Financial Statements (Unaudited)
Department of Finance Canada

For the year ended
March 31, 2016

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, 2016, 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 fulfil 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, 2016 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
Christopher Meyers, Chief Financial Officer


Ottawa, Canada
September 2, 2016

 

Department of Finance Canada
Statement of Financial Position (Unaudited)
As at March 31
$ thousands
  2016 2015
Liabilities    
  Deposit liabilities (note 4) 247,118 119,049
  Accounts payable and accrued liabilities (note 5) 133,409 206,574
  Taxes payable under tax collection agreements (note 6) 4,326,846 1,546,960
  Interest payable (note 7) 4,536,595 4,886,540
  Notes payable to international organizations (note 8) 35,313 34,440
  Matured debt (note 9) 384,959 352,895
  Unmatured debt (note 10) 682,717,607 660,004,823
  Employee future benefits (note 13) 5,621 5,961
 
Total gross liabilities 692,387,468 667,157,242
Liabilities held on behalf of Government (note 14) (35,313) (34,440)
 
Total net liabilities 692,352,155 667,122,802
Financial assets    
  Due from Consolidated Revenue Fund 4,589,089 5,147,466
  Cash held as collateral (note 15) 6,556,959 -
  Coin inventory 7,494 6,641
  Accounts receivable (note 16) 200,604 147,970
  Taxes receivable under tax collection agreements (note 17) 6,158,888 5,771,920
  Foreign exchange accounts (note 18) 93,538,697 85,018,320
  Crown borrowings (note 19) 48,196,182 46,155,300
  Loans receivable (note 20) 1,278,082 1,780,497
  Investments and capital share subscriptions (note 21) 257,740 263,096
 
Total gross financial assets 160,783,735 144,291,210
Financial assets held on behalf of Government (note 14) (3,623,825) (2,739,742)
 
Total net financial assets 157,159,910 141,551,468
 
Departmental net debt 535,192,245 525,571,334
Non-financial assets    
  Tangible capital assets (note 22) 15,717 17,015
  Prepaid expenses 76 29
 
Total non-financial assets 15,793 17,044
 
Departmental net financial position (535,176,452) (525,554,290)

Contractual obligations (note 23)
Contingent liabilities (note 24)

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

 
 
Paul Rochon, Deputy Minister 
Christopher Meyers, Chief Financial Officer


Ottawa, Canada
September 2, 2016

 

 

Department of Finance Canada
Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31
$ thousands
  2016
Planned
Results
2016 2015
Expenses      
  Transfer and taxation payment programs 63,809,613 64,390,313 61,928,540
  Treasury and financial affairs 25,726,000 22,732,354 23,594,088
  Economic and fiscal policy framework 76,349 63,278 123,435
  Internal services 59,250 65,587 66,979
 
Total expenses 89,671,212 87,251,532 85,713,042
Revenues      
  Investment income 1,766,818 2,603,510 1,547,330
  Sale of domestic coinage 110,715 123,172 112,733
  Interest on bank deposits 319,545 221,582 312,728
  Net foreign currency gain - 164,436 553,481
  Other income 92,665 155,416 134,655
  Revenues earned on behalf of Government (note 27) (2,289,642) (3,268,014) (2,660,825)
 
Total revenues 101 102 102
 
Net cost of operations before government funding and transfers 89,671,111 87,251,430 85,712,940
Government funding and transfers      
  Net cash provided by Government 78,165,871 89,012,659
  Change in due from the Consolidated Revenue Fund (558,377) (359,371)
  Services provided without charge by other government departments (note 25a) 21,797 20,102
  Transfer of the transition payments for implementing salary payments in arrears (note 25b) (23) (2,793)
   
Net cost of operations after government funding and transfers   9,622,162 (2,957,657)
Departmental net financial position - beginning of year (525,554,290) (528,511,947)
   
Departmental net financial position - end of year (535,176,452) (525,554,290)

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
  2016 2015
Net cost of operations after government funding and transfers 9,622,162 (2,957,657)
Changes due to tangible capital assets    
  Acquisition of tangible capital assets 73 7,808
  Amortization of tangible capital assets (1,371) (977)
 
Total change due to tangible capital assets (1,298) 6,831
Change due to prepaid expenses 47 29
 
Net increase (decrease) in departmental net debt 9,620,911 (2,950,797)
Departmental net debt - beginning of year 525,571,334 528,522,131
 
Departmental net debt - end of year 535,192,245 525,571,334

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
  2016 2015
Operating activities    
  Net cost of operations before government funding and transfers 87,251,430 85,712,940
  Non-cash items:    
    Amortization of tangible capital assets (note 22) (1,371) (977)
    Amortization of discounts on loans receivable 4,792 4,126
    Amortization of discounts of Crown borrowings 13,971 33,207
    Amortization of discounts/premiums on unmatured debt (2,372,307) (2,258,841)
    Unrealized foreign exchange gains on the Foreign exchange accounts 2,085,581 5,244,202
    Unrealized foreign exchange losses on debt (2,027,376) (5,219,557)
    Services provided without charge by other government departments (note 25a) (21,797) (20,102)
  Transition payments for implementing salary payments in arrears (note 25b) 23 2,793
  Variations in Statement of Financial Position:    
    Increase in assets 387,868 3,114,932
    Decrease (increase) in liabilities (2,484,505) 1,075,604
 
Cash used in operating activities 82,836,309 87,688,327
Capital investing activities    
    Acquisition of tangible capital assets (note 22) 73 7,808
 
Cash used in capital investing activities 73 7,808
Investing activities    
    Investments in Foreign exchange accounts 43,541,345 29,396,949
    Repayments from Foreign exchange accounts (38,453,475) (21,220,272)
    Issuance of Crown borrowings 54,514,501 79,646,713
    Repayment of Crown borrowings (52,487,590) (87,929,124)
    Issuance of loans receivable 35,800 231,184
    Repayment of loans receivable (32,886) (65,296)
 
Cash used in investing activities 7,117,695 60,154
Financing activities    
    Net issuance from cross-currency swaps (21,065) (146,492)
    Issuance of debt (478,164,051) (482,723,593)
    Repayment of debt 459,839,951 484,126,455
    Cash held as collateral 6,556,959 -
 
Cash (provided)/used in financing activities (11,788,206) 1,256,370
 
Net cash provided by Government of Canada 78,165,871 89,012,659

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

Notes to the Financial Statements (Unaudited)

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.

