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Financial Statements 2019-2020

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, 2020, 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, 2020 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department's operations, and by the Departmental Audit Committee (DAC), which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting. The DAC confirms their support of the financial statements to the Deputy Minister of Foreign Affairs.

The Financial Statements of the Department have not been audited.

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Ottawa, Canada
October 9, 2020

Statement of Financial Position (Unaudited)

As at March 31
(in thousands of dollars)

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

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette
Assistant Deputy Minister and Chief Financial Officer
Corporate Planning, Finance and Information Technology

Ottawa, Canada
October 9, 2020

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the year ended March 31
(in thousands of dollars)

Segmented Information (Note 15)
The accompanying notes form an integral part of the Financial Statements.
* Planned Results as per GAC's future-oriented statement of operations.

Statement of Change in Departmental Net Debt (Unaudited)

For the year ended March 31
(in thousands of dollars)

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

Statement of Cash Flow (Unaudited)

For the year ended March 31
(in thousands of dollars)

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 2019-2020 Departmental Plan (DP) was based on the ¶¶ÒùÊÓƵ (GAC) Departmental Results Framework (DRF), as approved by Treasury Board (TB). The DRF presents the Department’s Core Responsabilities. Core Responsabilities are supported by program inventories, each of which has associated expected results and result indicators.

The core business of the Department is currently organized around the following Core Responsabilities:

Core Responsibility # 1: International Advocacy and Diplomacy - ¶¶ÒùÊÓƵ promotes Canada’s interests and values through the development of policy and the fostering of international law, diplomacy, advocacy, and effective engagement.

Canada will work with a wide range of partners to protect, reform, and renew the current rules-based international order and to achieve common global goals. Through effective advocacy and diplomacy efforts, ¶¶ÒùÊÓƵ will continue to advance Canadian values and interests internationally, including human rights, democratic and inclusive governance, growth that works for everyone, respect for diversity, gender equality and the empowerment of women and girls, peace and security, and environmental sustainability.

Core Responsibility # 2: Trade and Investment - ¶¶ÒùÊÓƵ 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.

¶¶ÒùÊÓƵ will work to deepen and diversify trade relationships, advocate for a rules-based international trading system focused on economic opportunities for all, and seek increased and diversified foreign direct investment. The department will pursue modern and inclusive approaches with trading partners in important areas such as transparency, labour rights, the environment, small and medium-sized enterprises, gender, and Indigenous peoples.

Core Responsibility # 3: Development, Peace and Security Programming - ¶¶ÒùÊÓƵ 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.

¶¶ÒùÊÓƵ is committed to successfully implementing Canada’s Feminist International Assistance Policy — a transformative approach to international assistance that recognizes that advancing gender equality and empowering women and girls in a targeted and cross-cutting manner is the most effective approach to make progress towards eradicating poverty, and building a more peaceful, inclusive and prosperous world. Canada’s approach contributes to achieving the 2030 Sustainable Development Goals. This policy outlines six interlinked action areas for Canada’s international assistance: gender equality and the empowerment of women and girls; human dignity; growth that works for everyone; environment and climate action; inclusive governance; and peace and security. Across these action areas, Canada will continue to make progress towards ensuring that 95 percent of its bilateral international development assistance advances gender equality and the empowerment of women and girls by 2021-22. Canada will work towards directing 50 percent of its bilateral international development assistance to Sub-Saharan African countries by 2021-22.

Core Responsibility # 4: Help for Canadians Abroad - ¶¶ÒùÊÓƵ provides timely and appropriate consular services for Canadians abroad, contributing to their safety and security.

¶¶ÒùÊÓƵ provides consular services to support Canadians who travel the world; who work, volunteer, or retire abroad; or who participate in international student exchanges. The department is committed to achieving excellence in service delivery to ensure that Canadians are provided with timely and appropriate consular and emergency management services.

