ARCHIVED - Departmental Performance Report for the period ending March 31, 2010

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Financial Statements of Department of Fisheries and Oceans Canada

Year ended March 31, 2010

Department of Fisheries and Oceans

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, 2010, and all information contained in these statements rests with the management of Fisheries and Oceans (DFO). These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department's Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting 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 assessment of the effectiveness of the system of internal control over financial reporting.

An assessment for the year ended March 31, 2010 was completed in accordance with the Policy on Internal Control and the results and action plans are summarized in the annex.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

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 DFO have not been audited.

Claire Dansereau, Deputy Minister
Ottawa, Canada
August 9, 2010

Roch Huppe, Chief Financial Officer

Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars)
  2010 2009
    Restated
(Note 16)
Assets
Financial Assets
Due from Consolidated Revenue Fund 291,742 265,274
Accounts receivable and advances (Note 4) 19,280 18,652
Total financial assets 311,022 283,926
Non-Financial Assets
Inventory (Note 5) 39,285 38,546
Tangible capital assets (Note 6) 2,414,262 2,261,829
Total non-financial assets 2,453,547 2,300,375
Total Assets 2,764,569 2,584,301
Liabilities
Accounts payable and accrued liabilities (Note 7) 292,537 266,264
Vacation pay and compensatory leave 74,041 67,582
Lease obligation for tangible capital assets (Note 8) 134 207
Other liabilities (Note 9) 30,532 13,685
Employee future benefits (Note 10) 157,524 168,713
Environmental liabilities (Note 11) 73,175 70,455
Total liabilities 627,943 586,906
Equity of Canada (Note 12) 2,136,626 1,997,395
Total Liabilities and Equity of Canada 2,764,569 2,584,301

Contingent liabilities (Note 11)
Contractual obligations (Note 13)

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

Claire Dansereau, Deputy Minister
Ottawa, Canada
August 9, 2010

Roch Huppe, Chief Financial Officer

Statement of Operations (Unaudited)

For the Year Ended March 31

(in thousands of dollars)
  2010
Planned results
2010 2009
Expenses
Safe and Accessible Waterways      
Canadian Coast Guard Agency 706,167 764,136 635,804
Small Craft Harbours 148,215 135,587 116,377
Science 39,008 42,780 41,781
Sustainable Fisheries and Aquaculture      
Fisheries and Aquaculture Management 350,570 360,832 350,579
Science 149,757 146,462 148,619
Healthy and Productive Aquatic Ecosystems      
Habitat Management 63,119 68,324 79,873
Science 60,399 66,428 60,195
Species at Risk Management 17,435 17,379 15,363
Oceans Management 17,946 22,289 16,674
Internal Services 336,945 361,598 307,890
Total Expenses 1,889,561 1,985,815 1,773,155
Revenues
Safe and Accessible Waterways      
Canadian Coast Guard Agency 50,358 44,434 46,718
Small Craft Harbours 1,067 3,775 1,297
Science 2,502 2,060 3,433
Sustainable Fisheries and Aquaculture      
Fisheries and Aquaculture Management 41,802 48,068 44,511
Science 341 381
Healthy and Productive Aquatic Ecosystems      
Habitat Management 266 368 396
Science 100 145 399
Species at Risk Management 12
Oceans Management 65 39
Total Revenues 96,095 99,268 97,174
Net Cost of Operations 1,793,466 1,886,547 1,675,981

Segmented information (Note 15)

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

Statement of Equity of Canada (Unaudited)

For the Year Ended March 31

(in thousands of dollars)
  2010 2009
    Restated
(Note 16)
Equity of Canada, beginning of year 1,997,395 1,881,291
Net cost of operations (1,886,547) (1,675,981)
Net cash provided by Government 1,880,548 1,662,269
Change in due from the Consolidated Revenue Fund 26,468 21,980
Services provided without charge by other government departments (Note 14) 118,762 107,836
Equity of Canada, end of year 2,136,626 1,997,395

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

Statement of Cash Flow (Unaudited)

