Archived - Department of Finance Canada
Financial statements (unaudited)

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For the year ended
March 31, 2014

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, 2014, and all information contained in these statements rests with the management of the Department of Finance Canada (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 Performance 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, 2014 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the Annex.

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

The financial statements of the Department have not been audited.

Paul Rochon, Deputy Minister
Randy Larkin, Chief Financial Officer

Ottawa, Canada
August 29, 2014

 

Department of Finance Canada
Statement of Financial Position (unaudited)
As at March 31
$ thousands
  2014 2013
    Restated (note 28)
Liabilities    
  Deposit liabilities (note 4) 123,121 318,800
  Accounts payable and accrued liabilities (note 5) 1,881,812 3,243,472
  Taxes payable under tax collection agreements (note 6) 596,289 2,180,363
  Interest payable (note 7) 5,234,993 5,656,115
  Notes payable to international organizations (note 8) 471,670 469,236
  Matured debt (note 9) 349,851 298,786
  Unmatured debt (note 10) 653,785,838 667,440,197
  Employee future benefits (note 13) 4,473 5,407
 
Total gross liabilities 662,448,047 679,612,376
Liabilities held on behalf of Government (note 14) (471,670) (469,236)
 
Total net liabilities 661,976,377 679,143,140
Financial assets    
  Due from Consolidated Revenue Fund 5,506,837 5,933,655
  Coin inventory 9,155 31,456
  Accounts receivable (note 15) 194,917 288,167
  Taxes receivable under tax collection agreements (note 16) 2,654,503 4,084,134
  Foreign exchange accounts (note 17) 72,262,496 58,758,525
  Crown borrowings (note 18) 54,404,503 94,149,960
  Loans receivable (note 19) 2,070,486 2,871,018
  Investments and share subscriptions (note 20) 263,096 263,096
 
Total gross financial assets 137,365,993 166,380,011
Financial assets held on behalf of Government (note 14) (3,911,747) (4,760,646)
 
Total net financial assets 133,454,246 161,619,365
 
Departmental net debt 528,522,131 517,523,775
Non-financial assets    
  Tangible capital assets (note 21) 10,184 276
  Prepaid expenses - 7
 
Total non-financial assets 10,184 283
 
Departmental net financial position (528,511,947) (517,523,492)

Contractual obligations (note 22)

Contingent liabilities (note 23)

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

 

Paul Rochon, Deputy Minister
Randy Larkin, Chief Financial Officer

Ottawa, Canada
August 29, 2014

 

Department of Finance Canada
Statement of Operations and Departmental Net Financial Position (unaudited)
For the Year Ended March 31
$ thousands
  2014 2014 2013
  Planned Results   Restated (note 28)
Expenses (note 26)      
  Transfer and taxation payment programs 58,746,888 59,322,276 57,068,475
  Treasury and financial affairs 27,260,500 25,139,264 25,831,369
  Economic and fiscal policy framework 74,613 89,811 77,367
  Internal services 71,026 66,291 66,835
 
Total expenses 86,153,027 84,617,642 83,044,046
Revenues (note 26)      
  Investment income 2,978,293 3,303,740 3,726,910
  Sale of domestic coinage 130,758 84,975 120,192
  Interest on bank deposits 296,496 330,518 222,359
  Net foreign currency gain - 116,996 78,147
  Other income 58,977 78,148 68,762
  Revenues earned on behalf of Government (note 27) (3,464,484) (3,914,295) (4,216,227)
 
Total revenues 40 82 143
 
Net cost of operations before government funding and transfers 86,152,987 84,617,560 83,043,903
Government funding and transfers      
  Net cash provided by Government 74,037,631 52,421,384
  Changes in due from Consolidated Revenue Fund (426,818) (471,423)
  Services provided without charge by other
  government departments (note 24)
18,292 19,092
 
Net cost of operations after government funding and transfers   10,988,455 31,074,850
Departmental net financial position - beginning of year (517,523,492) (486,448,642)
 
Departmental net financial position - end of year (528,511,947) (517,523,492)

Segmented information (note 26)

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

Department of Finance Canada
Statement of Change in Departmental Net Debt (unaudited)
For the Year Ended March 31
$ thousands
  2014 2013
    Restated (note 28)
Net cost of operations after government funding and transfers 10,988,455 31,074,850
Changes due to tangible capital assets    
  Acquisition of tangible capital assets 9,998 279
  Amortization of tangible capital assets (112) (59)
  Transfer of tangible capital assets from other
   government departments
22 -
 
Total change due to tangible capital assets 9,908 220
Change due to prepaid expenses (7) (161,135)
 
Net increase in departmental net debt 10,998,356 30,913,935
Departmental net debt - beginning of year 517,523,775 486,609,840
 
Departmental net debt - end of year 528,522,131 517,523,775

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

Department of Finance Canada
Statement of Cash Flows (unaudited)
For the Year Ended March 31
$ thousands
  2014 2013
    Restated (note 28)
Operating activities    
  Net cost of operations before government funding and transfers 84,617,560 83,043,903
  Non-cash items:    
    Amortization of tangible capital assets (note 21) (112) (59)
    Amortization of discount on loans receivable 3,053 2,713
    Amortization of discounts of crown borrowings 27,467 25,513
    Amortization of discounts on unmatured debt (2,789,885) (2,622,062)
    Unrealized foreign exchange gains (losses) 310,009 (33,210)
    Services provided without charge by other government departments (note 24) (18,292) (19,092)
  Variations in Statement of Financial Position:    
    Decrease in assets (1,451,939) (1,485,650)
    Decrease in liabilities 3,563,469 9,381,059
 
Cash used in operating activities 84,261,330 88,293,115
Capital investing activities    
    Acquisition of tangible capital assets (note 21) 10,020 279
 
Cash used in capital investing activities 10,020 279
Investing activities    
    Net advances to the Exchange Fund Account of Canada 6,934,247 1,350,778
    Issuance of notes payable to International Monetary Fund (501,684) (48,547)
    Encashment of notes payable to International Monetary Fund 366,000 311,000
    Loans receivable from International Monetary Fund 203,835 182,841
    Issuance of loans receivable 70,308,296 65,162,014
    Repayment of loans receivable (110,024,941) (65,966,146)
 
Cash (provided)/used in investing activities (32,714,247) 991,940
Financing activities    
    Net issuance from cross-currency swaps (672,708) (835,905)
    Issuance of debt (520,330,090) (553,846,003)
    Repayment of debt 543,483,326 517,817,958
 
Cash used/(provided) in financing activities 22,480,528 (36,863,950)
 
Net cash provided by Government of Canada 74,037,631 52,421,384

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

Notes to the Financial Statements

1. Authority and objectives

The Department is established under the Financial Administration Act as a Department of the Government of Canada.

The Department contributes to a strong economy and sound public finances for Canadians. It does so by monitoring developments in Canada and around the world to provide first-rate analysis and advice to the Government of Canada and by developing and implementing fiscal and economic policies that support the economic and social goals of Canada and its people. The Department also plays a central role in ensuring that government spending is focused on results and delivers value for taxpayers dollars. The Department interacts extensively with other federal organizations and acts as an effective conduit for the views of participants in the economy from all parts of Canada.

Transfer and taxation payment programs: This program activity includes supervision, control and direction of all matters relating to the financial affairs of Canada that are not by law assigned to the Treasury Board or any other Minister. This program includes the administration and payment of transfers to provinces and territories, including fiscal equalization, the Canada Health Transfer and the Canada Social Transfer, in support of health and social programs. In addition, it includes the administration of taxation payments to provinces and territories as well as to Aboriginal governments in accordance with legislation and negotiated agreements. Also included in this program are commitments and agreements with international financial organizations aimed at supporting the economic advancement of developing countries. In addition, from time to time, the federal government will enter into agreements or enact legislation to respond to unforeseen pressures. These commitments can result in payments, generally statutory transfer payments, to a variety of recipients, including individuals, organizations, and other levels of government.

Treasury and financial affairs: This program activity contributes to the Government of Canada's effective debt and other cost management on behalf of Canadians. It provides direction for Canada's debt management activities, including the funding of interest costs for the debt and service costs for new borrowings. In addition, the program manages investments in financial assets needed to establish a prudent liquidity position. This program supports the ongoing refinancing of government debt coming to maturity, the execution of the budget plan, and other financial operations of the government, including governance of the borrowing activities of major government-backed entities, such as Crown corporations. This program is also responsible for the system of circulating Canadian currency (bank notes and coins), to ensure efficient trade and commerce across Canada.

Economic and fiscal policy framework: This program activity is the primary source of advice and recommendations to the Minister of Finance on issues, policies and programs of the Government of Canada related to the areas of economic, fiscal and social policy; federal-provincial relations; financial affairs; taxation; and international trade and finance. The work conducted by this program involves extensive research, analysis, and consultation and collaboration with partners in both the public and private sectors, including the Cabinet and the Treasury Board; Parliament and parliamentary committees; the public and Canadian interest groups; departments, agencies and Crown corporations; provincial and territorial governments; financial market participants; the international economic and finance community; and the international trade community. In addition, this program includes policy advice on the development of Memoranda to Cabinet, negotiation of agreements, drafting of legislation and sponsoring of bills through the parliamentary process, which are subsequently administered by other programs within the Department and by other government departments and agencies. The aim of this program is to create a sound and sustainable fiscal and economic framework that will generate sufficient revenues and provide for the management of expenditures in line with the Budget Plan and financial operations of the Government of Canada.