To achieve its strategic outcome the Department articulates its plans and priorities based on the core programs below.

Transfer and taxation payment programs: This Program enables the Government of Canada to meet its transfer and taxation payment commitments. The Program administers transfer and taxation payments to provinces and territories and Aboriginal governments in compliance with legislation and negotiated agreements. The Program also fulfills commitments and agreements with international financial organizations to support the economic advancement of developing countries. The Government of Canada sometimes enters into agreements or enacts 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 provides analysis, research and advice to ministers and senior government officials on the management of the treasury and the financial affairs of the Government of Canada. The Program ensures that the treasury and financial affairs of the Government of Canada are efficiently managed on behalf of Canadian taxpayers. The Program provides direction for Canada's debt management activities, including the funding of debt and service costs for new borrowings. This Program manages investments in financial assets so that the Government of Canada can meet its liquidity needs. The 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 federal government-backed entities, such as Crown corporations. The Program also oversees the system that ensures that Canada has an adequate supply of circulating Canadian currency (banknotes and coins) to meet the needs of the Canadian economy.

Economic and fiscal policy framework: This Program is the main source of advice and recommendations to the Minister of Finance, other ministers and senior government officials on issues, policies and programs of the Government of Canada in the areas of economic, fiscal and social policy; federal-provincial relations; the financial sector; taxation; and international trade and finance. The Program ensures that ministers and senior government officials can make informed decisions on economic, fiscal and financial sector policies, programs and proposals. Ultimately, the Program contributes to building a sound and sustainable fiscal and economic framework that generates sufficient revenues and aligns the management of expenditures with the Budget Plan and the 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. Internal services include only those activities and resources that apply across an organization, and not those provided to a specific program. The groups of activities 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; and Acquisition Services.

2. Summary of significant accounting policies

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

Significant accounting policies are as follows:

a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.

The planned results amounts in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2015-16 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2015-16 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 multi-employer 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 Net foreign currency gain 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, Transfer and Taxation Payment Programs, and Internal Services 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 capital share subscriptions

Investments and capital 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:

Tangible capital assets
Asset class Amortization Period
Computer hardware Five years
Informatics software Three years
Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
Machinery and equipment Five to ten years
Motor vehicles Three years

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) Cash held as collateral

Effective April 2015, the Department implemented a two-way collateral program in accordance with Credit Support Annex (CSA) agreements for cross-currency swaps. This program is administered by the Bank of Canada, and requires the Department and counterparties to provide collateral, either in the form of securities or cash (CAD or USD), based on the terms and conditions of the agreements, or when the fair value of a contract exceeds a minimum threshold.

Collateral provided by the Department, in the form of cash, is recorded as an asset on the Statement of Financial Position. Collateral posted by the Government of Canada in the form of securities, if any, are not derecognized.

q) Deposit liabilities

Deposits that are repayable on demand are recorded as liabilities.

Deposit liabilities can also include collateral received in the form of cash in accordance with CSA agreements for cross-currency swaps. Securities pledged to the Government of Canada, if any, are not recognized as assets in the absence of default.

r) 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 Department was responsible for the management of 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. During the year, the Department completed a transfer of the outstanding guarantees provided for under this program to the Canada Account.

s) 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 capital share subscriptions, discounts on loans receivable, accruals of taxes receivable and taxes payable under tax collection agreements, 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.

t) Liabilities and financial assets held on behalf of Government

Liabilities and financial assets 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
  2016 2015
Net cost of operations before government funding and transfers 87,251,430 85,712,940
Adjustments for items affecting net cost of operations but not affecting authorities:    
  Allowance for bad debts (28,668) (118,644)
  Allowance on loans, investments and advances 36,705 (135,754)
  Inventory charged to program expense 2,685 (499)
  Employee future benefits 340 (1,488)
  Amortization of tangible capital assets (1,371) (977)
  Services provided without charge by other government departments (21,797) (20,102)
  Prepaid expenses (24) (54)
  Concessionary of loans receivable - (33,325)
Other expenses not being charged to authorities:    
  Incentive for the elimination of capital tax 28,000 67,571
  Obligation to Ontario - General Motors - (2,684)
  Other 1,208 1,458
 
Total items affecting net cost of operations but not affecting authorities 17,078 (244,498)
Adjustments for items not affecting net cost of operations but affecting authorities:    
  Advances and prepaid expenses 54,522,576 79,693,409
  Loans receivable from the International Monetary Fund 128,631 581,509
  Payments for International Development Association - 441,610
  Loans receivable from national governments - 400,000
  Recovery of transitional assistance provided under sales tax harmonization agreement (319,800) (319,800)
  Loans receivable from International and other organizations 160,761 60,329
  Acquisitions of tangible capital assets 73 7,808
  Transition payments for implementing salary payments in arrears (note 25b) 23 2,793
  Other 58,433 82,212
 
Total items not affecting net cost of operations but affecting authorities 54,550,697 80,949,870
 
Current year authorities used 141,819,205 166,418,312

b) Authorities provided and used

Authorities provided and used
$ thousands
  2016 2015
Authorities provided:    
  Vote 1 – Operating expenditures 109,122 127,774
  Vote 5 – Grants and contributions 3,035 5,035
  Statutory authorities:    
    Transfer payments 64,102,275 61,950,646
    Interest on unmatured debt 15,101,078 15,351,977
    Other interest costs 7,543,413 8,136,045
    Purchase of domestic coinage 90,547 105,672
    Other 138,074 87,446
 
  Total statutory authorities 86,975,387 85,631,786
 
  Non-budgetary authorities:    
    Crown borrowings 54,514,501 79,683,319
    National governments - 400,000
    International organizations 289,392 641,838
    Other organizations 8,000 10,000
 
  Total non-budgetary authorities 54,811,893 80,735,157
 
Total authorities provided 141,899,437 166,499,752
Less:    
  Authorities available for future years (68,573) (68,573)
  Lapsed authorities:    
    Vote 1 – Operating expenditures (11,651) (12,832)
    Vote 5 – Grants and contributions (8) (35)
 
Current year authorities used 141,819,205 166,418,312

4. Deposit liabilities

The following table presents details of deposit liabilities:

Deposit liabilities
$ thousands
  2016 2015
  Canada Hibernia Holding Corporation (note 4a) 97,935 97,495
  Canada Eldor Inc. (note 4b) 21,651 21,554
  Collateral deposits (note 4c) 127,532 -
 
Total deposit liabilities 247,118 119,049

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.