For the Year Ended March 31

(in thousands of dollars)
  2010 2009
Operating activities
Net cost of operations 1,886,547 1,675,981
Non-cash Items
Amortization of tangible capital assets (Note 6) (175,651) (173,592)
Net loss on write-offs, write-downs and disposals of capital assets (17,911) (3,751)
Services provided without charge by other government departments (118,762) (107,836)
Variations in Statement of Financial Position
Increase (Decrease) in accounts receivable and advances 628 (3,304)
Increase in inventory 739 2,905
Increase in accounts payable and accrued liabilities (26,273) (21,332)
Increase in vacation pay and compensatory leave (6,459) (3,119)
Increase in other liabilities (16,847) (2)
Decrease (Increase) in employee future benefits 11,189 (29,719)
Decrease (Increase) in environmental liabilities (2,720) 153,089
Cash used in operating activities 1,534,480 1,489,320
 
Capital Investing Activities
Acquisitions of tangible capital assets 347,871 174,856
Decrease in lease obligations for tangible capital assets 73 70
Proceeds from disposal of tangible capital assets (1,876) (1,977)
Cash used in capital investing activities 346,068 172,949
 
Net cash provided by Government of Canada 1,880,548 1,662,269

The accompanying notes form an integral part of these financial statements

1. Authority and purpose

The Department of Fisheries and Oceans (DFO) was established under the Department of Fisheries and Oceans Act. The DFO reports to Parliament through the Minister of Fisheries and Oceans.

The mandate of the DFO, on behalf of the Government of Canada, is to be responsible for developing and implementing policies and programs in support of Canada's economic, social, ecological and scientific interests in oceans and fresh waters.

The DFO's guiding legislation includes the Oceans Act and the Fisheries Act. The DFO is also one of the three departments responsible for the Species at Risk Act.

The DFO's three strategic outcomes are delivered through ten program activities, which are described below.

Safe and Accessible Waterways: Providing access to Canadian waterways and ensuring the overall safety and integrity of Canada's marine infrastructure for the benefit of all Canadians.

Canadian Coast Guard Agency: Provision of maritime services that contribute to the enhancement and maintenance of maritime safety and commerce, protection of the marine and freshwater environment, as well as oceans and fisheries resource management, security and other government maritime priorities via maritime expertise, Canada's civilian fleet, a broadly distributed shore infrastructure and collaboration with various stakeholders.

Small Craft Harbours: Operation and maintenance of a national system of harbours critical to Canada's commercial fishing industry.

Science: Provision of scientific research, monitoring, advice, products and services and data management in support of Safe and Accessible Waterways.

Sustainable Fisheries and Aquaculture: Delivering an integrated fisheries and aquaculture program that is credible, science-based, affordable, effective, and contributes to sustainable wealth for Canadians while respecting Aboriginal and treaty rights.

Fisheries and Aquaculture Management: The conservation of Canada's fisheries resources to ensure sustainable resource utilization through close collaboration with resource users and stakeholders based on shared stewardship. Fisheries and Aquaculture Management contributes to international fisheries conservation negotiations and relations, shared management of interception fisheries in international waters, management of the Aboriginal, commercial, recreational fishing in the coastal waters of Canada's three oceans and creating the conditions for a vibrant and innovative aquaculture industry and for an economically prosperous fishing sector as a whole.

Science: Provision of scientific research, monitoring, advice, products and services and data management in support of Sustainable Fisheries and Aquaculture.

Healthy and Productive Aquatic Ecosystems: Ensuring the sustainable development and integrated management of resources in or around Canada's aquatic environment and carrying out critical science and fisheries management activities.

Oceans Management: Conservation and sustainable use of Canada's oceans in collaboration with other levels of government, Aboriginal organizations and other non-government stakeholders through the development and implementation of objectives-based integrated oceans management plans and the application of marine conservation tools.

Habitat Management: Protection and conservation of freshwater and marine fish habitat, in collaboration with others, through a balanced application of regulatory and non-regulatory activities, including reviewing development proposals, conducting environmental assessments and monitoring compliance and effectiveness.

Species At Risk Management: Development of recovery strategies, action plans and management plans for all aquatic species; promoting recovery implementation and monitoring of marine and anadromous (moving between fresh and salt water) species over which the federal government has exclusive jurisdiction; and promoting freshwater species for which certain provinces have specific delegated responsibilities related to fisheries management through regulations under the Fisheries Act.