Internal services: Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

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 Canadian 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 Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2013-14 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 / to the Consolidated Revenue Fund

Amounts due from / 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

The Department reports revenues on an accrual basis:

  • Investment income is recognized as revenue in accordance with the terms and conditions of underlying agreements or relevant legislation as applicable.
  • Sale of domestic coinage is recognized in the period that the sale took place.
  • Interest on bank deposits is recognized as revenue when earned.
  • Net foreign currency gains are determined by reference to prevailing exchange rates at the time of transaction and at the year-end date as applicable on foreign currency denominated items.
  • Guarantee fees are recognized when earned and are determined by reference to the terms of the guarantee program or underlying contract.
  • Uncashed Receiver General cheques, warrants and bank account cheques for all departments and agencies are recognized as revenue of the Department if they remain outstanding 10 years after the date of issue.
  • Unclaimed matured bonds are recognized as revenue if they remain unredeemed 15 years after the date of call or maturity, whichever is earlier.
  • Unclaimed bank balances are recognized as revenue when there has been no owner activity in relation to the balance for a period of 40 years.
  • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
  • Revenues earned on behalf of the Government represent revenues that are non-respendable which 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 as a reduction of the entity's gross revenues.

e) Expenses

The Department reports expenses on an accrual basis:

  • 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.
  • Interest and other costs are recognized when incurred and include interest, amortization of debt discounts, premiums and commissions, and servicing and issue costs. Amortization of discounts and premiums is performed on a straight line basis.
  • Operating expenses are recognized as incurred.
  • The cost of domestic coinage sold is recognized in the period in which the related sale took place.
  • Net foreign currency losses are determined by reference to prevailing exchange rates at the time of transaction and at the year-end date as applicable on foreign currency denominated items.
  • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  • Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

f) Employee future benefits

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. 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.

Severance benefits: Employees 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 employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

g) Coin inventory

Coin inventory is valued at the lower of cost and net realizable value. Cost is determined using the average cost method.

h) Accounts receivable

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

i) Foreign exchange accounts

Short-term deposits, marketable securities, and special drawing rights held in the foreign exchange accounts are recorded at cost. Marketable securities are adjusted for amortization of purchase discounts and premiums. Purchases and sales of securities are recorded at the settlement date. Write-downs to reflect other than temporary impairment in the fair value of securities, if any, are included in foreign currency gain revenues on the Statement of Operations and Departmental Net Financial Position.

Canada's subscriptions, allocation of special drawing rights, notes payable to and loans receivable from the International Monetary Fund are recorded at cost.

j) 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 revenue or expenses in Treasury and Financial Affairs and Transfer and Taxation Payment Programs in the Statement of Operations and Departmental Net Financial Position.

k) Loans receivable

Loans receivable are initially 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. An allowance for valuation is further used to reduce the carrying value of loans receivable to amounts that approximate their net realizable value. The allowance is determined based on estimated probable losses that exist on the remaining portfolio.

When the terms of a loan are concessionary, such as those provided with a low or no interest clause, they are recorded at their estimated net present value. A portion of the unamortized discount is recorded as revenue each year to reflect the change in the present value of loans outstanding.

l) Investments and share subscriptions

Investments and share subscriptions are recorded at cost net of allowances. Allowances are determined based on a combination of expected return and likelihood of capital recovery. Given their nature, investments in certain international financial institutions are not expected to generate direct financial returns nor to be recovered. In those cases, investments are fully provisioned.

m) Derivative financial instruments

Derivative financial instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other financial measures specified in the underlying contracts. Derivative financial instruments that the Department is currently party to include cross currency swap agreements and foreign exchange forward contracts.

Cross currency swaps and foreign exchange forward contracts are initially recorded at cost and are translated into Canadian dollars at the exchange rate in effect at the reporting date. The translated values of cross currency swap agreements are included as part of Unmatured debt reflecting their longer term nature. The translated values of foreign exchange forward contracts are included as part of accounts payable and accrued liabilities as these have maturities that are short term in nature.

For cross currency swaps where domestic debt has been converted into foreign debt, any exchange gains or losses are offset by the exchange gains or losses on foreign currency advances to the Exchange Fund Account.

For foreign exchange forward contracts, any exchange gains or losses are offset by the exchange gains or losses on loan balances with the International Monetary Fund.

Interest paid and payable, and interest received and receivable on cross currency swaps is included in interest on unmatured debt.

n) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10 thousand 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, assets located on Indian Reserves and museum collections.

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

Asset class

Machinery and equipment

Informatics equipment
Informatics software
Motor vehicles

Amortization Period

Three to five years

Three to five years
Three years
Three years

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

o) Unmatured debt

When a marketable bond is exchanged or repurchased, and the transaction results in an extinguishment of the debt, the difference between the carrying amount of the debt instrument and the net consideration paid is recognized in the Statement of Operations.

An extinguishment occurs on the repurchase of bonds, or when there is an exchange of bonds with an existing bond holder and the terms of the original debt and the replacement debt are substantially different. Exchanged bonds are considered to have substantially different terms when the discounted present value of the cash flows under the new terms, including any amounts paid on the exchange, and discounted using the average effective interest rate of the original debt, is at least 10 percent different from the discounted present value of the remaining cash flows of the original debt.

If an exchange of bonds with an existing bond holder does not result in an extinguishment, the carrying amount of the debt is adjusted for any amounts paid on the exchange, and the unamortized premiums or discounts relating to the original debt and arising on the exchange transaction are amortized over the remaining term to maturity of the replacement debt on a straight line basis.

p) Deposit liabilities

Deposits that are repayable on demand are recorded as liabilities.

The value of cash collateral held in support of a cross-currency swap agreement is recorded as a liability in the absence of a default.

q) 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 an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

Provisions for liabilities arising under the terms of a loan guarantee program are made when it is likely that a payment will be made and an amount can be estimated.

The allowance for losses on the guarantees of the Canadian Wheat Board 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.

The allowance is included in accounts payable and accrued liabilities.

r) 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. 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, valuation allowances for loans receivable and investments and share subscriptions, discounts on loans receivable, transfer payments to provinces and territories, accruals of taxes receivable and taxes payable under tax collection agreements, amounts payable to Ontario relating to General Motors, the provision for redemption of Canadian pennies, the liability for employee future benefits 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.

s) Liabilities and financial assets held on behalf of Government

Liabilities and financial asets held on behalf of Government are presented in these financial statements as the deputy head must maintain accounting control for these elements.

The classification of financial assets as held on behalf of Government is determined based on the ability to discharge that financial asset or financial assets against the Department's liabilities or to increase the value of those financial assets without further authority from Parliament. The classification of liabilities as held on behalf of Government is determined based on the ability to increase the value of those liabilities without further authorities or within prescribed limits or ceilings.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and the 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

Reconciliation of net cost of operations to current year authorities used
($ thousands)
  2014 2013
Net cost of operations before government funding and transfers 84,617,560 83,043,903
Adjustments for items affecting net cost of operations but not affecting authorities:    
  Allowance for bad debts (64,981) (54,173)
  Allowance on loan guarantees (1,435) 172,927
  Inventory charged to program expense (21,587) (49)
  Employee future benefits 934 6,784
  Amortization of tangible capital assets (112) (59)
  Services provided without charge by other government departments   (18,292) (19,092)
  Prepaid expenses (7) (161,162)
Other expenses not being charged to authorities:    
  Transitional assistance provided under sales tax harmonization agreements - (14,000)
  Incentive for the elimination of capital tax (21,471) 6,500
  Obligation to Ontario - General Motors (356,314) (105,041)
  Other 123 (163)
 
Total items affecting net cost of operations but not affecting authorities (483,142) (167,528)
Adjustments for items not affecting net cost of operations but affecting authorities:    
  Advances and prepaid expenses 70,277,875 65,189,778
  Transitional assistance provided under sales tax harmonization agreement - net of recoveries 1,161,200 413,200
  Loans receivable from the International Monetary Fund 203,835 182,841
  Investments and share subscriptions - 102,030
  Acquisitions of tangible capital assets 9,998 279
  Other 273,256 69,024
 
Total items not affecting net cost of operations but affecting authorities 71,926,164 65,957,152
 
Current year authorities used 156,060,582 148,833,527

b) Authorities provided and used

Authorities provided and used
($ thousands)
  2014 2013
Authorities provided:    
  Vote 1 – Operating expenditures 127,266 126,075
  Vote 5 – Grants and contributions 9,235 224,987
  Statutory authorities:    
    Transfer payments 60,176,235 57,343,965
    Interest on unmatured debt 16,427,887 16,650,397
    Other interest costs 8,583,879 9,050,112
    Purchase of domestic coinage 106,076 130,817
    Other 221,690 117,718
 
  Total statutory authorities 85,515,767 83,293,009
  Non-budgetary authorities 70,481,710 65,474,622
Less:    
  Authorities available for future years (68,572) (68,576)
  Lapsed authorities:    
    Vote 1 – Operating expenditures (4,794) (6,605)
    Vote 5 – Grants and contributions (25) (209,985)
    Spending of proceeds from disposal of surplus Crown assets (5) -
 
Current year authorities used 156,060,582 148,833,527

4. Deposit liabilities

The following table presents details of deposit liabilities:

Deposit liabilities
($ thousands)
  2014 2013
  Canada Hibernia Holding Corporation (note 4a) 96,742 95,916
  Canada Eldor Inc. (note 4b) 26,379 26,154
  Collateral deposits (note 4c) - 196,730
 
Total deposit liabilities 123,121 318,800

a) Canada Hibernia Holding Corporation—Abandonment reserve fund

This account is a demand deposit established to record funds that will be used by Canada Hibernia Holding Corporation to defray future abandonment costs that will be incurred at the closure of the Hibernia field.

Interest payable is calculated at a rate equivalent to 90 per cent of the weekly three-month Treasury bill tender rate.

b) Canada Eldor Inc.—Holdback—Privatization—CDEV

This account was established pursuant to subsection 129(1) of the Financial Administration Act. This special purpose money is to be used to meet costs incurred on the sale of Crown corporations and demand for payment by purchasers pursuant to the acquisition agreement and costs incurred by the CDEV in connection with their sale.

The interest payable is calculated with a rate equivalent to 90 per cent of the weekly three-month Treasury bill tender rate.

c) Collateral deposits

This account was established pursuant to record cash received as credit support under collateral agreements with financial institutions.