Core Responsibility # 5: Support for Canada’s Presence Abroad - ¶¶ÒùÊÓƵ manages and delivers resources, infrastructure and services enabling Canada’s presence abroad, including at embassies, high commissions, and consulates.

¶¶ÒùÊÓƵ manages a global network of 178 missions, including embassies, high commissions and consulates in 110 countries to deliver services to Canadians abroad, provide support to Canadian businesses in reaching global markets, promote Canada’s interests and values internationally, and help improve the lives of the poorest and most vulnerable. The department provides common services and will continue efforts to strengthen them, and will deliver increased investments in support of security at missions, such as infrastructure and training.

Internal Services

Internal Services are those groups of related activities and resources that the federal government considers to be services in support of Programs and/or required to meet corporate obligations of an organization. Internal Services refers to the activities and resources of the 10 distinct services that support Program delivery in the organization, regardless of the Internal Services delivery model in a department. These services are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Management Services; Materiel Management Services; and Acquisition Management Services.

2. Summary of significant accounting policies

These financial statements have been prepared using the Department's accounting policies stated below, which are based on Canadian public sector accounting standards. 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 2019-2020 Departmental Plan. 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 2019-2020 Departmental Plan.

(b) Net cash provided by Government

The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF, and all cash disbursements made by the Department are paid from the CRF. The net cash provided by 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 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. Other revenues are recognized in the period the event giving rise to the revenues occurred.
4. 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 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 an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.
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 carrying value.
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: 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 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) Loans receivable

Loans to developing countries and IFI for international development assistance and Unconditionally repayable contributions are recorded at cost and are adjusted to reflect the concessionary terms of those loans. 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. Interest continue to be accrued until a formal debt deletion action has been approved in accordance with the Debt Write-Off Regulations, 1994 (SOR/94-602) and the Financial Administration Act section 24.1.

An allowance for valuation is subsequently used to reduce the carrying value of the loans including URC's to amounts that approximate their net realizable value. A loan provisioning expense and an allowance for valuation are accounted for every year until a formal write-off agreement has been approved.

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 formal debt deletion action has been approved in accordance with the Debt Write-Off Regulations, 1994 (SOR/94-602) and the Financial Administration Act section 24.1. 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.

(i) 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 share 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 allowances are not available to discharge the Department's liabilities and are therefore considered to be held on behalf of the Government of Canada.

(j) 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. This initiative was finalized during the fiscal year 2019-2020. 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.

(k) Non financial 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 over the estimated useful lives of the assets, as described in Note 11. 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 and Crown land to which no acquisition cost is attributable, and intangible assets.

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

(l) Contingent liabilities

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

(m) Contingent assets

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

(n) Environmental liabilities

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

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

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

(o) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar 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 March 31st. Gains and losses resulting from foreign currency transactions are reported on the Statement of Operations and Departmental Net Financial Position (and in Note 15) according to the activities to which they relate.

(p) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government'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, 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.

(q) Related party transactions

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

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

1. Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
2. Certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount.

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

(in thousands of dollars)

(b) Authorities provided and used

(in thousands of dollars)

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

4. Accounts payable and accrued liabilities

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

(in thousands of dollars)

5. Environmental Liabilities

Remediation of contaminated sites

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

The Department has identified a total of 3 sites (1 site in 2019) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 1 site (1 site in 2019) where action is required and for which a gross liability of $16,253 ($15,934 in 2019) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

In addition, there are approximately 31 unassessed sites (24 sites in 2019) that have not been assessed by environmental experts for which the Department has estimated a liability of $0 ($0 in 2019).

These two estimates combined, totalling $16,253 ($15,934 in 2019), 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.

For the remaining 31 sites (24 sites in 2019), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, the Department does not expect to give up any future economic benefits (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2020 and March 31, 2019. 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 2020 rates range from 0.45% (1.55% in 2019) for 2 year term to 1.37% (1.92% in 2019) for a 30 or greater year term.