Science: Provision of scientific research, monitoring, advice, products and services and data management in support of Healthy and Productive Aquatic Ecosystems.

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

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

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 the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the Statement of Operations are the amounts reported in the future-oriented financial statements included in the 2009-2010 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 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 appropriations to discharge its liabilities.

d) Revenues

Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.

Funds that have been received but not earned are recorded as deferred revenue, provided the department has an obligation to other parties for the provision of goods, services or the use of assets in the future.

Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.

e) Expenses

Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized 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.

Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made.

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, legal services and workers' compensation are recorded as operating expenses at their estimated cost.

f) Employee future benefits

g) Accounts and loans receivables are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.

h) Contingent liabilities: Contingent liabilities are potential liabilities which 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.

i) Environmental liabilities: Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the Department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of the Department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to these financial statements.

j) Inventory:

k) Tangible capital assets: All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves or museum collections.

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

Tangible capital assets
Asset Class Amortization Period
Buildings 10-40 years
Work and infrastructure 5-75 years
Machinery and equipment 3-25 years
Informatics 3-5 years
Other equipment, including furniture 5-10 years
Ships and boats 5-40 years
Aircrafts 15-25 years
Vehicles 5-20 years
Leasehold improvements *
Assets under capital leases **

* The lesser of the economic life of the improvement or the lease term
** Over the period of expected use, i.e., the economic life or lease term

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

l) 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 the allowance for vacation pay and compensatory leave, allowance for bad debts, environmental liabilities, the useful life of tangible capital assets, contingent liabilities and the liability for employee severance benefits. Actual results could differ significantly from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Authorities

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

(a) Reconciliation of net cost of operations to current year authorities used
(in thousands of dollars)
  2010 2009
Net cost of operations 1,886,547 1,675,981
Adjustments for items affecting net cost of operations but not affecting authorities    
Add (less):    
Revenue not available for spending 55,539 59,147
Amortization of tangible capital assets (175,651) (173,592)
Net loss on write-offs, write-downs and disposals of capital assets (17,911) (3,751)
Services provided without charge by other government departments (118,762) (107,836)
Increase in inventory 739 2,905
Increase in vacation pay and compensatory leave (6,459) (3,119)
(Increase) Decrease in environmental liabilities (2,720) 153,089
(Increase) Decrease in employee future benefits 11,189 (29,719)
Earmarked supplementary fish fines 672 (135)
Other 110 (351)
Total adjustments for items not affecting authorities (253,254) (103,362)
Adjustments for items not affecting net cost of operations but affecting authorities    
Add (Less):    
Acquisitions of tangible capital assets 347,871 174,856
Decrease in lease obligations for tangible capital assets 73 70
Total adjustments for items affecting authorities 347,944 174,926
Current year authorities used 1,981,237 1,747,545
(b) Authorities provided and used
(in thousands of dollars)
  2010 2009
Authorities provided    
Vote 1 - Operating expenditures 1,346,613 1,324,766
Vote 5 - Capital expenditures 428,606 310,917
Vote 10 - Grants and contributions 131,074 98,068
Statutory amounts 142,706 126,572
Less:    
Authorities available for future years (724) (1,325)
Lapsed authorities (67,038) (111,453)
Current year authorities used 1,981,237 1,747,545

4. Accounts receivable and advances

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

(in thousands of dollars)
  2010 2009
Receivables    
Receivables from external parties 35,146 35,475
Receivables from other federal government departments and agencies 10,687 8,255
Accrued interest on loans 1,556 1,556
Refunds of program expenses 266 254
Less:    
Allowance for doubtful accounts (28,624) (27,137)
Total receivables 19,031 18,403
Loans and advances    
Loans (1) 1,472 1,472
Accountable advances 249 249
Less:    
Allowance on loans (1,472) (1,472)
Total loans and advances 249 249
Total accounts receivable and advances 19,280 18,652

(1) Loans of $1.4 million have been made to haddock fishermen ($1.3 million, interest of 8% per annum, repayable over 4 years until 1979) and to Canadian producers of frozen groundfish ($0.1 million, interest of 13 % per annum, repayable over 7 years until 1987). Allowances on loans receivable are determined on a loan by loan basis. As a result of the postponement of principal and interest payments beyond the loan's original term, DFO has established an allowance equivalent to the total amount of principal and interest on the loans receivable. Some realistic prospect of recovery remains because of continuing collection efforts, but the recoverable amount is uncertain.