5. Accounts payable and accrued liabilities

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

Accounts payable and accrued liabilities
($ thousands)
  2014 2013
Accounts payable - external parties (note 5a) 132,332 1,606,134
Province of Ontario - General Motors (note 5b) 1,546,406 1,459,161
Accounts payable - other government departments and agencies 96,719 218,008
Allowance for guarantees 50,414 48,979
Provision for redemption of Canadian pennies (note 5c) 10,785 11,500
Revaluation of foreign exchange forward contracts (note 5d) 38,284 (107,346)
Other accrued liabilities 4,011 4,175
Other liabilities (note 5e) 2,861 2,861
 
Total accounts payable and accrued liabilities 1,881,812 3,243,472

a) External parties

The significant components of Accounts payable - external parties are as follows:

Accounts payable - external parties
($ thousands)
  2014 2013
Comprehensive Integrated Tax Co-ordination Agreements:    
  Quebec - 1,467,000
  Prince Edward Island - 14,000
 
Total Comprehensive Integrated Tax Co-ordination Agreements - 1,481,000
Other 132,332 125,134
 
Total accounts payable - external parties 132,332 1,606,134

b) Province of Ontario-General Motors

The liability to the Province of Ontario reflects Canada's obligation to Ontario for the province's one third interest in the Government's equity holdings in General Motors. These equity investments are currently registered to wholly-owned subsidiaries of the Canada Development Investment Corporation (CDEV), a Crown corporation.

In light of Ontario's one-third contribution to the total Canadian financial assistance provided to General Motors, Canada has entered into an agreement with Ontario to transfer one-third of amounts received as a result of holding these investments, including dividends and proceeds from dispositions.

The carrying amount of the liability approximates one-third of the estimated fair value of the Government's remaining investments in General Motors held through CDEV and its wholly-owned subsidiaries. Changes in the value of the liability are considered transfer payments. Distributions to Ontario of proceeds arising as a result of holding these investments are recorded as a reduction to the liability.

During the year, Canada received $1.13 billion ($nil for 2013) in dividends from CDEV as a direct result of the sale of common shares of General Motors. Of this, one-third or $377 million ($nil for 2013) was transferred directly to Ontario.

c) Provision for redemption of Canadian pennies

In Canada's Economic Action Plan 2012, the Government announced its intention to cease production of the penny and to start withdrawing it from circulation as of February 4, 2013. As part of this initiative, Canadians will have the option of redeeming their pennies at their face value.

This provision reflects the estimated remaining net cost to the Government of this initiative as of March 31, 2014.

d) Revaluation of foreign exchange forward contracts

This amount represents the net translated notional values of foreign exchange forward contracts outstanding at March 31, 2014. These amounts were settled on April 16, 2014 and are discussed at note 11.

e) Other liabilities

The most significant component of Other liabilities is an amount of $2.68 million which relates to the Common School Funds for Ontario and Quebec.  This account was established under 12 Victoria 1849, Chapter 200, to record the proceeds from the sale of lands set apart for the support and maintenance of common schools in Upper and Lower Canada, now Ontario and Quebec. Interest of $134 thousand —apportioned on the basis of population—is paid directly to these provinces on a semi-annual basis, at the rate of 5 per cent per annum, and is charged to interest and other costs.

6. Taxes payable under tax collection agreements

Pursuant to various tax collection agreements, the Canada Revenue Agency (CRA) collects and administers personal income tax, corporate income and capital taxes, harmonized sales tax, sales tax, and goods and services sales tax on behalf of certain provinces, territories and Aboriginal governments. Amounts collectible by the CRA, but not yet remitted to the Department, are described at note 16.

At March 31, the balance in the accounts pertaining to taxes collectible and payable to provinces, territories and Aboriginal governments under tax collection agreements is as follows:

Taxes payable under tax collection agreements
($ thousands)
  April 1/2013 Receipts and other credits Payments and other charges March 31/2014
Corporate income tax 2,562,900 11,883,098 14,153,387 292,611
Personal income tax 2,436,668 58,055,706 57,112,423 3,379,951
Harmonized sales tax (2,819,205) 23,695,400 23,952,468 (3,076,273)
First Nations sales tax - 5,987 5,987 -
First Nations goods and services tax - 15,035 15,035 -
 
Total taxes payable under tax collection agreements 2,180,363 93,655,226 95,239,300 596,289

The Department ultimately transfers these amounts directly to the participating provinces, territories and Aboriginal governments in accordance with established payment schedules.

Given that the Government of Canada reports information on a fiscal year basis while tax information is calculated on a calendar year basis, there can be transactions related to several tax years during any given fiscal year. Taxes payable therefore include amounts assessed, estimates of assessments based upon cash received, adjustments from reassessments, and adjustments relating to previous tax years payable to provincial, territorial and Aboriginal governments.

7. Interest payable

The following table presents details of interest payable:

Interest payable
($ thousands)
  2014 2013
Domestic debt 4,119,423 4,289,945
Retail debt 1,076,867 1,338,264
Foreign debt 36,710 26,570
International Monetary Fund Balances 1,993 1,336
 
Total interest payable 5,234,993 5,656,115

8. Notes payable to international organizations

Non-interest bearing demand notes are issued in lieu of cash in respect of subscriptions and contributions to international organizations. The notes are presented for encashment according to their terms of agreement.

At March 31, the amount outstanding is as follows:

Notes payable to international organizations
($ thousands)
  2014 2013
International Development Association 441,610 441,610
International Bank for Reconstruction and Development 26,513 24,367
Multilateral Investment Guarantee Agency 3,547 3,259
 
Total notes payable to international organizations 471,670 469,236

9. Matured debt

Matured debt consists of debt that has matured but has not yet been redeemed.

At March 31, the amount outstanding is as follows:

Matured debt
($ thousands)
  2014 2013
Retail debt (matured from 1998 to 2014) 337,513 285,570
Marketable bonds (matured from 1998 to 2014) 12,338 13,216
 
Total matured debt 349,851 298,786

10. Unmatured debt

The Department borrows in both domestic and international markets on behalf of the Government of Canada.

Domestic debt consists of treasury bills, marketable bonds and retail debt.

The treasury bills balance at March 31, 2014, consists of $3.8 billion ($10.4 billion in 2013) in odd issue bills, $43.7 billion ($54.5 billion in 2013) in three month bills, $29.8 billion ($36.0 billion in 2013) in six month bills, and $75.7 billion ($79.8 billion in 2013) in 364 day bills.

Marketable bonds consist of outstanding domestic Government of Canada bonds with remaining terms to maturity ranging from 1 to 34 years.

Retail debt includes Canada Savings Bonds which are redeemable on demand by the holder, with accrued interest calculated to the end of the previous month; no interest is paid if redeemed during the first three months following the date of issue.

Foreign debt is issued by the Government of Canada under the government's foreign currency borrowing program. It consists of marketable bonds, Canada bills and medium term notes. Marketable bonds include bonds assumed by Finance Canada on February 5, 2001, on the dissolution of Petro Canada Limited.

Marketable bonds are either issued in US dollars or Euros. They are issued to provide long term foreign funds and have remaining terms to maturity ranging from 1 to 7 years.

Canada bills are short-term certificates of indebtedness issued in the US money market.

Cross-currency revaluation refers to the net notional value of cross-currency swap agreements in place at March 31, 2014 translated into Canadian dollar equivalents using year-end market rates. Cross-currency swap agreements are entered into to effectively convert portions of domestic debt into foreign debt in order to meet foreign funding requirements. Remaining terms to maturity range from 1 to 11 years. Further details are discussed at note 11.

At March 31, unmatured debt is composed of the following:

Unmatured debt
($ thousands)
  Face value Unamortized (discounts) Net book value 2014 Net book value 2013
        Restated (note 28)
Domestic debt:        
  Treasury bills 153,000,000 (460,092) 152,539,908 180,110,811
  Marketable bonds 472,917,957 3,662,784 476,580,741 472,699,644
  Retail debt 6,327,056 - 6,327,056 7,480,702
 
Total domestic debt 632,245,013 3,202,692 635,447,705 660,291,157
 
Foreign debt:        
  Marketable bonds 13,053,897 (18,208) 13,035,689 8,735,577
  Canada bills 2,289,976 (366) 2,289,610 2,101,903
  Medium term notes 746,213 (47) 746,166 -
 
Total foreign debt 16,090,086 (18,621) 16,071,465 10,837,480
 
Total domestic and foreign debt 648,335,099 3,184,071 651,519,170 671,128,637
 
Less: Government holdings - (214,900)
Less: Securities held for the retirement of unmatured foreign debt (59,702) (54,979)
     
Net domestic and foreign debt     651,459,468 670,858,758
     
Cross-currency revaluation:        
  Payables     54,113,584 46,216,237
  Receivables     (51,787,214) (49,634,798)
     
Total cross-currency revaluation     2,326,370 (3,418,561)
     
Total unmatured debt     653,785,838 667,440,197
     
Domestic debt fair value     681,201,967 725,107,835
     
Foreign debt fair value     16,497,332 11,383,071

Contractual maturities of unmatured debt by currency over the next five years, at face value, are as follows:

Contractual maturities of unmatured debt
($ thousands)
Maturing year Canadian dollars1 US dollars2 Euro3 Total
2015 216,362,204 5,606,476 - 221,968,680
2016 78,660,859 - - 78,660,859
2017 65,009,564 3,795,451 - 68,805,015
2018 31,456,198 - - 31,456,198
2019 32,165,095 3,334,276 - 35,499,371
2020 and thereafter 208,591,093 307,883 3,046,000 211,944,976
 
Total contractual maturities of unmatured debt 632,245,013 13,044,086 3,046,000 648,335,099
1  Includes Treasury bills, marketable bonds and retail debt.
2  Includes marketable bonds issued in US dollars and Canada bills.
3  Includes marketable bonds issued in Euros.

