding of common services, the responsibilities of parties, and dispute resolution.

i. Common Services provided to other government departments

To facilitate the efficient and cost-effective delivery of common services in support of the international programs of all federal departments and agencies of the Government of Canada, a new 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, 2017, expenses related to changes made to partner departments’ representation abroad are reflected in the Financial Statements of the Department. Authorities for the Department are adjusted via the Annual Reference Level Updates (ARLU) and Supplementary Estimates.

ii. Common Services provided to co-locators

To facilitate the efficient and cost-effective delivery of common services in support of the international programs of co-locators, individual MOUs are signed with each co-locator. Co-locators comprise all non-departmental entities, and include Crown corporations, provincial or territorial governments, foreign governments, and non-governmental organizations co-located at the Department’s missions abroad.

In the fiscal year ended March 31, 2017, this activity amounted to approximately $27,892,994 ($26,242,368 in 2015-2016) of in-year funds received via the Specified Purpose Accounts and Net-Voted Revenues.

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

The Department has a number of MOUs with partner departments for the administration of unique, in-year programs delivered abroad. The Department issued approximately $63,937,232 ($62,836,066 in 2015-2016) in payments for operational and program activities on behalf of several partner departments. The Department also collected approximately $168,619,134 ($162,931,123 in 2015-2016) 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 related parties

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

15. Segmented information

Presentation by segment is based on the Department's Strategic Outcomes and Programs as presented in Note 1. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in Note 2. The following table presents the expenses incurred and revenues generated for the main programs, by major object of expenses and by major type of revenues. The segmented results for the period are as follows:

16. Comparative information

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

Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting - Fiscal Year 2016-17

1. Introduction

This document provides summary information on the measures taken by ¶¶ÒùÊÓƵ (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 includes:

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

The Department’s control environment also includes:

• A departmental Values and Ethics Code and a Code of Conduct for Canadian Representatives Abroad.
• Six governance committees ensure that senior managers across 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 senior committee is the Executive Board to which GAC’s other governance committees report.
• The Departmental Audit Committee (DAC) provides advice to the Deputy Minister(s) on the adequacy and functioning of the department's risk management, control, and governance frameworks and processes.
• A dedicated unit under the CFO which conducts risk-based assessments of the system of ICFR.
• A multi-year risk-based audit plan reviewed by the DAC and approved by the Deputy Minister.
• Senior managers' performance agreements with clear commitments to sound financial and internal control management.
• Intranet based communication tools for policy instruments and procedures.
• Mandatory training for financial officers, and those managers with delegated financial authority.

2.2.Service Arrangements relevant to Financial Statements

Common Arrangements

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

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

Specific Arrangements

• In accordance with the Treasury Board Common Services Policy and with the Department of Foreign Affairs, Trade and Development Act, ¶¶ÒùÊÓƵ 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.
• 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 during Fiscal Year 2016-17

The following sections will summarize the significant findings of the internal control assessment activities undertaken during fiscal year 2016-17.

3.1. New or significantly amended key controls

The implementation of the new Phoenix pay system fundamentally altered the payroll process, and will require an assessment of the new process and related controls. Documentation and assessment of this new process has begun but cannot be completed until the system stabilizes.

3.2. Ongoing monitoring program

GAC’s risk-based ongoing monitoring program encompasses all three control areas and is designed to continuously monitor the effectiveness of internal controls over financial reporting. The program is a two-pronged approach that envisions:

• A three year rotational reassessment of Entity level controls, IT general controls and business processes. The reassessment includes review and update of process documentation and key financial controls.
• An annual review of key controls at missions, and key controls over significant risks.

3.2.1 Annual Risk-Based Assessment

During 2016-17, the department reassessed IT General Controls, Salaries and benefits, and Payments at HQ. Key controls over significant risks within the Loans to developing countries and International Financial Institutions, Investments and advances to International Financial Institutions, Transfer Payments, Capital Assets, Year-end procedures, and mission specific processes were also assessed. Significant control issues were found in the following areas:

• Payment authority controls (section 33 of the FAA) with respect to low risk payments, Foreign Service Directive payments, and payroll related expenditures require immediate attention. This issue is further compounded by segregation of duties weaknesses noted in the employee Taken on Strength process and the calculation of adjustments to Foreign Service Allowances.
• There is an absence of procedures for, and controls within, the employee departure process. These weaknesses will continue to persist until senior management identifies a business process owner to develop and communicate standard procedures that managers can follow when an employee leaves the department.

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

4. ¶¶ÒùÊÓƵ's Progress and Action Plan

4.1 Progress during Fiscal year 2016-17

¶¶ÒùÊÓƵ conducted its ongoing monitoring according to the previous year’s rotational plan as shown in the following table.

4.2 Action Plan

¶¶ÒùÊÓƵ’s three year rotational ongoing monitoring plan, based on an annual validation of high-risk processes and controls, is presented in Table 4.2.1. The plan calls for a triennial review of each process in conjunction with an annual assessment of key controls at missions and key controls over significant risks.

4.2.1 Assessment and monitoring plan for 2017-18 and subsequent years