5. Inventory

(in thousands of dollars)
  2010 2009
Inventory held for future program delivery 38,136 37,626
Inventory for resale 1,149 920
Total inventory 39,285 38,546

6. Tangible capital assets

(in thousands of dollars)
  Cost
  Opening balance Acquisitions Disposals / write-offs WIP Transfers Closing balance
April 1, 2009 March 31, 2010
Land 20,363 (217) 426 20,572
Buildings 507,948 26 (2,978) 6,178 511,174
Work and infrastructure 1,931,293 1,320 (7,649) 64,431 1,989,395
Machinery and equipment 380,958 2,687 (7,551) 3,523 379,617
Informatics 74,641 654 (4,260) 7,643 78,678
Other equipment, including furniture 862 (115) 747
Ships and boats 1,641,245 97 (9,067) 40,518 1,672,793
Aircrafts 35,455 3,867 39,322
Vehicles 75,477 4,898 (6,563) 78 73,890
Leasehold improvements 544,450 (2,551) 13,915 555,814
Work in progress 361,872 338,189 (15,863) (140,579) 543,619
Assets under capital lease 525 525
Total 5,575,089 347,871 (56,814) 5,866,146

 

(in thousands of dollars)
  Accumulated Amortization Net Book Value
  Opening balance Amortization Disposals / write-offs Closing balance March 31, 2010 March 31, 2009
Land 20,572 20,363
Buildings 327,438 18,956 (2,215) 344,179 166,995 180,510
Works and infrastructure 1,034,610 58,769 (6,457) 1,086,922 902,473 896,683
Machinery and equipment 273,939 15,111 (8,448) 280,602 99,015 107,019
Informatics 68,408 9,014 (4,491) 72,931 5,747 6,233
Other equipment, including furniture 802 10 (112) 700 47 60
Ships and boats 1,178,115 49,266 (6,628) 1,220,753 452,040 463,130
Aircrafts 32,805 1,007 33,812 5,510 2,650
Vehicles 49,025 6,419 (6,431) 49,013 24,877 26,452
Leasehold improvements 347,881 16,994 (2,245) 362,630 193,184 196,569
Work in progress 543,619 361,872
Assets under capital lease 237 105 342 183 288
Total 3,313,260 175,651 (37,027) 3,451,884 2,414,262 2,261,829

Work in progress (WIP) transfers of $140,579 (2009 - $91,017) represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable. Amortization expense for the year ended March 31, 2010 is $175,651 (2009 - $173,592).

7. Accounts payable and accrued liabilities


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

(in thousands of dollars)
  2010 2009
Accounts payable to external parties 169,342 128,527
Accounts payable to other government departments and agencies 60,477 36,988
Accrued liabilities 62,718 100,749
Total accounts payable and accrued liabilities 292,537 266,264

8. Lease obligation for tangible capital assets

The DFO has entered into agreements to rent information technology equipment under capital lease with a cost of $524,772 and accumulated amortization of $341,959 as at March 31, 2010 ($524,772 and $237,005 respectively as at March 31, 2009) (Note 6). The obligations for the upcoming years include the following:

(in thousands of dollars)
Maturing year 2010 2009
2010 80
2011 80 80
2012 58 58
Total future minimum lease payments 138 218
Less: imputed interest (4.1%) (4) (11)
Balance of obligations under leased tangible capital assets 134 207

9. Other liabilities

Other liabilities include deferred revenue and funds received by the DFO under regulations, cost-sharing agreements or to fund projects. Details of the transactions related to these accounts are as follows:

(in thousands of dollars)
  Opening balance April 1, 2009 Receipts and other credits Payments and other charges Closing balance March 31, 2010
Deferred revenue 23 23
Research projects deposits 11,600 65,615 (48,576) 28,640
Sales of seized assets - Fisheries Act 715 731 (492) 954
Federal/provincial cost-sharing agreements 1,040 3,900 (4,210) 729
Contractors' security deposits 307 264 (385) 186
Total 13,685 70,510 (53,663) 30,532

10. Employee future benefits

(a) Pension benefits

The DFO's employees participate in the Public Service Pension 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 two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and they are indexed to inflation.