Nature and Source of the Liability

(in thousands of dollars)

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

6. Employee future benefits

(a) Pension benefits

The Department's Canada-Based Staff (CBS) participate in the public service pension plan (the "Plan"), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

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

The 2019-2020 expense amounts to $80,280,921 ($78,698,243 in 2018-2019). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2018-2019) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2018-2019) 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 2019-2020 employer contributions were $48,822,783 ($50,379,620 in 2018-2019). 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, 2020, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

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

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

(in thousands of dollars)

CBS severance benefit liability amounts to $27,704,417, whereas the LES liability is $121,024,000.

(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 2019-2020 expense was $19,670,873 ($19,161,377 in 2018-2019).

7. Accounts receivable and advances

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

(in thousands of dollars)

8. Loans receivable

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

(in thousands of dollars)

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 $427,345,514.

The uncondtionally repayable contributions are in substance loans made to outside parties.

These loans are aimed at stimulating economic development or for assistance and bear various repayment conditions. They have concessional terms and are repayable at various due dates with final instalments generally due within up to 25 years of initial disbursment.

Loans made with concessionary terms are recorded in part as expenses when the economic value of the loan is reduced.

9. Investments and advances to IFI

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

(in thousands of dollars)

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 $60,394,000 and investment income of $8,206,000.

This initiative is winding down with contractual obligations and remaining transactions were finalized during the fiscal year 2019-2020.

The fair value of the CIFA has declined. An allowance of $46,529,888 is recorded to that effect.

The following table presents details of the CIFA:

(in thousands of dollars)

11. Tangible capital assets

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

Asset under construction are recorded in the applicable asset class in the year they are put into service and are not amortized until they are put into service.

Tangible capital assets - Cost
(in thousands of dollars)

Tangible capital assets - Accumulated amortization
(in thousands of dollars)

Tangible capital assets - Net book value
(in thousands of dollars)

(1) Adjustments include assets under construction of $49,158 that were transferred to other asset categories upon completion of the projects.

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

12. Contractual obligations

a) 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:

(in thousands of dollars)

13. Contingent liabilities and contingent assets

(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 $28,000,000 at March 31, 2020 ($28,668,100 in 2018-2019).

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) Contingent assets

Upon completion of a real estate exchange in Paris during the previous year 2018-2019, the Value Added Tax (VAT) component valued at 32,000,000 EUR or $50,000,000 CAD was not considered as recoverable and thus not accounted for by ¶¶ÒùÊÓƵ. Upon further review of the transaction and the VAT component, the likelihood of the collectability of the VAT amount is being reassessed. ¶¶ÒùÊÓƵ is confident that the department would be able to recover at least 90% (29,000,000 Euros or $45,000,000 CAD) of the total amount estimated. This is contingent upon negotiations to be finalized 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 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, 2020, the callable share capital is valued at $23.1 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 $8,957,087,516 as at March 31, 2020. 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 $10,213,472,376 representing a difference of $1,256,384,860 with the Department's own valuation as at March 31, 2020.

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.

(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:

(in thousands of dollars)

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 (October 2006), and the Department of Foreign Affairs, Trade and Development Act, S.C. 2013, c. E-33, s. 174., the Department has the mandate to manage the procurement of goods, services and real property at missions abroad. These common services are mandatory for departments to use when required to support Canada's diplomatic and consular missions abroad.

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, 2020, 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, 2020, this activity amounted to approximately $31,257,349 ($29,215,829 in 2018-2019) 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 $35,860,779 ($52,464,725 in 2018-2019) in payments for operational and program activities on behalf of several partner departments. The Department also collected approximately $91,067,960 ($131,295,425 in 2018-2019) 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

(in thousands of dollars)

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 Responsabilities 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 segment results for the period are as follows:

(in thousands of dollars)

16. Subsequent events

The outbreak of the Coronavirus disease [“COVID-19”] has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown.