The effective average annual interest rates are as follows:

Effective average annual interest rates
% 2014 2013
Treasury bills 0.96 1.03
Marketable bonds—domestic 2.87 3.04
Retail debt 0.72 0.76
Marketable bonds—foreign 1.73 2.23
Canada bills 0.08 0.13

11. Derivative and fair values of financial instruments

a) Derivative financial instruments

i) Swap agreements

Government debt is issued at both fixed and variable interest rates and is denominated in Canadian dollars, US dollars and Euros. The Government has entered into cross-currency swap agreements to facilitate the management of its debt structure. Using cross-currency swap agreements, Canadian dollar and other foreign currency debt has been converted into US dollars or other foreign currencies with either fixed interest rates or variable interest rates. As a normal practice, the Government's swap positions are held to maturity.

The interest paid or payable and the interest received or receivable on all swap transactions are recorded as part of interest and other costs. Unrealized gains or losses due to fluctuations in the foreign exchange value of the swaps are presented in the cross-currency swap revaluation account and are recognized as part of net foreign currency gain or loss in the Statement of Operations and Departmental Net Financial Position.

Cross-currency swaps with contractual or notional principal amounts outstanding at March 31, stated in Canadian dollars, are as follows:

Cross-currency swaps with contractual or notional principal amounts
($ thousands)
Maturing year 2014 2013
2014 - 3,615,669
2015 3,658,020 3,182,616
2016 4,462,748 3,987,608
2017 4,857,038 4,312,971
2018 5,333,129 4,774,389
2019 6,353,160 5,270,420
2020 and thereafter 29,449,489 21,072,564
 
Total cross-currency swaps with contractual or notional principal amounts 54,113,584 46,216,237
ii) Foreign exchange forward contracts

The Government funds loans with the International Monetary Fund (IMF) as part of the Foreign Exchange Accounts, which are denominated in special drawing rights (SDRs), with US dollars. Since the currency value of the SDR is based upon a basket of key international currencies (the US dollar, Euro, Japanese yen, and pound sterling), a foreign exchange mismatch results, whereby fluctuations in the value of the loan asset are not equally offset by fluctuations in the value of the related funding liability. Therefore, the Government enters into forward contracts to hedge this foreign exchange risk.

Unrealized gains and losses due to fluctuations in the foreign exchange value of these contracts are recorded in accounts payable and accrued liabilities and are recognized as part of the net foreign currency gain or loss in the Statement of Operations and Departmental Net Financial Position.

Foreign exchange forward contracts with contractual or notional principal amounts outstanding in is $2.65 billion Cdn ($2.27 billion Cdn in 2013) maturing in 2015.

b) Fair value of financial instruments

The following tables present the carrying value and the fair value of certain financial instruments.

Fair values are government estimates and are generally calculated using market conditions at a specific point in time where a market exists. Fair values of instruments with a short lifespan or of a non-negotiable nature are assumed to approximate carrying values. Fair values may not reflect future market conditions nor the actual values obtainable should the instrument be exchanged on the market. The calculations are subjective in nature and involve inherent uncertainties due to unpredictability of future events.

Carrying and fair value of financial instruments
($ thousands)
  2014 2013
 

   Carrying value Fair value Carrying value Fair value
Assets  
Foreign exchange accounts 72,262,496 74,315,648 58,758,525 62,243,231
Crown borrowings 54,404,503 54,767,461 94,149,960 95,486,401
Liabilities        
Net domestic and foreign debt 651,459,468 697,699,299 670,858,758 736,490,906

Fair values of the swap and foreign exchange forward contracts are the estimated amount that the Government would receive or pay, based on market factors, if the contracts were terminated on March 31. They are established by discounting the expected cash flows of the swap and foreign exchange forward contracts, calculated from the contractual or notional principal amounts, using year end market interest and exchange rates. A positive (negative) fair value indicates that the Government would receive (make) a payment if the agreements were terminated on March 31.

Notional and fair value of derivative financial instruments
($ thousands)
  2014 2013
 

  Notional value Fair value Notional value Fair value
Cross-currency swaps (net) (2,326,370) (2,647,501) 3,418,561 3,201,166
 
Foreign exchange forward contracts (net) (38,284) (38,218) 107,346 107,230

12. Financial risk

a) Credit risk related to swap and foreign exchange forward contracts

The Department manages its exposure to credit risk by dealing principally with financial institutions having credit ratings from at least two recognized rating agencies, one of which must be Standard & Poor's or Moody's. At the time of inception of the agreement, the credit rating of the institution must be at least A–. Credit risk is also managed through collateral provisions in swap and foreign exchange forward contracts. Counterparties must pledge collateral to the Government, which, in the event of default, could be liquidated to mitigate credit losses.

The Department does not have a significant concentration of credit risk with any individual institution and does not anticipate any counterparty credit loss with respect to its swap and foreign exchange forward contracts.

The following table presents the contractual or notional principal amounts of the swap and foreign exchange forward contracts organized by credit ratings based on published Standard & Poor's credit ratings and stand-alone credit profiles at year end:

Notional amounts of swap and foreign exchange forward contracts
($ thousands)
  2014 2013
A+ 16,706,789 14,302,236
A 14,781,985 12,669,365
A- 16,702,483 14,815,329
BBB+ 6,768,965 3,493,992
BBB 1,803,257 3,203,541
 
Total notional amounts of swap and foreign exchange forward contracts 56,763,479 48,484,463

b) Managing foreign currency risk and sensitivity analysis to foreign currency exposures

Interest rate and foreign currency risks are managed using a strategy of matching the duration and the currency of the Exchange Fund Account assets and the related foreign currency borrowings of the Government. As at March 31, 2014, the impact of price changes affecting the Exchange Fund Account assets and the liabilities funding these assets naturally offset each other, resulting in no significant impacts to the Government's net debt. Assets related to the IMF are only partially matched by related foreign currency borrowings, as they are denominated in SDR; however, foreign exchange risks relating to loans to the IMF have been managed through entering into various foreign exchange forward contracts.

The majority of the Exchange Fund Account foreign currency assets and liabilities are held in four currency portfolios: the US dollar, the Euro, Pound sterling and the Japanese yen. At March 31, 2014, a one per cent appreciation in the Canadian dollar as compared to the US dollar, the Euro, Pound sterling and the Japanese yen would result in a foreign exchange loss of $8 million (loss of $7 million in 2013) due to the exposure of the US dollar portfolio, a foreign exchange loss of $3 million (loss of $2 million in 2013) due to the exposure of the Euro portfolio. There is no significant exposure related to the Pound sterling and the Japanese yen portfolio.

13. Employee future benefits

a) Pension benefits

The Department's employees 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 per cent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with the Canada/Quebec 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 the Economic Action Plan (EAP) 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 expense amounts to $8.49 million ($8.73 million in 2013). For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2013) the employee contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2013) the employee contributions.

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

b) Severance benefits

The Department provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Severance benefits
($ thousands)
  2014 2013
Accrued benefit obligation, beginning of year 5,407 12,191
Expense for the year 1,058 (1,220)
Benefits paid during the year (1,992) (5,564)
 
Accrued benefit obligation, end of year 4,473 5,407

14. Liabilities and financial assets held on behalf of Government

a) Liabilities held on behalf of Government

Notes payable to international organizations are related to investments made in those entities. Since the Department must obtain separate authorities to make these investments these items are considered liabilities held on behalf of Government.

b) Financial assets held on behalf of Government

A distinction is made between financial assets that are available to discharge the Department's liabilities and those that are not. Financial assets that are not available to discharge the Department's liabilities are considered to be held on behalf of the Government and are therefore presented as a reduction of the Department's gross financial assets.

Financial assets held on behalf of Government include amounts related to non-respendable revenues as well as loans receivable and investments and share subscriptions which if repaid could not be used to discharge other liabilities.

The following table presents details of the liabilities and financial assets held on behalf of Government:

Liabilities and financial assets held on behalf of Government
($ thousands)
  2014 2013
Liabilities held on behalf of Government:    
  Notes payable to international organizations (note 8) 471,670 469,236
 
Total liabilities held on behalf of Government 471,670 469,236
 
Financial assets held on behalf of Government:    
  Accounts receivable (note 15) 194,917 288,167
  Foreign exchange accounts (note 17) 1,504,766 1,400,551
  Loans receivable 1,948,968 2,808,832
  Investments and share subscriptions (note 20) 263,096 263,096
 
Total financial assets held on behalf of Government 3,911,747 4,760,646

15. Accounts receivable

The following table presents details of the Department accounts receivable:

Accounts receivable
($ thousands)
  2014 2013
Accrued interest income - Crown borrowings 98,193 189,193
Accrued investment income 88,441 94,367
Receivables - Other government departments and agencies 8,182 4,541
Receivables - External parties 101 66
 
Total accounts receivable 194,917 288,167

16. Taxes receivable under tax collection agreements

Taxes receivable include taxes collected or collectible by the CRA on behalf of provincial, territorial or Aboriginal governments that have not yet been remitted to the Department.

The following table presents details of taxes receivable under tax collection agreements:

Taxes receivable under tax collection agreements
($ thousands)
  2014 2013
Corporate income taxes 3,060,466 3,514,368
Personal income taxes 3,698,094 3,231,450
Harmonized Sales Tax (3,978,976) (2,303,454)
First Nations Goods and Services Tax 1,417 1,209
First Nations Sales Tax 476 460
Provincial benefit programs (126,974) (359,899)
 
Total taxes receivable under tax collection agreements 2,654,503 4,084,134

The Department ultimately transfers these amounts directly to the participating provincial, territorial or Aboriginal governments in accordance with established payment schedules. Amounts payable are described at note 6.

Provincial benefit programs include benefit amounts paid by CRA directly to recipients on behalf of provincial governments. Transfers to the provincial governments are ultimately reduced by these amounts.