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

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

This account was established pursuant to subsection 129(2) 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 at a rate equivalent to 90 percent of the weekly three-month Treasury bill tender rate.

c) Collateral deposits

This account was established to record cash received as credit support under collateral agreements with financial institutions for cross-currency swaps.

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
  2016 2015
Accounts payable - external parties (note 5a) 27,377 118,808
Accounts payable - other government departments and agencies 49,644 198,002
Allowance for guarantees - 5,720
Provision for redemption of Canadian pennies (note 5b) 6,940 8,771
Revaluation of foreign exchange forward contracts (note 5c) 45,275 (128,765)
Accrued liabilities 4,173 4,038
 
Total accounts payable and accrued liabilities 133,409 206,574

a) Accounts payable - external parties

Accounts payable - external parties includes 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 percent per annum, and is charged to interest and other costs.

b) 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, 2016.

c) Revaluation of foreign exchange forward contracts

This amount represents the net translated notional values of foreign exchange forward contracts outstanding at March 31, 2016. These amounts were settled on April 1, 2016 and are discussed at note 11.

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 in note 17.

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 1/2015 Receipts and other credits Payments and other charges March 31/2016
Corporate income tax 1,093,800 16,549,387 13,900,207 3,742,980
Personal income tax 3,054,298 66,481,950 65,411,250 4,124,998
Harmonized sales tax (2,601,138) 26,160,757 27,100,751 (3,541,132)
First Nations sales tax - 6,952 6,952 -
First Nations goods and services tax - 17,765 17,765 -
 
Total taxes payable under tax collection agreements 1,546,960 109,216,811 106,436,925 4,326,846

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
  2016 2015
Domestic debt 3,706,665 3,937,770
Retail debt 792,710 914,909
Foreign debt 36,251 33,015
International Monetary Fund Balances 969 846
 
Total interest payable 4,536,595 4,886,540

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
  2016 2015
International Bank for Reconstruction and Development 31,147 30,377
Multilateral Investment Guarantee Agency 4,166 4,063
 
Total notes payable to international organizations 35,313 34,440

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
  2016 2015
Retail debt (matured from 2000 to 2016) 377,076 345,035
Marketable bonds (matured from 2000 to 2016) 7,883 7,860
 
Total matured debt 384,959 352,895

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, 2016, was nil (nil in 2015) in odd issue bills, $41 billion ($41.3 billion in 2015) in three month bills, $29.7 billion ($28.3 billion in 2015) in six month bills, and $67.4 billion ($66.1 billion in 2015) in 364 day bills.

Marketable bonds consist of outstanding domestic Government of Canada bonds with remaining terms to maturity ranging from 1 to 50 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, 2016 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 10 years.

The Government has entered into individual cross-currency swap contracts with various counterparties. Terms and conditions associated with these outstanding contracts are established using International Swaps and Derivatives Association (ISDA) master agreements, which are in place with each counterparty. Cross-currency swaps are used primarily to fund foreign-denominated asset levels in the Foreign Exchange Accounts.

Included in Cross-currency revaluation is $757 million ($1,029 million at March 31, 2015) related to individual cross-currency swap contracts that have a net foreign-exchange asset value to the Government upon revaluation and $9,148 million ($7,698 million at March 31, 2015) relating to individual cross-currency swap contracts that have a net foreign-exchange liability value, resulting in an overall cross-currency swap net liability revaluation of $8,391 million ($6,669 million at March 31, 2015).

Further details are discussed in note 11.

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

Unmatured debt
$ thousands
  Face value Unamortized
(discounts)/
premiums
Net book value
2016
Net book value
2015
Domestic debt:        
  Treasury bills 138,100,000 (206,165) 137,893,835 135,369,026
  Marketable bonds 504,120,934 5,272,903 509,393,837 492,062,819
  Retail debt 5,076,053 - 5,076,053 5,659,735
 
Total domestic debt 647,296,987 5,066,738 652,363,725 633,091,580
 
Foreign debt:        
  Marketable bonds 15,361,653 (16,639) 15,345,014 14,799,919
  Canada bills 4,747,403 (3,239) 4,744,164 3,787,911
  Medium term notes 2,429,445 (31) 2,429,414 1,724,106
 
Total foreign debt 22,538,501 (19,909) 22,518,592 20,311,936
 
Total domestic and foreign debt 669,835,488 5,046,829 674,882,317 653,403,516
 
   
Less: Government holdings     (500,000) -
Less: Securities held for the retirement of unmatured foreign debt     (56,102) (68,251)
     
Net domestic and foreign debt     674,326,215 653,335,265
     
Cross-currency revaluation:        
  Payables     71,863,899 63,091,482
  Receivables     (63,472,507) (56,421,924)
     
Total cross-currency revaluation     8,391,392 6,669,558
     
Total unmatured debt     682,717,607 660,004,823
     
Domestic debt fair value     719,710,331 710,324,513
     
Foreign debt fair value     23,052,708 20,901,877

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
2017 216,155,087 9,206,157 - 225,361,244
2018 92,552,761 4,545,450 - 97,098,211
2019 43,915,775 4,241,658 - 48,157,433
2020 38,495,242 556,494 2,955,400 42,007,136
2021 40,835,316 746,752 221,655 41,803,723
2022 to 2065 215,342,806 64,935 - 215,407,741
 
Total contractual maturities of unmatured debt 647,296,987 19,361,446 3,177,055 669,835,488
1 Includes Treasury bills, marketable bonds and retail debt.
2 Includes marketable bonds and medium term notes issued in US dollars and Canada bills.
3 Includes marketable bonds and medium term notes issued in Euros.