Both the employees and the DFO contribute to the cost of the Plan. The 2009-2010 expense amounts to $99 million ($88 million in 2008-2009), which represents approximately 1.9 times (2.0 times in 2008-2009) the contributions by employees.

The DFO'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 DFO provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, are as follows.

(in thousands of dollars)
  2010 2009
Accrued benefit obligation, beginning of year 168,713 138,994
Expense for the year 2,669 44,438
Benefits paid during the year (13,858) (14,719)
Accrued benefit obligation, end of year 157,524 168,713

11. Environmental and 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) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the DFO is obligated or likely to be obligated to incur such costs. The DFO has identified 851 sites where such action is possible and for which a liability of $73.2 million ($70.5 million in 2008-09) has been recorded. The DFO has estimated additional clean-up costs of $148.9 million ($135.1 million in 2008-2009) that are not accrued, as these are not considered likely to be incurred at this time.

The DFO's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation

Claims have been made against the DFO in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. Based on DFO's assessment, legal proceedings for claims estimated at $410.1 million ($380.7 million in 2008-2009) were pending at March 31, 2010. Some of these potential liabilities 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 accrued liability is estimated ($0.4 million in 2009-2010 and $0.5 million in 2008-2009) and an expense recorded in the financial statements.

12. Equity of Canada

A portion of the department's equity is restricted to be used for a specific purpose. Related revenues and expenses are included in the Statement of Operations.

The Supplementary Fish Fines Account was established pursuant to the Fisheries Act and related regulations to record fines and penalties levied by courts under the Act. The balance in the account is to be used for remedial or preventive action to fish habitat as well as the promotion of proper management, control, conservation, and protection of fisheries or fish habitat. The balance of the account at the end of the year is included in Equity of Canada. Activity in the account is as follows:

(in thousands of dollars)
  2010 2009
    Restated
(Note 16)
Supplementary Fish Fines Account    
Balance, beginning of year - Restricted 674 809
Revenues 899 65
Expenses (227) (200)
Balance, end of year - Restricted 1,346 674
Unrestricted Equity of Canada, end of year 2,135,280 1,996,721
Total Equity of Canada, end of year 2,136,626 1,997,395

13. Contractual Obligations

The nature of the DFO's activities can result in some large multi-year contracts and obligations whereby the DFO will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)
  2011 2012 2013 2014 2015
and
thereafter
Total
Operating lease 12,659 12,659 12,659 12,659 12,657 63,293
Total 12,659 12,659 12,659 12,659 12,657 63,293

14. Related party transactions

The DFO is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The DFO enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, the DFO received common services which were obtained without charge from other Government departments as presented below.

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

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

(in thousands of dollars)
  2010 2009
Employer's contribution to the health and dental insurance plans 68,591 62,151
Accommodation 44,108 41,810
Legal services 4,920 2,663
Administration costs and commissions paid to provincial workers' compensation boards 1,143 1,212
Total services provided without charge 118,762 107,836

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 costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included in the DFO's Statement of Operations.

(b) Other transactions with related parties
(in thousand of dollars)
  2010 2009
Accounts payable to other government departments and agencies 60,477 36,988
Accounts receivable from other government departments and agencies 10,687 8,255
Expenses - Other Government departments and agencies 282,306 245,778
Revenues - Other Government departments and agencies 18 67

15. Segmented information

Presentation by segment is based on the DFO's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