17. Foreign exchange accounts

The foreign exchange accounts represent the largest component of the official international reserves of the Government of Canada and consist of the following:

Foreign exchange accounts
($ thousands)
  2014 2013
Investments held in the Exchange Fund Account 75,860,312 61,980,795
Accrued net revenue from the Exchange Fund Account 1,504,766 1,400,551
 
Total investments held in Exchange Fund Account (note 17a) 77,365,078 63,381,346
Subscriptions to the International Monetary Fund (note 17b) 10,882,988 9,693,859
Loans receivable from the International Monetary Fund (note 17c) 1,665,221 1,456,484
Notes payable to the International Monetary Fund (note 17d) (7,419,018) (6,659,366)
Special drawing rights allocations (note 17e) (10,231,773) (9,113,798)
 
Total foreign exchange accounts 72,262,496 58,758,525
 
Fair value 74,315,648 62,243,231

a) Investments held in Exchange Fund Account

This account records the funds advanced from the Government to the Exchange Fund Account, in Canadian and other currencies, for the purchase of gold, foreign currencies and securities, and SDRs. The Exchange Fund Account is operated in accordance with provisions of the Currency Act. Total advances are limited to $100 billion by order of the Minister of Finance dated September 2009.

The following table details international reserves held in and advances to the Exchange Fund Account:

Investments held in Exchange Fund Account
($ thousands)
  2014 2013
US dollar cash on deposit 390,649 312,490
US dollar short-term deposits 222,662 -
US dollar marketable securities 46,635,458 36,599,900
Euro cash on deposit 51,431 16,020
Euro marketable securities 19,902,954 17,462,592
British pound sterling cash on deposit 1,995 -
British pound sterling marketable securities 198,964 -
Japanese yen cash on deposit 10,401 8,157
Japanese yen marketable securities 316,722 305,673
Special drawing rights 9,628,107 8,671,022
Gold 5,735 5,492
 
Total investments held in Exchange Fund Account 77,365,078 63,381,346

b) Subscriptions to the International Monetary Fund

This account records the value of Canada's subscription ("quota") to the capital of the IMF. The IMF is an international organization of 188 member countries that operates in accordance with its Articles of Agreement. It has a large pool of liquid assets, or resources, comprising convertible national currencies, special drawing rights, and other widely used international currencies provided by its members that it makes available to help members finance temporary balance of payments problems.

Upon joining the IMF and following periodic quota reviews, member countries are assigned a quota, based broadly on their relative size in the world economy.

c) Loans receivable from the International Monetary Fund

This account records the value of interest-bearing loans made under Canada's multi-lateral and bi-lateral borrowing arrangements with the IMF. The purpose of these arrangements is to provide temporary resources for IMF-member countries requiring balance of payment assistance.

There are two outstanding lending arrangements with the IMF outside of the quota system: the multi-lateral New Arrangements to Borrow (NAB) and General Arrangements to Borrow (GAB).

Canada's participation in the expanded NAB became effective on March 11, 2011. The maximum lending by Canada to the IMF under these arrangements is limited to SDR7.62 billion. As at March 31, 2014, SDR975 million (SDR957 million in 2013) or $1.67 billion ($1.46 billion in 2013) in lending has been provided to the IMF under the NAB.

Canada also participates in the GAB which was most recently renewed in November, 2012. The maximum lending by Canada to the IMF under these arrangements is limited to SDR893 million. As at March 31, 2014, no lending had been provided to the IMF under the GAB.

Collectively, the outstanding loans under multi-lateral arrangements with the IMF cannot exceed SDR8.52 billion at any given time. This reflects the maximum commitment under both the NAB and GAB.

At March 31, 2014, a total of SDR975 million or $1.67 billion Cdn was outstanding under these arrangements. Amounts advanced under these arrangements are considered part of the Official International Reserves of Canada.

d) Notes payable to the International Monetary Fund

This account records non-marketable, non-interest bearing notes issued by the Government to the IMF. These notes are payable on demand and are subject to redemption or re-issue, depending on the needs of the IMF for Canadian currency.

Canadian dollar holdings of the IMF include these notes and a small working balance (initially equal to one-quarter of one per cent of Canada's subscription) held on deposit at the Bank of Canada. In 2014, notes payable to the IMF increased by $760 million (decreased by $398 million in 2013).

e) Special drawing rights allocations

This account records the value of special drawing rights (SDRs) allocated to Canada by the IMF. A SDR is an international reserve asset created by the IMF to supplement existing official international reserves of member countries. It represents a liability of Canada, as circumstances could arise whereby Canada could be called upon to repay these allocations, in part or in total.

SDR allocations are repayable to the IMF if they are cancelled by the IMF's Board of Governors, the Special Drawing Rights Department is liquidated, the IMF is liquidated, or if Canada chooses to withdraw from the IMF or terminate its participation in the Special Drawing Rights Department.

Canada's cumulative SDR allocations at March 31, 2014 are SDR5.99 billion (SDR5.99 billion in 2013). The Canadian dollar equivalent of this amount is $10.23 billion ($9.11 billion in 2013).

18. Crown borrowings

The following table presents details of Crown borrowings issued as at March 31:

Crown borrowings
($ thousands)
  Face value Unamortized
(discounts)
premiums
Net book
value
2014
Net book
value
2013
Canada Mortgage and Housing Corporation1 18,056,279 (2) 18,056,277 59,761,732
Farm Credit Canada 22,028,928 (501) 22,028,427 21,173,987
Business Development Bank of Canada 14,319,799 - 14,319,799 13,214,241
 
Total Crown borrowings 54,405,006 (503) 54,404,503 94,149,960
 
Fair value     54,767,461 95,486,401

1 Includes loans of $9,858,256 thousand as of March 31, 2014 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities.

Contractual maturities of outstanding loans with Crown corporations over the next five years, at face value, are as follows:

Contractual maturities of unmatured loans by Crown corporations
($ thousands)
Maturing year Canada Mortgage and Housing Corporation1 Farm Credit Canada Business Development Bank Total
2015 10,992,805 10,084,728 14,140,699 35,218,232
2016 875,121 7,718,200 89,100 8,682,421
2017 1,110,938 2,687,000 90,000 3,887,938
2018 1,068,692 801,000 - 1,869,692
2019 1,146,422 561,000 - 1,707,422
2020 and thereafter 2,862,301 177,000 - 3,039,301
 
Total contractual maturities of unmatured loans by Crown corporations 18,056,279 22,028,928 14,319,799 54,405,006

The effective average annual interest rates are as follows:

Effective average annual interest rates
  Canada Mortgage
and Housing Corporation
Farm Credit
Canada
Business
Development Bank
Short Term fixed interest rate 0.74% 0.80% -%
Long Term fixed interest rate 2.77% 1.81% 1.19%
Short Term floating interest rate -% -% 0.79%
Long Term floating interest rate 1.65% 0.80% -%

19. Loans receivable

The following table presents the various components of loans receivable due to the Department.

Loans receivable
($ thousands)
  Face value Unamortized discounts / Valuation allowance Net book value 2014 Net book value 2013
Government business enterprises        
Notes receivable from Canada Lands Company Ltd. (note 19a) 75,510 9,050 66,460 59,818
Note receivable from Parc Downsview Park Inc. (note 19b) 73,000 17,942 55,058 2,368
 
Total government business enterprises 148,510 26,992 121,518 62,186
 
Provincial and territorial governments        
Federal-Provincial fiscal arrangements (note 19c) 1,296,771 51,896 1,244,875 1,651,164
Recoverable overpayments of taxes payable under
tax collection agreements (note 19d)
- - - 134,543
Loans to Municipal Development and Loan Board (note 19e) 315 - 315 315
Loans to the Winter Capital Projects Fund (note 19f) 2,900 2,900 - -
Receivable from British Columbia - Comprehensive
Integrated Tax Coordination Agreement (note 19g)
639,600 10,962 628,638 937,500
 
Total provincial and territorial governments 1,939,586 65,758 1,873,828 2,723,522
 
International and other organizations        
Loans to the International Monetary Fund's Poverty
Reduction and Growth Trust (note 19h)
75,140 - 75,140 85,310
International Finance Corporation Global Agriculture and
Food Securities Program (note 19i)
48,000 48,000 - -
Advances to the Global Environment Facility (note 19j) 10,000 10,000 - -
Loan portfolio acquired from Canadian Commercial Bank (note 19k) 42,202 42,202 - -
 
Total international and other organizations 175,342 100,202 75,140 85,310
 
Total loans receivable 2,263,438 192,952 2,070,486 2,871,018

The breakdown of loans receivable by organizational body is outlined as follows.

Loans receivable by enterprise type
($ thousands)
  Face value Unamortized discounts / Valuation allowance Net book value 2014 Proportion
%
Total Government business enterprises 148,510 26,992 121,518 6
Total provincial and territorial governments 1,939,586 65,758 1,873,828 90
Total international and other organizations 175,342 100,202 75,140 4

Total loans receivable by enterprise type 2,263,438 192,952 2,070,486 100

The amount of loans receivable outstanding in foreign currencies, the Canadian dollar equivalent and the basis of translation is outlined in the table below.

Loans receivable by currency
($ thousands)
  Net Book Value CAN Equivalent Exchange Rate 2014
%
Proportion
%
CAN 1,995,346 1,995,346 N/A 96%
SDR 43,975 75,140 1.7087 4%
   
 
    2,070,486 100%

Government business enterprises

a) Canada Lands Company Ltd. (CLC)

Canada Lands Company CLC Limited (CLC) manages, redevelops and/or sells strategic Government of Canada properties across Canada that are no longer required for program purposes.

CLC issues promissory notes, which do not bear interest and are repayable from the proceeds of the sale of the properties in respect of which they were issued.

The promissory notes are discounted using the Consolidated Revenue Fund (CRF) lending rate applicable to Crown corporations at the time of issuance and are recorded at their discounted value at March 31, 2014.

b) Parc Downsview Park Inc.

Located in Toronto, Downsview Park is a unique urban recreational green space, a safe and peaceful place developed according to the principles of environmental, economic and social sustainability, for Canadians to enjoy in all seasons.