The effective average annual interest rates are as follows:

Effective average annual interest rates
%
  2016 2015
Treasury bills 0.50 0.81
Marketable bonds—domestic 2.49 2.73
Retail debt 0.67 0.71
Marketable bonds—foreign 1.68 1.66
Canada bills 0.43 0.08
Medium term notes 0.70 0.35

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 2016 2015
2016 - 5,107,043
2017 5,378,534 4,897,865
2018 5,858,701 5,609,915
2019 7,010,562 6,708,436
2020 7,484,979 7,296,075
2021 11,405,351 9,491,612
2022 to 2026 34,725,772 23,980,536
 
Total cross-currency swaps with contractual or notional principal amounts 71,863,899 63,091,482
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 total $1.36 billion ($1.57 billion in 2015), maturing in 2016-17.

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 life span 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
  2016 2015
 

  Carrying value Fair value Carrying value Fair value
Assets        
Foreign exchange accounts 93,538,697 95,839,767 85,018,320 87,955,263
Crown borrowings 48,196,182 48,600,600 46,155,300 46,768,163
Liabilities        
Total domestic and foreign debt 674,882,317 742,763,039 653,403,516 731,226,390

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, 2016.

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, 2016.

Notional and fair value of derivative financial instruments
$ thousands
  2016 2015
 

  Notional value Fair value Notional value Fair value
Cross-currency swaps (net) (8,391,392) (7,195,722) (6,669,558) (5,756,009)
Foreign exchange forward
contracts (net)
(45,275) (47,288) 128,765 128,679

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.

Effective April 2015, the Government of Canada began implementation of two-way Credit Support Annex (CSA) agreements for its cross-currency swap portfolio.

At March 31, collateral pledged and held under two-way CSA agreements was as follows:

Collateral pledged and held under two way CSA agreements for 2016
$ thousands
  Nominal amount Fair value
 

    Posted by Government of Canada Posted by counterparties Posted by Government of Canada Posted by counterparties
Cash 6,556,959 127,532 6,556,959 127,532
Securities - 1,572,580 - 2,017,610
 
Total 6,556,959 1,700,112 6,556,959 2,145,142

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
  2016 2015
A+ 21,853,904 17,774,261
A 18,979,714 14,039,764
A- 29,786,404 26,518,779
BBB+ - 4,764,981
BBB 2,603,044 1,565,834
 
Total notional amounts of swap and foreign exchange forward contracts 73,223,066 64,663,619

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, 2016, 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, 2016, a one percent 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 $2 million ($9 million in 2015) due to the exposure of the US dollar portfolio, a foreign exchange loss of $2 million ($3 million in 2015) due to the exposure of the Euro portfolio and a foreign exchange gain of $2 million ($2 million in 2015) due to the exposure of the Pound sterling. There is no significant exposure related to 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 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

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

The expense amounts to $7.60 million ($7.95 million in 2015). For Group 1 members, the expense represents approximately 1.25 times (1.41 times in 2015) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2015) 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
  2016 2015
Accrued benefit obligation, beginning of year 5,961 4,473
Expense for the year (41) 2,360
Benefits paid during the year (299) (872)
 
Accrued benefit obligation, end of year 5,621 5,961

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 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 capital 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
  2016 2015
Liabilities held on behalf of Government:    
  Notes payable to international organizations (note 8) 35,313 34,440
 
Total liabilities held on behalf of Government 35,313 34,440
Financial assets held on behalf of Government:    
  Accounts receivable (note 16) 200,604 147,970
  Foreign exchange accounts (note 18) 2,186,637 839,711
  Loans receivable (note 20) 978,844 1,488,965
  Investments and capital share subscriptions (note 21) 257,740 263,096
 
Total financial assets held on behalf of Government 3,623,825 2,739,742

15. Cash held as collateral

This account records cash deposited by the Government as credit support under collateral agreements with financial institutions. Interest is received on the balance.

Effective April 2015, the Department implemented a two-way collateral program in accordance with Credit Support Annex (CSA) agreements for cross-currency swaps. This program is administered by the Bank of Canada, and requires the Department and counterparties to provide collateral, either in the form of securities or cash (CAD or USD), based on the terms and conditions of agreements, or when the fair value of a contract exceeds a minimum threshold.

16. Accounts receivable

The following table presents details of the Department accounts receivable:

Accounts receivable
$ thousands
  2016 2015
Accrued interest income - Crown borrowings 69,335 76,009
Accrued investment income 125,262 66,481
Receivables - Other government departments and agencies 5,889 5,377
Receivables - External parties 118 103
 
Total accounts receivable 200,604 147,970

17. 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
  2016 2015
Corporate income taxes 3,211,614 3,267,904
Personal income taxes 7,808,338 5,643,575
Harmonized Sales Tax (4,631,082) (3,000,546)
First Nations Goods and Services Tax 1,464 1,472
First Nations Sales Tax 705 554
Provincial benefit programs (232,151) (141,039)
 
Total taxes receivable under tax collection agreements 6,158,888 5,771,920

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 in 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.

18. 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
  2016 2015
Investments held in the Exchange Fund Account 99,192,825 91,121,067
Accrued net revenue from the Exchange Fund Account 2,186,637 839,711
 
Total investments held in Exchange Fund Account (note 18a) 101,379,462 91,960,778
Subscriptions to the International Monetary Fund (note 18b) 20,169,658 11,128,648
Loans receivable from the International Monetary Fund (note 18c) 1,278,001 1,353,467
Notes payable to the International Monetary Fund (note 18d) (18,332,452) (8,961,840)
Special drawing rights allocations (note 18e) (10,955,972) (10,462,733)
 
Total foreign exchange accounts 93,538,697 85,018,320
 
Fair value 95,839,767 87,955,263

a) Investments held in Exchange Fund Account

This account records the moneys 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 under the provision of the Currency Act. Total advances are limited to US$150 billion as of March 2015.