(in thousand of dollars)
  Safe and Accessible Waterways Sustainable Fisheries and Aquaculture Healthy and Productive Aquatic Ecosystems Internal Services 2010 Total 2009 Total
Operating expenses            
Salaries and employee benefits 461,595 248,566 120,174 174,598 1,004,933 994,039
Professional and special services 95,233 74,863 23,446 68,118 261,660 244,514
Amortization of tangible capital assets 118,220 7,969 3,258 46,204 175,651 173,592
Repair and maintenance 116,252 3,760 1,305 20,528 141,845 118,133
Utilities, material, supplies, and fuel 53,912 29,209 7,713 15,066 105,900 119,416
Machinery and equipment 37,419 7,919 2,946 8,321 56,605 52,824
Travel and relocation 22,160 18,547 8,438 6,492 55,637 64,830
Loss on write-offs and write-downs 14,292 169 127 7,839 22,427 14,287
Telecommunication 8,932 4,178 1,274 5,420 19,804 19,212
Rental 4,235 7,929 1,908 1,886 15,958 23,098
Other 56 2,281 685 3,095 6,117 2,331
Communication services 1485 1,279 703 1,311 4,778 5,353
Increase (Decrease) in Environmental liability 2,720 2,720 (153,089)
Total operating expenses 933,791 406,669 171,977 361,598 1,874,035 1,678,540
Transfer Payments            
First Nations and Inuit People 81,031 150 81,181 75,400
Non-profit organizations 7,953 9,239 2,253 19,445 17,576
Individuals 75 9,541 9,616 365
Other level of governments within Canada 500 690 1,190 768
Other countries and international organizations 184 124 40 348 481
Industry 25
Total transfer payments 8,712 100,625 2,443 111,780 94,615
Total Expenses 942,503 507,294 174,420 361,598 1,985,815 1,773,155
Revenues            
Sales of goods and services 46,694 44,570 156 91,420 91,912
Other revenue 3,576 3,839 433 7,848 5,262
Total revenues 50,270 48,409 589 99,268 97,174
Net cost of operations 892,233 458,885 173,831 361,598 1,886,547 1,675,981

16. Adoption of new accounting policies

During the year, DFO adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements. The major change in the accounting policies of the DFO required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on comparatives for 2008-2009:

(in thousands of dollars)
  2009 As previously stated Effect of changes 2009 Restated
Statement of Financial Position :      
Assets 2,319,027 265,274 2,584,301
Equity of Canada 1,732,121 265,274 1,997,395

17. Comparative information

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


Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting

Fiscal year 2009-2010

Notice to Reader

As required by the Treasury Board Policy on Internal Control, this document is annexed to Department of Fisheries and Oceans Canada's Statement of Management Responsibility Including Internal Control over Financial Reporting for the fiscal-year 2009-2010.

With the new Treasury Board Policy on Internal Control, effective April 1, 2009, departments are now required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR).

As part of this policy departments are expected to conduct annual assessments of their system of ICFR, establish action plan(s) to address any necessaryadjustments, and to attach to their Statement of Management Responsibility a summary of their assessment results and action plan.

Effective systems of ICFR aim to achieve reliable financial statements and to provide assurances that:

It is important to note that the system of ICFR is not designed to eliminate all risks, rather to mitigate risk to a reasonable level with controls that are balanced with and proportionate to the risks they aim to mitigate.

The maintenance of an effective system of ICFR is an ongoing process designed to identify and prioritize risks and the controls to mitigate these risks, as well as to monitor its performance in support of continuous improvement. As a result, the scope, pace and status of departmental assessments of the effectiveness of the system of ICFR will vary from one organization to the other based on risks and taking into account their unique circumstances.

Table of Contents

  1. Introduction
    Authority, mandate, and program activities
    Financial profile highlights
    Service arrangements relevant to financial statements
    Material changes in fiscal year 2009-10
  2. Fisheries and Oceans Canada's control environment relevant to ICFR.
    Key positions, roles and responsibilities
    Key measures taken by Fisheries and Oceans Canada
  3. Assessment of Fisheries and Oceans Canada's System of ICFR
    Assessment baseline
    Approach to Fisheries and Oceans Canada's assessment
  4. Fisheries and Oceans Canada's Assessment Results
    Design effectiveness of key controls
    Operating effectiveness of key controls
  5. Action Plan of Fisheries and Oceans Canada
    Progress as of March 2010
    Action plan

1. Introduction

This document is appended to the Statement of Management Responsibility Including Internal Control Over Financial Reporting of Fisheries and Oceans Canada for the fiscal-year 2009-2010. As required by the new Treasury Board Policy on Internal Control, effective April 1st 2009, this document provides summary information on the measures taken by Fisheries and Oceans Canada to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides summary information on the assessments conducted by Fisheries and Oceans Canada as at March 31, 2010, including progress, results and related action plans along with some financial highlights pertinent to understanding the control environment unique to the department.