Parc Downsview Park Inc. issued a promissory note which is non-interest bearing and is repayable in full on July 31, 2050.

The promissory notes are discounted using the CRF lending rate applicable to Crown corporations at the time of issuance and are recorded at their discounted value at March 31, 2014.

Provincial and territorial governments

c) Federal-Provincial fiscal arrangements

These amounts represent net overpayments in respect of transfer payments to provinces under the Constitutions Acts 1867 to 1982, the Federal-Provincial Arrangements Act, and other statutory authorities. The overpayments are non-interest bearing and are paid in subsequent years.

d) Recoverable overpayments of taxes payable under tax collection agreements

As part of regular operations, the Department transfers tax revenue collected on behalf of other levels of government under tax collection agreements. In certain circumstances, overpayments of taxes collected occur.

The recoverable overpayments were non-interest bearing and have taken place over a 10 year period, which started in 2004–05.

e) Municipal Development and Loan Board

The Department issued various loans to municipalities in the 1960s for infrastructure development purposes.

The loans bear interest at rates from 5.250 to 5.375 per cent per annum and are repayable in annual or semi-annual instalments over 15 to 50 years.

The loans are currently due and final arrangement for the reimbursement of the remaining balance is being finalized.

f) Winter Capital Projects Fund

The loans bear interest at rates from 7.4 to 9.5 per cent per annum and are repayable either in annual instalments over 5 to 20 years, or at maturity.

The loans are fully provisioned.

g) Recoverable from British Columbia - Comprehensive Integrated Tax Coordination Agreement

Transitional assistance that had been paid to British Columbia as part of a Comprehensive Integrated Tax Coordination Agreement with Canada is being recovered in equal annual instalments with final payment due in March 2016. The Government has not collected interest on these amounts.

International and other organizations

h) International Monetary Fund-Poverty Reduction and Growth Trust

This account records the loan to the International Monetary Fund's Poverty Reduction and Growth Trust (formerly the Poverty Reduction and Growth Facility) in order to provide assistance to qualifying low-income countries as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

The total loan authority pursuant to the Bretton Woods and Related Agreements Act was set at $550 million Cdn or such greater amount as may be fixed by the Governor in Council. The Governor in Council subsequently increased the limit to SDR1.2 billion.

As at March 31, 2014, Canada has lent a total of $1.24 billion Cdn ($1.11 billion Cdn in 2013) (SDR728.5 million) (SDR728.5 million in 2013) to the Poverty Reduction and Growth Trust. Of this amount, $1.16 billion Cdn ($1.02 billion Cdn in 2013) (SDR684.5 million) (SDR672.5 million in 2013) has been repaid.

The outstanding balance is $75.1 million Cdn ($85.3 million Cdn in 2013) (SDR44 million) (SDR 56 million in 2013) translated into Canadian dollars at the year end closing rate of exchange of $ 1.70867 Cdn ($1.5220 Cdn in 2013) [CDN to SDR Rate] per SDR. During the year, transactions included repayments and an exchange valuation adjustment.

Separately, Canada has also made budgetary contributions towards an interest subsidy that over time have amounted to SDR215.2 million.

i) International Finance Corporation Global Agriculture and Food Securities Program (IFC-FSI)

This account records Canada's financial assistance to the IFC for participation in the G8 Food Security Initiative (FSI) as authorized by the Bretton Woods and related Agreements Act and various appropriation acts.

During the year amounts for front-end and commitment fees and interest were repaid in accordance with the administration agreement signed between the IFC and the Government of Canada.

As at March 31, 2014, advances to the IFC-FSI amounted to $48 million Cdn.

j) Advances to the Global Environment Facility (GEF)

This account records the funding of a facility for environmental funding in developing countries in the areas of ozone, climate change biodiversity and international waters as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts. Advances to the GEF are made in non-negotiable, non-interest bearing demand notes that are later encashed.

As at March 31, 2014, advances to the GEF amounted to $10 million Cdn ($10 million Cdn in 2013).

k) Investment in loan portfolio acquired from Canadian Commercial Bank

Advances have been made to the Canadian Commercial Bank representing the Government's participation in the support group as authorized by the Canadian Commercial Bank Financial Assistance Act. These funds represent the Government's participation in the loan portfolio that was acquired from the Bank and the purchase of outstanding debentures from existing holders.

20. Investments and share subscriptions

The following table presents details of investments and share subscriptions that the Department participates in:

Investments and share subscriptions
($ thousands)
  Face value Unamortized discounts / Valuation allowance Net book value 2014 Net book value 2013
International and other organizations        
Subscriptions and contributions to the International Development Association (note 20a) 10,289,338 10,289,338 - -
Subscriptions to the European Bank for Reconstruction and Development (note 20b) 239,007 239,007 - -
Subscriptions to the International Bank for Reconstruction and Development (note 20c) 478,255 478,255 - -
Subscriptions to the International Finance Corporation (note 20d) 89,924 89,924 - -
International Finance Corporation-Financial Mechanisms for Climate Change Facility (note 20e) 328,855 65,759 263,096 263,096
Subscriptions to the Multilateral Investment Guarantee Agency (note 20f) 11,865 11,865 - -
 
Total investments and share subscriptions 11,437,244 11,174,148 263,096 263,096

a) International Development Association (IDA)

This account records Canada's contributions and subscriptions to the IDA, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts (including Finance Vote L15, Appropriation Act No. 2, 2013-2014). The contributions and subscriptions to the IDA, which is part of the World Bank Group, are used to lend funds to the poorest developing countries for development purposes, on highly favourable terms (no interest, with a 35 to 40 years maturity and 10 years of grace). Contributions and subscriptions to the IDA are made in non-negotiable, non-interest bearing demand notes that are later encashed.

During the year, transactions included participation through the issuance of notes payable.

As at March 31, 2014, Canada's total participation in IDA amounted to $10.29 billion Cdn ($9.85 billion Cdn in 2013).

b) European Bank for Reconstruction and Development

This account records Canada's subscriptions to the capital of the European Bank for Reconstruction and Development (EBRD), as authorized by the European Bank for Reconstruction and Development Agreement Act, and various appropriation acts.

At year end, Canada has subscribed to 102,049 shares (102,049 shares in 2013) of the EBRD's authorized capital valued at EUR 1.02 billion (EUR 1.02 billion in 2013).

Only EUR 212.9 million (EUR 212.9 million in 2013) or about 21 per cent (21 per cent in 2013) of Canada's share subscription is considered "paid-in". The balance is callable meaning the institution can request the resources in the unlikely event that it requires them to meet its financial obligations to bondholders. Payments for the share subscription are authorized by the Act. Each payment to the EBRD is comprised of cash and a promissory note.

Canada's contingent liability for the callable portion of its shares was EUR 807.6 million (EUR 807.6 million in 2013).

Up to and including March 31, 2014 Canada's total cash contributions into the "paid-in" capital of the EBRD total US$216.2 million.

c) International Bank for Reconstruction and Development (World Bank)

This account records Canada's subscriptions to the capital of the International Bank for Reconstruction and Development, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

As at March 31, 2014, Canada has subscribed to 58,354 shares (58,354 shares in 2013 ). The total value of these shares is US$7.04 billion (US$7.04 billion in 2013), of which US$417.8 million (US$417.8 million in 2013) plus $16.4 million Cdn ($16.4 million Cdn in 2013) has been paid-in. The remaining portion is callable.

The callable portion is subject to call by the Bank under certain circumstances. Canada's contingent liability for the callable portion of its shares is US$6.61 billion (US$6.61 billion in 2013).

d) International Finance Corporation

This account records Canada's subscription to the capital of the International Finance Corporation (IFC), which is part of the World Bank Group, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

As at March 31, 2014, Canada has subscribed to 81,342 shares (81,342 shares in 2013). These shares have a total value of US81.3 million (US$81.3 million in 2013), all of which has been paid-in.

e) International Finance Corporation - Financial Mechanisms for Climate Change Facility

This account records Canada's financial support of the IFC's - Financial Mechanisms for Climate Change (FMCC) facility as authorized by the Bretton Woods and related Agreements Act and various appropriation acts (including Finance Vote L12b, Appropriation Act No. 4, 2010-2011 and Vote L17c, Appropriation Act No. 5, 2012-2013). The FMCC supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional financing arrangements.

As at March 31, 2014 advances to the IFC-FMCC amount to $328.9 million Cdn ($328.9 million Cdn in 2013 ). Amounts are recovered through the FMCC trust mechanism based on the terms and conditions of project funding which is administered by the IFC in accordance with the administration agreement signed between IFC and the Government of Canada.

f) Subscriptions to the Multilateral Investment Guarantee Agency

This account records Canada's subscriptions to the capital of the Multilateral Investment Guarantee Agency, as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

As at March 31, 2014, Canada has subscribed to 5,225 shares (5,225 shares in 2013). The total value of these shares is US$56.5 million (US$56.5 million in 2013), of which US$10.7 million (US$10.7 million in 2013) is paid-in and the remaining portion is callable.

The callable portion is subject to call by the Agency under certain circumstances. Canada's contingent liability for the callable portion of its shares is US$45.8 million (US$45.8 million in 2013).

21. Tangible capital assets

Tangible capital assets
($ thousands)
  Cost Accumulated amortization Net book value




Capital asset class Opening balance Acquisitions Adjustments Disposals and write-offs Closing balance Opening balance Amortization Adjustments Disposals and write-offs Closing balance 2014 2013
Machinery and equipment 308 - - - 308 283 6 - - 289 19 25
Informatics equipment 260 - - - 260 63 81 - - 144 116 197
Informatics software - 44 - - 44 - - - - - 44 -
Motor vehicles 80 - 28 25 83 26 25 6 25 32 51 54
Assets under construction - 9,954 - - 9,954 - - - - - 9,954 -
 
Total capital assets 648 9,998 28 25 10,649 372 112 6 25 465 10,184 276

22. 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 payments programs or when the services/goods are received.