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

Investments held in Exchange Fund Account
$ thousands
  2016 2015
US dollar cash on deposit 5,303,299 441,039
US dollar marketable securities 56,638,538 60,557,977
Euro cash on deposit 304,349 188,929
Euro marketable securities 20,161,615 17,684,503
British pound sterling cash on deposit 113,920 48,141
British pound sterling marketable securities 7,534,512 2,405,314
Japanese yen cash on deposit 180,612 17,221
Japanese yen marketable securities 711,711 794,137
Special drawing rights 10,430,906 9,817,653
Gold - 5,864
 
Total investments held in Exchange Fund Account 101,379,462 91,960,778

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 189 member countries that operates in accordance with its Articles of Agreement.

The amount by which the sum of Canada’s subscriptions plus loans to the IMF under special facilities exceeds the IMF’s holdings of Canadian dollars represents the amount of foreign exchange which Canada is entitled to draw from the IMF on demand for balance of payments purposes. The subscription is expressed in terms of SDR, a unit of account defined in terms of a “basket” of four major currencies, the Euro, US dollar, British pound sterling and Japanese yen.

Canada has accumulated its subscriptions through settlements to the IMF in Canadian dollars, gold and SDRs. Annual maintenance of value payments are made to, or received from, the IMF when the Canadian dollar depreciates or appreciates against the SDR, in order to maintain the SDR-value of the IMF’s holdings of Canadian dollars.

In 2016, payments and other charges consisted of an increase in subscriptions of $9,048 million (SDR 4,655 million). The receipts and other credits consisted of a valuation adjustment of $7 million.

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 current participation in the NAB is governed by technical amendments from December, 2011, made as a result of the IMF’s 14th General Review of Quotas. The maximum lending by Canada to the IMF under these arrangements is limited to SDR 3,874 million. As at March 31, 2016, SDR 699 million or $1,278 million (SDR 775 million or $1,353 million in 2015) in lending has been provided to the IMF under the NAB.

Canada also participates in the GAB which was most recently renewed in December 2013. The maximum lending by Canada to the IMF under these arrangements is limited to SDR 893 million. As at March 31, 2016, no lending had been provided to the IMF under the GAB.

Collectively, the outstanding loans under multi-lateral arrangements with the IMF cannot exceed SDR 4,767 million at any given time. This reflects the maximum commitment under both the NAB and GAB.

At March 31, 2016, a total of SDR 699 million or $1,278 million 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 percent of Canada’s subscription) held on deposit at the Bank of Canada. In 2016, notes payable to the IMF increased by $9,370 million.

e) Special drawing rights allocations

This account records the value of SDRs allocated to Canada by the IMF. The SDR is an international currency created by the IMF, and allocated to countries participating in its Special Drawing Rights Department. 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.

As an asset, SDRs represent rights to purchase currencies of other countries participating in the IMF’s Special Drawing Rights Department, as well as to make payments to the IMF itself. All SDRs allocated to Canada by the IMF have either been used to settle subscriptions in the IMF, or have been advanced to the Exchange Fund Account.

There was no allocation of SDRs by the IMF to Canada during the year. In 2016, receipts and other credits consisted of a valuation adjustment of $493 million.

19. Crown borrowings

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

Crown borrowings
$ thousands
  Face value Unamortized
discounts
Net book value
2016
Net book value
2015
Canada Mortgage and Housing Corporation 7,819,278 (1) 7,819,277 7,792,071
Farm Credit Canada 23,438,050 (3,245) 23,434,805 22,687,529
Business Development Bank of Canada 16,942,100 - 16,942,100 15,675,700
 
Total Crown borrowings 48,199,428 (3,246) 48,196,182 46,155,300
 
Fair value     48,600,600 46,768,163

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 Corporation Farm Credit Canada Business Development Bank Total
2017 1,243,269 11,891,050 16,936,500 30,070,819
2018 1,075,882 4,411,000 5,600 5,492,482
2019 1,182,415 4,064,000 - 5,246,415
2020 1,032,166 2,446,000 - 3,478,166
2021 1,304,406 404,000 - 1,708,406
2022 and thereafter 1,981,140 222,000 - 2,203,140
 
Total contractual maturities of unmatured loans by Crown corporations 7,819,278 23,438,050 16,942,100 48,199,428

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 0.44% 0.46% - %
Long Term fixed interest rate 2.19% 0.94% 0.91%
Short Term floating interest rate - % 0.44% 0.43%
Long Term floating interest rate - % 0.43% - %

20. 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 2016 Net book value 2015
Government business enterprises        
Canada Lands Company Ltd. (note 20a) 281,815 23,923 257,892 246,772
Downsview Park Inc. (note 20b) 58,000 16,654 41,346 40,760
Financial Consumer Agency of Canada (note 20c) - - - 4,000
 
Total Government business enterprises 339,815 40,577 299,238 291,532
 
Provincial and territorial governments        
Federal-Provincial fiscal arrangements (note 20d) 449,293 33,476 415,817 792,773
Municipal Development and Loan Board (note 20e) 315 - 315 315
Winter Capital Projects Fund (note 20f) 2,900 2,900 - -
British Columbia - Comprehensive Integrated Tax Coordination Agreement (note 20g) - - - 316,152
 
Total Provincial and territorial governments 452,508 36,376 416,132 1,109,240
 
International and other organizations        
International Monetary - Fund’s Poverty Reduction and Growth Trust (note 20h) 272,007 10,000 262,007 115,725
International Finance Corporation - Global Agriculture and Food Securities Program (note 20i) 46,252 46,252 - -
Global Environment Facility (note 20j) 10,000 10,000 - -
Canadian Commercial Bank (note 20k) 42,202 42,202 - -
 
Total International and other organizations 370,461 108,454 262,007 115,725
 
National governments        
Ukraine (note 20l) 400,000 99,295 300,705 264,000
 
Total National governments 400,000 99,295 300,705 264,000
 
Total loans receivable 1,562,784 284,702 1,278,082 1,780,497

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
2016
Proportion
%
Total Government business enterprises 339,815 40,577 299,238 23%
Total Provincial and territorial governments 452,508 36,376 416,132 33%
Total International and other organizations 370,461 108,454 262,007 20%
Total National governments 400,000 99,295 300,705 24%
 