1.1 Authority, Mandate and Program Activities

The responsibility of Fisheries and Oceans Canada for policy and program coordination of oceans was originally established by the Department of Fisheries and Oceans Act (1979). The Department's guiding legislation includes the Oceans Act, which charges the Minister with leading oceans management and providing coast guard and hydrographic services on behalf of the Government of Canada, and the Fisheries Act, which confers responsibility to the Minister for the management of fisheries, habitat and aquaculture. The Department is also one of the three responsible authorities under the Species at Risk Act.

On behalf of the Government of Canada, Fisheries and Oceans Canada (DFO) is responsible for developing and implementing policies and programs in support of Canada's scientific, ecological, social and economic interests in oceans and fresh waters.

Further details regarding DFO's mission, priorities, strategic outcomes and program activity architecture are available in the Departmental Performance Report and Report on Plans and Priorities.

1.2 Financial profile highlights

Below is key financial information for fiscal-year 2009-2010. More information can be found in DFO's Financial Statements (unaudited) and Notes to Financial Statements.

1.3 Service arrangements relevant to financial statements

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

1.3.1 The Department relies on other government service providers

Common Arrangements:

Specific Arrangements:

1.3.2 The Department relies on non-government service providers
1.4 Material changes in fiscal-year 2009-2010

Under Canada's Economic Action Plan announced by the Minister of Finance, DFO is investing $343 million in various projects and programs. This initiative has had a significant and temporary increase in activity for the department in 2009-2010 and is expected to continue in 2010-2011.

Improved governance through the second year of operation of the Departmental Audit Committee and continued improvements made to the department's system of Internal Controls over Financial Reporting (ICFR) continue to support the departmental controls framework.

A new Chief Financial Officer (CFO) was appointed in the fourth quarter following the retirement of the previous CFO.

2. Fisheries and Oceans Canada's control environment relevant to ICFR

Senior Management of Fisheries and Oceans Canada provide the leadership to help ensure that staff at all levels in the department understand the purpose and importance of maintaining risk-based effective internal control systems as well as their roles and responsibilities in support of sound stewardship of public resources and reliable financial reporting.

Key components of entity level controls in the department aim at ensuring solid governance and effective risk management at the corporate level, as well as the maintenance of other entity level controls to provide effective support to staff by raising awareness and providing appropriate knowledge, skills, and tools. The ultimate objective is to manage risks well while maintaining a responsive control environment for people at all levels that supports innovation and continuous improvement.

Fisheries and Oceans Canada's main entity-level controls currently in place and relevant to ICFR are set out below.

2.1 Key positions, roles and responsibilities

Deputy Head - As the Accounting Officer for Fisheries and Oceans Canada, its Deputy Head assumes overall responsibility and leadership for the stewardship, management and oversight of departmental resources, as well for the measures taken to maintain an effective system of internal control.

Chief financial Officer - Consistent with the Treasury Board Policy on Financial Management Governance and the associated Guideline, Fisheries and Oceans Canada has a qualified Chief Financial Officer (CFO), with a professional accounting designation, who reports directly to the Deputy Head. The CFO is the focal point of accountability to ensure rigorous stewardship of financial and materiel resources. The CFO is part of the Departmental Management Committee (DMC), providing functional leadership and a focus on financial management. In addition, to ensure appropriate independence, the CFO does not have program responsibilities. To support the coordination, coherence and focus on the design and maintenance of an effective and integrated system of ICFR, Fisheries and Oceans Canada established, effective April 1, 2009 a dedicated Sector reporting directly to the CFO which includes the Risks and Results function.

Chief Audit Executive - Consistent with the Treasury Board Policy on Internal Audit, Fisheries and Oceans Canada has a qualified Chief Audit Executive (CAE) who reports directly to the Deputy Head. Independent from line management, the CAE provides assurance through periodic internal audits focused on risk management, control, and governance processes.

Departmental Audit Committee - Consistent with the Treasury Board Policy on Internal Audit, Fisheries and Oceans Canada established its Departmental Audit Committee in 2007. This committee is chaired by the Deputy Head and is comprised of three external members. In 2009-10, the Audit Committee met four times, providing advice on governance, risk management and control.