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

Contractual obligations
($ thousands)
  2015 2016 2017 2018 2019 and thereafter Total
Transfer payment            
  International Development Association 492,810 492,810 492,820 51,200 828,100 2,357,740
  African Development Fund - - - - 401,708 401,708
  Harbourfront Centre Funding Program 5,000 3,000 - - - 8,000
 
Total contractual obligations 497,810 495,810 492,820 51,200 1,229,808 2,767,448

23. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped in to two categories as follows:

a) Callable share capital

The Department has callable share capital in certain international organizations that could require payments to those organizations. At March 31, 2014, callable share capital is $8.58 billion ($7.81 billion in 2013).

Callable share capital
($ thousands)
  2014 2013
International and other organizations    
Subscriptions to the European Bank for Reconstruction and Development 1,230,036 1,051,870
Subscriptions to the International Bank for Reconstruction and Development 7,303,440 6,712,162
Subscriptions to the Multilateral Investment Guarantee Agency 50,635 46,536
 
Total callable share capital 8,584,111 7,810,568

b) Loan guarantees

Mortgage Insurance

The Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA) received Royal Assent on June 26, 2011 and came into force on January 1, 2013.

The PRMHIA authorizes the Minister of Finance to provide protection in respect of certain mortgage or hypothecary insurance contracts written by approved mortgage insurers. Under the PRMHIA, a payment in respect of this guarantee would only be made if a winding-up order were made in respect of an approved mortgage insurer that had written an insurance contract guaranteed under the PRMHIA. In that case, the Minister would honour lender claims for insured mortgages in default, subject to: (1) any proceeds the beneficiary has received from the underlying property or the insurer's liquidation, and (2) a deductible of 10 per cent of the original principal amount of the insured mortgage.

As at March 31, 2014, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $174.9 billion ($164 billion in 2013). Any payment made by the Minister is subject to a deductible equal to 10 per cent of the original principal amount of these loans, or $19.7 billion ($22 billion in 2013). The principal amount outstanding does not refer to anticipated losses or payments in respect of the guarantee. No provision has been made in these accounts for payments under the guarantee.

As at March 31, 2014, there are two approved mortgage insurers under the PRMHIA: Genworth Financial Mortgage Insurance Company Canada, and Canada Guaranty Mortgage Insurance Company.

Canadian Wheat Board

The Department manages guarantees to the Canadian Wheat Board for the repayment of the principal and interest of all receivables resulting from sales made under the Credit Grain Sale Program for an amount of $178 million ($185 million in 2013) and a portion of credit sales made under the Agri-Food Credit Facility, which amounted to $4 million ($16 million in 2013).

A total allowance of $50 million ($49 million in 2013) was recorded under both programs and is included in accounts payable and accrued liabilities (note 5).

24. 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. In addition, the Department has an agreement with Treasury Board of Canada Secretariat related to the provision of accounting services. During the year, the Department received common services which were obtained without charge from other government departments as disclosed below.

a) Common services received without charge from other government departments

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

Services received without charge
($ thousands)
  2014 2013
Accommodation 9,468 9,500
Employer's contribution to the health and dental insurance plans 6,328 7,101
Legal services 2,496 2,491
 
Total services received without charge 18,292 19,092

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic 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 cost of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included in the Department's Statement of Operations and Departmental Net Financial Position.

b) Other transactions with related parties

Other transactions with related parties
($ thousands)
  2014 2013
Expenses - Other government departments and agencies 8,604,816 9,042,106
Revenues - Other government departments and agencies 26,530 23,763

Expenses disclosed exclude common services provided without charge, which are disclosed in note 24a. These amounts include expenses and revenues pertaining to assets and liabilities held on behalf of Government as well as interest on superannuation and other accounts.

25. Transfer to other government departments

Effective April 3, 2013, the Department transferred responsibility for the acquisition and provision of hardware and software, including security software, for Workplace Technology Devices (formerly known as End User Devices) to the Shared Services Canada (SSC) in accordance with s31.1 of the Financial Administration Act and Order in Council P.C. 2013-0368.

During the transition period, the Department continued to administer the transferred activities on behalf of SSC. The administered disbursements were $228 thousand in 2014 ($nil for 2013). These disbursements are not included in these financial statements.

26. Segmented Information

Presentation by segment is based on the Department's program activity architecture. 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 program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

Segmented information
($ thousands)
  Transfer and Taxation Payment Programs Treasury and Financial Affairs Economic and Fiscal Policy Framework Internal Services 2014 Total 2013 Total
Expenses            
Transfer payments            
  Provinces and territories (note 26a) 58,747,730 - - - 58,747,730 56,509,696
  International organizations 568,112 - - - 568,112 716,719
  Non-profit institutions and organizations 5,000 - 14,189 10 19,199 15,002
  Allowances on loan guarantees 1,434 - - - 1,434 (172,927)
 
Total transfer payments 59,322,276 - 14,189 10 59,336,475 57,068,490
Interest and other costs            
  Interest on unmatured debt (note 26b) - 16,416,407 - - 16,416,407 16,640,531
  Interest on superannuation
  and other accounts (note 26c)
- 8,583,879 - - 8,583,879 9,050,112
  Other Interest and costs - 11,315 - - 11,315 9,861
 
Total interest and other costs - 25,011,601 - - 25,011,601 25,700,504
Operating expenses (note 26d) - - 75,622 66,272 141,894 144,176
Cost of domestic coinage sold - 127,663 - - 127,663 130,865
Other expenses - - - 9 9 11
 
Total expenses 59,322,276 25,139,264 89,811 66,291 84,617,642 83,044,046
Revenues            
Investment income            
  Crown borrowings-interest - 1,725,071 - - 1,725,071 2,230,682
  Exchange Fund Account-net revenues - 1,504,766 - - 1,504,766 1,400,551
  Other interest 69,871 3,973 59 - 73,903 95,677
 
Total investment income 69,871 3,233,810 59 - 3,303,740 3,726,910
Sale of domestic coinage - 84,975 - - 84,975 120,192
Guarantee fees 23,535 - - - 23,535 11,168
Interest on bank deposits - 330,518 - - 330,518 222,359
Unclaimed cheques and other - 46,785 7,674 154 54,613 57,594
Net foreign currency gain (60,568) 177,578 - (14) 116,996 78,147
Revenues earned on behalf of Government (note 27) (32,838) (3,873,666) (7,733) (58) (3,914,295) (4,216,227)
 
Total revenues - - - 82 82 143
 
Net cost from operations 59,322,276 25,139,264 89,811 66,209 84,617,560 83,043,903

a) Transfer payments to provinces and territories

Transfer payments to provinces and territories are paid pursuant to the Federal-Provincial Fiscal Relations Act, Budget Implementation Acts, and other statutory authorities.

For the period ending March 31, transfer payments to provinces and territories include the following:

Transfer payments to provinces and territories
($ thousands)
  2014 2013
Canada Health Transfer 30,292,952 28,662,354
Canada Health Transfer - Wait Times Reduction 250,000 250,000
Fiscal Equalization 16,454,912 15,865,879
Canada Social Transfer 12,215,271 11,859,486
Quebec Abatement (4,222,802) (4,093,539)
Territorial Financing 3,288,282 3,110,680
Obligation to Ontario - General Motors 356,314 105,041
Fiscal Equalization - Total Transfer Protection 55,806 679,660
Statutory subsidies 34,119 32,149
Transitional assistance provided under sales tax harmonization agreements:    
  Prince Edward Island - 39,000
Incentive for the elimination of capital taxes (recovery of) 22,876 (1,014)
 
Total transfer payments to provinces and territories 58,747,730 56,509,696

b) Interest on unmatured debt

Interest on unmatured debt includes interest incurred, amortization of debt discounts, premiums and net interest on cross-currency and interest rate swaps.

For the period ending March 31, interest on unmatured debt includes the following:

Interest on unmatured debt
($ thousands)
  2014 2013
Interest on domestic debt:    
  Marketable bonds 14,321,825 14,614,520
  Treasury bills 1,815,475 1,759,267
  Retail debt 58,904 75,948
  Bonds for Canada Pension Plan - 167
 
Total interest on domestic debt 16,196,204 16,449,902
 
Interest on foreign debt:    
  Marketable bonds 216,956 187,922
  Canada bills 2,411 2,707
  Medium term notes 836 -
 
Total interest on foreign debt 220,203 190,629
 
Total interest on unmatured debt 16,416,407 16,640,531

c) Interest on superannuation and other accounts

For the period ending March 31, interest on superannuation and other accounts includes the following:

Interest on superannuation and other accounts
($ thousands)
  2014 2013
Superannuation accounts 8,228,849 8,673,602
Other specified purpose accounts 230,641 251,289
Retirement compensation arrangement accounts 112,360 113,826
Special drawing rights allocations 8,882 8,536
Canada Pension Plan account 3,147 2,859
 
Total interest on superannuation and other accounts 8,583,879 9,050,112

The Department funds interest on interest-bearing specified purpose accounts established by all departments and agencies, including superannuation accounts and retirement compensation arrangement accounts established for the benefit of public service employees and members of the Royal Canadian Mounted Police and the Canadian Forces, the Canada Pension Plan Account, and other accounts.

d) Operating expenses

The following table presents details of operating expenses by category:

Operating expenses
($ thousands)
  2014 2013
Salaries and wages 81,732 80,935
Professional and special services 18,791 19,084
Contribution to employee benefit plans 12,081 12,233
Information services 11,896 16,069
Accommodation 9,468 9,500
Machinery and equipment 3,175 1,562
Transportation and telecommunications 2,846 2,775
Rentals 1,422 1,900
Amortization of tangible capital assets 112 59
Repairs and maintenance 333 45
Other subsidies and payments 38 14
 
Total operating expenses 141,894 144,176

27. Revenues earned on behalf of Government

The following table presents details of the revenues earned on behalf of Government:

Revenues earned on behalf of Government
($ thousands)
  2014 2013
  Crown borrowing-interest 1,725,071 2,230,682
  Exchange Fund Account-net revenues 1,504,766 1,400,551
  Other interest 73,903 95,677
  Sale of domestic coinage 84,975 120,192
  Guarantee fees 23,535 11,168
  Interest on bank deposits 330,518 222,359
  Unclaimed cheques and other 54,531 57,451
  Net foreign currency gain 116,996 78,147
 
Total revenues earned on behalf of Government 3,914,295 4,216,227

Revenues earned on behalf of Government represent revenue which the Department cannot re-spend to fund other departmental activities.