Total Loans receivable by enterprise type 1,562,784 284,702 1,278,082 100%

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
  Face value CAD Equivalent Exchange Rate
2016
Proportion
%
CAD 1,290,777 1,290,777 N/A 83%
SDR 148,668 272,007 1.8296 17%
   
 
Total Loans receivable by currency    1,562,784   100%

Government business enterprises

a) Canada Lands Company Ltd. (CLC)

Canada Lands Company Limited (originally Public Works Lands Company Limited) was incorporated under the Companies Act in 1956 and was continued under the Canada Business Corporations Act. The Corporation is a Crown corporation named in Part I of Schedule III of the Financial Administration Act and is wholly-owned by the Government of Canada. The Corporation conducts its business through Canada Lands Company CLC Limited (CLC), its principal wholly-owned subsidiary. CLC’s objective is to carry out a commercially-oriented and orderly disposal program of certain Government real properties and the management of certain select properties. In undertaking this objective, CLC may manage, develop and dispose of real properties, either in the capacity of owner or as agent of the Government.

CLC has acquired an interest in a number of real properties from the Government in consideration for the issuance of promissory notes, which bear no interest and are repayable from the proceeds of the sale of the properties in respect of which they were issued. The notes were discounted using the Consolidated Revenue Fund lending rate applicable to Crown corporations and recorded at their discounted value.

During the year, new notes have been issued for an amount of $27.8 million ($221.2 million in 2015). An amount of $20.5 million ($37.2 million in 2015) was repaid during the year and an amount of $4.8 million ($4.1 million in 2015) was amortized to income. The balance in the account represents the balance of the notes receivable net of the corresponding unamortized discount.

b) 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.

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, 2016.

c) Financial Consumer Agency of Canada

These amounts represent advances to the Financial Consumer Agency of Canada in accordance with Section 13(1) of the Financial Consumer Agency of Canada Act. The advances bear interest at the applicable CRF lending rate to Crown corporations.

At March 31, 2016, the outstanding advances were nil ($4 million in 2015).

Provincial and territorial governments

d) 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 will be repaid by reducing transfer payments in subsequent years.

e) Municipal Development and Loan Board

Loans have been made to provinces and municipalities to augment or accelerate municipal capital works programs.

The loans bear interest at rates from 5.25 to 5.375 percent per annum and are repayable in annual or semi-annual installments over 15 to 50 years.

f) Winter Capital Projects Fund

Loans have been made to provinces, provincial agencies and municipalities to assist in the creation of employment.

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

The loans are fully provisioned.

g) 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 was recovered in equal annual installments with final payment received 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 or such greater amount as may be fixed by the Governor in Council. The Governor in Council subsequently increased the limit to SDR 1.2 billion.

As at March 31, 2016, Canada has lent a total of SDR 851.5 million or $1,558 million (SDR 762.9 million or $1,332 million in 2015) to the Poverty Reduction and Growth Trust. Of this amount, SDR 702.9 million or $1,286 million (SDR 694.9 million or $1,214 million in 2015) has been repaid.

The outstanding balance of SDR 148.7 million or $272 million (SDR 68 million or $118.9 million in 2015) was translated into Canadian dollars at the year-end closing rate of exchange of $1.82963 ($1.74726 in 2015) [CAD 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 amounting to SDR 215.2 million (SDR 215.2 million in 2015).

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, interest and capital were repaid in accordance with the administration agreement signed between the IFC and the Government of Canada.

As at March 31, 2016, advances to the IFC-FSI amounted to $46 million ($48 million in 2015).

j) 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, 2016, advances to the GEF amounted to $10 million ($10 million in 2015).

k) 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.

National governments

l) Ukraine

Pursuant to section 8.3(1) of the Bretton Woods and Related Agreements Act, the Minister of Finance, by order of the Governor in Council, is authorized to extend certain forms of financial assistance to a foreign state. The provision of such financial assistance is contingent upon that state having an arrangement with the International Monetary Fund and upon the satisfactory participation of other countries with Canada in the provision of financial assistance.

Funding for such transactions is provided by the Minister of Finance out of the CRF. The maximum amount of financial assistance that can be provided under legislation is US$2.5 billion in respect of any particular foreign state and US$5 billion in respect of all foreign states.

As at March 31, 2016, the outstanding loan balance to the Ukraine was $400 million ($400 million for 2015). There were no other balances or transactions in respect to Ukraine or other foreign states during the year.

These loans bear interest at rates ranging between 1.4 and 2.1 percent and have repayment term of 5 years.

21. Investments and capital share subscriptions

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

Investments and capital share subscriptions
$ thousands
  Face value Unamortized discounts /
Valuation allowance
Net book value 2016 Net book value 2015
Subscriptions and contributions to the International Development Association (note 21a) 11,172,558 11,172,558 - -
Subscriptions to the European Bank for Reconstruction and Development (note 21b) 280,776 280,776 - -
Subscriptions to the International Bank for Reconstruction and Development (note 21c) 558,969 558,969 - -
Subscriptions to the International Finance Corporation (note 21d) 105,639 105,639 - -
International Finance Corporation-Financial Mechanisms for Climate Change Facility (note 21e) 322,286 64,546 257,740 263,096
Subscriptions to the Multilateral Investment Guarantee Agency (note 21f) 13,938 13,938 - -
 
Total investments and capital share subscriptions 12,454,166 12,196,426 257,740 263,096

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. 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 year maturity and 10 years of grace).

As at March 31, 2016, Canada’s total participation in IDA amounted to $11.17 billion ($10.73 billion in 2015).

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 2015) of the EBRD's authorized capital valued at EUR 1.02 billion (EUR 1.02 billion in 2015).

Only EUR 212.9 million (EUR 212.9 million in 2015) or about 21 percent (21 percent in 2015) 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 2015).

Up to and including March 31, 2016 Canada's total cash contributions into the "paid-in" capital of the EBRD total US$216.2 million (US$216.2 million in 2015).