The duration and impact of the COVID-19 outbreak is unknown at this time. As a result, the overall effect of these events on the Department and its operations is too uncertain to be estimated at this time. The impacts will be accounted for when they are known and may be assessed.

For the year ended March 31, 2020, and for a new initiative in support of Canada's COVID-19 pandemic response, the Department received the approval and funding of $33,200,000 for the Repatriation of Canadians stranded abroad. The funding was increased by an additional $41,000,000 during the first quarter of fiscal year 2020-2021.

As the Department navigates through this new reality, our risk management specialists offer continuous support to officials throughout the organization in view of optimizing assessment and mitigation strategies.

17. 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

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 internal 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.
• A corporate governance framework that brings together expertise and perspectives of senior managers from headquarters and the mission network, to manage and integrate the department’s policies and resources. Eight (8) governance committees (including COVID-19 taskforce) ensure that senior managers across GAC share the responsibility for managing and integrating the department’s policies, programs and resources at headquarters, in our regional offices and across Canada’s network of missions abroad. The most senior committee is the Executive Committee.
• 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 certain transactions that are recorded in its financial statements:

• Public Services and Procurement Canada which administers the payment of salaries for Canada based staff and the procurement of goods and services, and provides accommodation services;
• Treasury Board of Canada Secretariat, which provides information on public service insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans;
• The Department of Justice which provides legal services; and
• Shared Services Canada which provides information technology infrastructure 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 for Fiscal Year 2019-2020

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

Progress during the 2019-2020 fiscal year

3.1. New or Significantly Amended Key Controls

The implementation of the Phoenix pay system fundamentally altered the payroll process, and required a controls assessment. Documentation and assessment of this process have begun in previous fiscal years and will continue in 2020-2021.

During 2020-2021, the department will assess the impact of the COVID-19 crisis on its key internal controls over financial reporting. The COVID-19 Emergency Loan Program for Canadians Abroad is an example of new or existing programs created or impacted by the Pandemic.

3.2. Ongoing Monitoring Program

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

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

3.2.1 Annual Risk-Based Assessment

During fiscal year 2019-2020, the department reassessed Entity-level controls, the business processes for payments at Headquarters, revenues, accounts receivable and some mission processes. Some key controls over significant risks within the processes related to salaries and benefits, Foreign Service Directives and capital assets-assets under construction were also reviewed. The following significant findings were noted in the following areas:

• Entity-Level Controls. Succession plans need to be put in place for incumbents of key positions within the Department.
• Payments at Headquarters. The departmental payment verification process did not include a significant part of payments made by the department to its employees through the Foreign Service Directives (FSD). In addition, the risk profile of some transactions exceeding the stated error tolerable rate, needs to be reassessed.
• Salary and Benefits. There is still no systematic process in place to ensure that Debts Owed to the Crown (salary advances, travel advances, posting loans) are identified and cleared prior to an employee’s departure. The department started developing and implementing section 33 quality assurance procedures in accordance with the Treasury Board Guideline on Financial Management of Pay Administration.
• Foreign Service Directive (FSD) Portal. A review of the control environment of the departmental FSD portal identified several weaknesses that must be addressed, including those related to access and segregation of duty controls.

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

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

¶¶ÒùÊÓƵ’s ongoing monitoring plan, based on an annual validation of high-risk processes and controls, is presented in Table 4.1. The plan calls for a cyclical review of each process in conjunction with an annual assessment of key controls at missions and key controls over significant risks.

In addition, during 2020-2021, the department plans to re-evaluate its latest ICFR risk assessment, focusing on its control environment and its higher risk business processes, to determine if COVID-19 has had an impact on their effectiveness. The monitoring plan, as presented in the section below, may then be subject to change.

4.1 The assessment and monitoring plan for 2020-21 and further is highlighted in the table below.

Legend:

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

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

^[1] Due to COVID-19, starting in 2020-21, controls related to mission-specific processes will be assessed using a virtual approach. This will serve to inform the methodology that could be used for future years depending on the evolution of the pandemic.