28. Accounting changes and restatement

Restatement of unamortized premiums and discounts arising on the buy-back of bonds

The Government of Canada engages in bond buy-back operations in which bonds are exchanged or repurchased and refinanced with similar debt with the intent of sustaining market liquidity. Previously, premiums and discounts arising on the repurchase of bonds in these transactions were deferred and amortized over the remaining life of the old debt or the life of the new debt, whichever was shorter.

In 2014, the Government ascertained that the source of Generally Accepted Accounting Principles (GAAP) on which this policy was based was no longer relevant. Consequently, a change in the accounting policy was considered necessary in order to provide a more appropriate presentation of these transactions that aligns with the guidance on derecognition of financial liabilities in the approved Public Sector Accounting Standard PS 3450 Financial Instruments, and with comparable guidance of other standard setters with similar conceptual frameworks. The Government will adopt PS 3450 on April 1, 2016, in accordance with the transitional provisions of that standard.

Under the new accounting policy for bond buy-back transactions, an exchange or repurchase of debt is considered to be an extinguishment of the financial liability when the transaction is a repurchase of bonds, or when there is an exchange of debt with an existing holder and the terms of the replacement debt are substantially different to those of the original debt.

When the financial liability is extinguished, the difference between the carrying amount of the debt instrument and the net consideration paid, is recognized in interest on unmatured debt. This change in accounting policy has been applied to the Department's financial statements on a retroactive basis.

As a result of this restatement, the opening balances of unmatured debt, departmental net debt and departmental net financial position have been adjusted due to the derecognition of the unamortized balance of premiums or discounts associated with the extinguished of the financial liability. Expenses in the comparative year have also been adjusted.

Effect of change
($ thousands)
  2013
As previously stated
Effect of change 2013
Restated
Statement Financial Position:      
  Unmatured debt 662,053,049 5,387,148 667,440,197
  Departmental net debt (512,136,627) (5,387,148) (517,523,775)
  Departmental net financial position (512,136,344) (5,387,148) (517,523,492)
       
Statement of Operations and Departmental Net Financial Position:      
  Departmental net financial position - beginning of year (480,779,797) (5,668,845) (486,448,642)
  Expenses 83,325,743 (281,697) 83,044,046
  Departmental net financial position - end of year (512,136,344) (5,387,148) (517,523,492)

29. Comparative information

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

Department of Finance Canada
Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of the Department of Finance Canada for Fiscal Year 2013-14 (unaudited)

1. Introduction

This document provides summary information on the measures taken by the Department of Finance Canada (the Department) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management and assessment results and related action plans.

Detailed information on the Department's authority, mandate and program activities can be found in the Departmental Performance Report and Report on Plans and Priorities.

2. Departmental System of Internal Control Over Financial Reporting

2.1 Internal control management

The Department 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 framework approved by the Deputy Minister and the Chief Financial Officer (CFO) is in place which includes:

  • Organizational accountability structures as they relate to internal control management to support sound financial management including clear roles and responsibilities for employees in their areas of responsibility for control management;
  • Ongoing communication and training on statutory requirements, policies and procedures for sound financial management and control;
  • A group dedicated to ICFR under the direction of the CFO with a primary focus on maintaining documentation in support of business processes and related key risk and control points to support management and its oversight of its system of ICFR;
  • A risk based internal audit plan which also covers planned audits related to business processes assessed under the Policy on Internal Control;
  • An Office of Values and Ethics to provide service and guidance on values and ethics issues, discuss ethical dilemmas in accordance with the Values and Ethics Code for the Public Sector and the Conflict of Interest Code for the Department of Finance to underline the need for employees to avoid, and if necessary, resolve conflicts of interest between their official duties and their personal interests. Mandatory annual reporting is an important feature of the code;
  • A Disclosure Protection Officer, housed within the Office of Values and Ethics, to facilitate protected disclosures of wrongdoing in accordance with the Public Servants Disclosure Protection Act;
  • Monitoring and regular updates on internal control management plus assessment results and action plans to the Audit and Evaluation Committee (AEC) as well as senior management;
  • The AEC provides advice to the Deputy Head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to the financial statements

The Department relies on other organizations for the processing of certain transactions that are recorded in its financial statements.

Common arrangements:

  • Public Works and Government Services Canada (PWGSC) centrally administers banking arrangements and related processes, the payments of salaries and the procurement of goods and services consistent with the Department's delegation of authority;
  • Treasury Board of Canada Secretariat (TBS) provides the Department with information used to calculate various accruals and allowances, such as loan guarantees and the accrued severance liability;
  • The Department of Justice provides legal services to the Department;
  • Shared Services Canada (SSC) provides information technology (IT) infrastructure services in the area of data centre and network services.

Specific arrangements:

  • The Bank of Canada has shared responsibility for maintaining the financial records and accounts of the domestic debt for which the Bank acts as fiscal agent and the Exchange Fund Account of Canada. These responsibilities include ensuring all related financial systems and processes are effectively designed and operating;
  • Canada Revenue Agency (CRA) provides the financial information used by the Department to determine taxes receivable from CRA under tax collection agreements, including accrual-based methodologies to determine amounts receivable at year-end;
  • TBS provides financial management and accounting services for operating expenses, managed through a shared-services arrangement; and,
  • TBS provides the Department and other departments with its SAP financial system platform through which it captures and reports on financial transactions. As the service provider, TBS is responsible for ensuring that IT-general controls over the SAP environment are designed and operating effectively. As the client, the Department retains responsibility over certain IT-general controls over the SAP environment, such as user access controls and segregation of duties.

3. Departmental Assessment Results during Fiscal Year 2013-2014

The key findings and significant adjustments required from the current year's assessment activities are summarized below.

New or significantly amended key controls in the current year, there were no new or significantly amended key controls in existing processes which required a reassessment.

Ongoing monitoring program – As is its practice, the Department assesses the design and operational effectiveness of its high-risk business processes on an annual basis as part of its rotational on-going monitoring program (OGM). This year, the Department completed its reassessment of entity-level controls, IT-general controls under departmental management and the following business processes:

Departmental Assessment Results
Business process Assessed level of financial reporting risk Approach to assessment
Transfer payments High Design and operational effectiveness
Domestic debt High Design and operational effectiveness
Crown borrowing High Design and operational effectiveness
International organizations High Design and operational effectiveness
Official International Reserves High Design and operational effectiveness
Operating expenses Medium Operational effectiveness
Domestic coinage Medium Design and operational effectiveness
Payroll & Benefits Low Design effectiveness
Entity-level controls High Design effectiveness
IT-general controls under departmental management High Design and operational effectiveness

Based on the work performed, key controls tested performed as intended.

Other items of significance - During the year, the Department's SAP environment service provider (see section 2.2) performed operational effectiveness testing of its IT-general controls. Areas of testing included information system operations, information security, back-up recovery, and change management for system updates Although most key controls operated as intended, the results of this assessment indicates a requirement to enhance controls in the areas of information security and monitoring. During the course of its annual Public Accounts of Canada audit, similar requirements were also raised. The service provider prepared a management action plan to address these points, which will be remediated in 2014-2015.

The Department also took the results of four internal audits completed during the year into consideration to aid in supporting its own assessment results for fiscal 2013-2014:

  • Audit of the Control Framework for Domestic Debt;
  • Audit of the Control Framework for Foreign Debt;
  • Audit of Travel and Hospitality; and
  • Audit of Financial Commitments to the World Bank.

The results of these audits are published on the departmental website.

4. Departmental Action Plan

4.1 Progress during fiscal year 2013-2014

The Department continued to conduct its on-going monitoring according to the previous fiscal year's rotational plan as shown in the following table:

Progress during fiscal year 2013-2014
Business process Status
Transfer payments Completed as planned and no remedial actions required
Domestic debt Completed as planned and no remedial actions required
Crown borrowing Completed as planned and no remedial actions required
International organizations Completed as planned and no remedial actions required
Official International Reserves Completed as planned and no remedial actions required
Operating expenses Completed as planned and no remedial actions required
Domestic coinage Completed as planned and no remedial actions required
Payroll & benefits Completed as planned and no remedial actions required
Entity-level controls Completed as planned and no remedial actions required
IT-general controls under departmental management Completed as planned and no remedial actions required.

Certain improvements in IT-general controls provided by TBS were identified during the year. See Section 3.

4.2 Action plan for the next fiscal year and subsequent years

The Department's rotational on-going monitoring plan over the next three years, based on an annual validation of high-risk processes is shown in the following table:

Action plan for the next fiscal year and subsequent years
Key control area Assessed level of financial-reporting risk 2014-2015
assessment scope
2015-2016
assessment scope
2016-2017
assessment scope
Transfer payments High Yes Yes Yes
Domestic debt High Yes Yes Yes
Crown borrowing High Yes Yes Yes
International organizations High Yes Yes Yes
Official International Reserves High Yes Yes Yes
Operating expenses Medium Yes No Yes
Domestic coinage Medium No Yes No
Payroll and benefits Low Yes No No

Entity-level and IT-general controls will be validated on an annual basis.

Effective April 1, 2016, the Public Sector Accounting Standards for Financial Instruments and Foreign Currency Translation will become effective for the Department. Work continues to be done to assess the impact that these new standards will have on the financial statements of the Department and existing systems.