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 (World Bank), as authorized by the Bretton Woods and Related Agreements Act, and various appropriation acts.

As at March 31, 2016, Canada has subscribed to 58,354 shares (58,354 shares in 2015 ). The total value of these shares is US$7.04 billion (US$7.04 billion in 2015), of which US$417.8 million (US$417.8 million in 2015) plus $16.4 million ($16.4 million in 2015) has been paid-in. The remaining portion is callable.

The callable portion is subject to call by the World 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 2015).

d) International Finance Corporation

This account records Canada's subscription to the capital of the International Finance Corporation, 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, 2016, Canada has subscribed to 81,342 shares (81,342 shares in 2015). These shares have a total value of US$81.3 million (US$81.3 million in 2015), 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. The FMCC supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional financing arrangements.

As at March 31, 2016 advances to the IFC-FMCC amount to $322.3 million ($327.6 million in 2015). During the year, amounts were 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, 2016, Canada has subscribed to 5,225 shares (5,225 shares in 2015). The total value of these shares is US$56.5 million (US$56.5 million in 2015), of which US$10.7 million (US$10.7 million in 2015) is paid-in and the remaining portion is callable.

The callable portion is subject to call by the Multilateral Investment Guarantee 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 2015).

22. 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 2016 2015
Informatics equipment 3,793 73 - - 3,866 583 590 - - 1,173 2,693 3,210
Informatics software 44 - - - 44 15 15 - - 30 14 29
Leasehold improvements 11,516 - - - 11,516 307 461 - - 768 10,748 11,209
Machinery and equipment 3,021 - - - 3,021 480 288 - - 768 2,253 2,541
Motor vehicles 83 - - - 83 57 17 - - 74 9 26
 
Total capital assets 18,457 73 - - 18,530 1,442 1,371 - - 2,813 15,717 17,015

23. 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
  2017 2018 2019 2020 2021 and thereafter Total
Transfer payment            
  International Development Association 492,820 51,200 51,200 48,080 723,310 1,366,610
  African Development Fund - - - - 401,708 401,708
 
Total contractual obligations 492,820 51,200 51,200 48,080 1,125,018 1,768,318

24. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into 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.

The following table presents details of callable share capital as at March 31:

Callable share capital
$ thousands
  2016 2015
European Bank for Reconstruction and Development 1,193,450 1,099,602
International Bank for Reconstruction and Development 8,579,809 8,367,741
Multilateral Investment Guarantee Agency 59,483 58,014
 
Total callable share capital 9,832,742 9,525,357

b) Loan guarantees

Mortgage or Hypothecary Protection 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 percent of the original principal amount of the insured mortgage.

As at March 31, 2016, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $242.5 billion ($205.8 billion in 2015). Any payment made by the Minister is subject to a deductible equal to 10 percent of the original principal amount of these loans, or $26.8 billion ($23.3 billion in 2015). 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, 2016, 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 was responsible for the management of 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 nil ($16.8 million in 2015).

A total allowance of nil ($6 million in 2015) was recorded and included in accounts payable and accrued liabilities (note 5).

During the year, the Department completed a transfer of the outstanding guarantees provided for under this program to the Canada Account.

25. 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 the 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
  2016 2015
Accommodation 13,120 11,996
Employer’s contribution to the health and dental insurance plans 6,303 6,177
Legal services 2,374 1,929
 
Total services received without charge 21,797 20,102

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 Services and Procurement Canada and audit services provided by the Office of the Auditor General, are not included in the Department's Statement of Operations and Departmental Net Financial Position.

b) Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. Employees that were on leave without pay when the initial one-time transition payments were issued will receive the transition payments shortly after their return to work from their leave without pay. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Department. However, it did result in the use of additional spending authorities by the Department. Prior to year-end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.

c) Other transactions with related parties

Other transactions with related parties
$ thousands
  2016 2015
Expenses - Other government departments and agencies 7,567,167 8,155,320
Revenues - Other government departments and agencies 18,036 26,054

Expenses disclosed exclude common services provided without charge, which are disclosed in note 25a. 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.

26. Segmented Information

Presentation by segment is based on the Department's program alignment 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 programs, 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 2016
Total
2015
Total
Expenses            
Transfer payments            
  Provinces and territories
  (note 26a)
63,901,264 - - - 63,901,264 61,166,332
  International organizations 484,773 - - - 484,773 757,454
  Non-profit institutions and
  organizations
3,000 - 27 - 3,027 57,570
  Allowances on loan guarantees - - - - - (246)
 
Total transfer payments 64,389,037 - 27 - 64,389,064 61,981,110
Interest and other costs            
  Interest on unmatured debt
  (note 26b)
- 15,090,434 - - 15,090,434 15,332,318
  Interest on superannuation and
  other accounts (note 26c)
- 7,543,413 - - 7,543,413 8,136,045
  Other Interest and costs - 10,645 - - 10,645 19,554
 
Total interest and other costs - 22,644,492 - - 22,644,492 23,487,917
Operating expenses (note 26d) 1,276 - 63,251 65,585 130,112 137,836
Cost of domestic coinage sold - 87,862 - - 87,862 106,171
Other expenses - - - 2 2 8
 
Total expenses 64,390,313 22,732,354 63,278 65,587 87,251,532 85,713,042
Revenues            
Investment income            
  Crown borrowings-interest - 381,802 - - 381,802 653,409
  Exchange Fund
  Account-net revenues
- 2,186,637 - - 2,186,637 839,711
  Other interest 33,577 1,435 59 - 35,071 54,210
 
Total investment income 33,577 2,569,874 59 - 2,603,510 1,547,330
Sale of domestic coinage - 123,172 - - 123,172 112,733
Guarantee fees 109,500 - - - 109,500 94,716
Interest on bank deposits - 221,582 - - 221,582 312,728
Unclaimed cheques and other - 44,359 1,429 128 45,916 39,939
Net foreign currency gain 29,172 135,257 - 7 164,436 553,481
Revenues earned on behalf of Government (note 27) (172,249) (3,094,244) (1,488) (33) (3,268,014) (2,660,825)
 
Total revenues - - - 102 102 102
 
Net cost from operations 64,390,313 22,732,354 63,278 65,485 87,251,430 85,712,940

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
  2016 2015
Canada Health Transfer 34,024,618 32,114,006
Fiscal Equalization 17,749,334 17,001,668
Canada Social Transfer 12,959,181 12,581,729
Quebec Abatement (4,451,366) (4,233,806)
Territorial Financing 3,561,034 3,469,217
Statutory Subsidies 34,363 34,363
Incentive for Provinces to Eliminate Taxes on Capital 24,100 27,471
Establishment of a Canadian Securities Regulation Regime and a Canadian Regulatory Authority - 169,000
Obligation to Ontario - General Motors - 2,684
 
Total transfer payments to provinces and territories 63,901,264 61,166,332

b) Interest on unmatured debt

Interest on unmatured debt includes interest incurred, amortization of debt discounts/premiums, 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
  2016 2015
Interest on domestic debt:    
  Marketable bonds 13,908,274 13,639,959
  Treasury bills 861,166 1,417,598
  Retail debt 34,267 47,472
 
Total interest on domestic debt 14,803,707 15,105,029
 
Interest on foreign debt:    
  Marketable bonds 267,386 220,670
  Medium term notes 9,516 4,644
  Canada bills 9,825 1,975
 
Total interest on foreign debt 286,727 227,289
 
Total interest on unmatured debt 15,090,434 15,332,318

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
  2016 2015
Superannuation accounts 7,227,628 7,796,297
Other specified purpose accounts 203,274 220,153
Retirement compensation arrangement accounts 105,105 109,741
Special drawing rights allocations 5,788 6,927
Canada Pension Plan account 1,618 2,927
 
Total interest on superannuation and other accounts 7,543,413 8,136,045

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
  2016 2015
Salaries and wages 78,407 82,084
Professional and special services 12,267 14,630
Accommodation 13,120 11,996
Contribution to employee benefit plans 11,026 11,630
Information services 8,190 9,892
Transportation and telecommunications 2,560 2,816
Amortization of tangible capital assets 1,371 977
Machinery and equipment 1,333 1,912
Rentals 1,201 1,348
Repairs and maintenance 357 519
Acquisition of land, buildings and equipment 249 -
Other subsidies and payments 31 32
 
Total operating expenses 130,112 137,836

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
  2016 2015
  Crown borrowing-interest 381,802 653,409
  Exchange Fund Account-net revenues 2,186,637 839,711
  Other interest 35,071 54,210
  Sale of domestic coinage 123,172 112,733
  Guarantee fees 109,500 94,716
  Interest on bank deposits 221,582 312,728
  Unclaimed cheques and other 45,814 39,837
  Net foreign currency gain 164,436 553,481
 
Total revenues earned on behalf of Government 3,268,014 2,660,825

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

28. 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 2015-16 (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) as well as information on internal control management 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 an 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:

  • Accountability structures relating to internal control management to support sound financial management including clear roles and responsibilities for employees in their areas of responsibility for control management;
  • On-going 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 associated key risks and control points;
  • A risk based internal audit plan which includes audits and reviews 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, Policy on Conflict of Interest and Post Employment and the Department of Finance Code of Conduct 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 presented to the Audit and Evaluation Committee (AEC) and senior management; and,
  • Advice provided by the AEC 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-to-government arrangements:

  • Public Services and Procurement Canada (PSPC) centrally administers banking arrangements and related processes, the payment and processing 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 provisions and the accrued severance liability;
  • The Department of Justice provides legal services to the Department; and,
  • Shared Services Canada (SSC) provides information technology (IT) infrastructure services in the area of data centre and network services.

Specific departmental arrangements:

  • The Bank of Canada has shared responsibility with the Department for maintaining the financial records and accounts for the domestic debt of Canada and the Exchange Fund Account of Canada, for which the Bank acts as fiscal agent. 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 2015-16

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 new or significantly amended key controls in existing processes which required a reassessment.

  • Domestic debt: On April 1, 2016, the Department implemented the Treasury & Risk Management (TRM) module within the existing SAP environment. TRM will provide automated accounting and reporting for the domestic debt portfolio. As part of the transition to the new module, the system was tested while under development and design and operational effectiveness testing was performed post-implementation. In addition, pre-existing systems continue to be run in parallel to ensure data integrity.
  • Operating expenses: Effective January 1, 2016, the Department has implemented a data analytics program. This program analyzes accounting and other financial data for anomalies from a compliance and/or process efficiency standpoint using industry-standard data analytics software. Where pertinent, results of data analytics processes help inform the on-going monitoring results of the Operating expenses business process.

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
Key control areas 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

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

Internal audit – The Department took the results of one internal audit completed during the year into consideration to aid in supporting its own assessment results for fiscal 2015-16:

  • Audit of the Control Framework for Foreign Debt

The internal audit reports are published on the departmental website.

Service arrangements relevant to the financial statements

  • SAP environment: Over the course of the last two reporting periods, observations relating to required enhancements to controls within the SAP environment (provided to the Department by TBS) have been made by both the Office of the Auditor General (OAG) and through internal assessments. These observations focused on the areas of user access and information security.

    During the year, the service-provider worked to address and resolve these issues. In addition, the service-provider now provides assurance-level reporting on the state of internal controls in the shared SAP environment via a Canadian Standard on Assurance Engagements 3416 report. The results of this assurance-level reporting indicate that internal controls related to the control objectives were appropriately designed and implemented, and operated effectively throughout the period covered for testing.
  • Travel & hospitality: During the course of 2014-15 audit work at the Department, the OAG noted some required enhancements to certain travel & hospitality processes, as administered by TBS on behalf of the Department. Although the findings were not considered significant, the Department has addressed the OAG recommendations in the 2015-16 fiscal year.

4. Departmental Action Plan

4.1 Progress during fiscal year 2015-16

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 2015-16
Previous year's rotational on-going monitoring plan for current year 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
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
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 and controls, 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 2016-17 assessment scope 2017-18 assessment scope 2018-19 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 Yes Yes
Domestic coinage Medium Yes No Yes
Payroll & benefits Low No Yes Yes

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