Senior Departmental Managers - Senior departmental managers at Fisheries and Oceans Canada (i.e. Assistant Deputy Ministers and equivalents) in charge of program delivery and reporting to the Deputy Head, are responsible for the management and oversight of the resources falling within their mandate, including financial management and reporting.

Senior Committees - Fisheries and Oceans Canada's governance is supported by several committees, including a Departmental Management Committee (DMC) chaired by the Deputy Head which is the central decision-making body responsible for the department. The DMC is supported by four sub-committees, including one dedicated to financial management (Finance Sub-committee) which is chaired by the Associate Deputy Minister and for which the CFO is a member.

2.2 Key measures taken by Fisheries and Oceans Canada

Key measures taken by DFO contribute to preparing departmental staff for managing risks by raising awareness and providing appropriate knowledge, skills, and tools. In doing so, Fisheries and Oceans Canada puts a particular focus on the following key control elements:

HR management - Roles, responsibilities and accountabilities relating to financial management are systematically set out in annual performance agreements where applicable. Consistent with Public Service Renewal, 2 financial management capabilities of managers and financial experts at Fisheries and Oceans Canada are sustained through an overall HR approach that integrates HR planning with business planning and which includes recruitment, development and retention strategies to attract, equip and retain the expertise needed by DFO, including expertise over financial management.

Delegated authorities, legislation, regulations and policies - Fisheries and Oceans Canada periodically updates and communicates a matrix of all delegated authorities across the department. Mandatory requirements flowing from legislation, regulations and policies are systematically communicated to new employees as applicable as well as periodically reinforced through various awareness opportunities and learning events.

Values and ethics - Fisheries and Oceans Canada has its own guidelines on values and ethics to supplement the Values and Ethics Code for the Public Service and has established an Office of Values and Ethics reporting directly to the Deputy Head. The Executive Director for Values, Integrity and Conflict Resolution (VICR) also oversees and reports annually to the Deputy Minister concerning compliance with the code. These elements are foundational to reinforcing the integrity expected to be demonstrated in all activities and at all levels, including in the area of financial management.

Internal Audit Plan - Fisheries and Oceans Canada completes an annual risk-based audit plan which is instrumental to the departmental system of ICFR.

Other enabling tools - Fisheries and Oceans Canada is currently documenting its main business processes and related key risks and controls to support the management and oversight of its system of ICFR, including the testing of design and operating effectiveness. This documentation is fundamental in raising awareness and understanding of staff at all levels on key risks and controls as well as to support continuous improvements. Fisheries and Oceans Canada's staff is also equipped with multiple IT systems and applications as key tools to enable efficient processing of transactions. Fisheries and Oceans Canada also documented and assessed the effectiveness of its entity-level controls and IT general controls.

Risk management at Fisheries and Oceans Canada falls under the responsibility of the CFO. Fisheries and Oceans Canada's Corporate Risk Profile3 covers all aspects of corporate risks, including operational, regulatory/legal, financial and reputational. The Corporate Risk Profile is periodically updated through a number of environmental scans (internal and external) taking into account lessons learned and internal and external expert validations. Adjustments to the Corporate Risk Profile are then presented at the Departmental Management Committee.

3. Assessment of Fisheries and Oceans Canada's system of ICFR

3.1 Assessment baseline

The DFO readiness assessments and action plans in support of control-based audits are fundamental in meeting the requirements of the Policy on Internal Control. They constitute the base through which, over time, the Department will be able to provide reasonable assurance that it maintains an effective system of internal control over financial reporting.

Whether it is to support control-based audits or meet the requirements of the Policy on Internal Control, in both cases, DFO needs to assess design and operating effectiveness of its system of ICFR as well as have in place an on-going monitoring program to sustain and continuously improve its system of ICFR to help ensure there are no material adjustments required.

Design effectiveness means to ensure that key control points are identified, documented, in place and that they are aligned with the risks they aim to mitigate and that any remediation is addressed. This includes the mapping of key processes and IT systems to the main accounts as applicable for each region as well as National Capital region and Headquarters.

Operating effectiveness means that key controls have been tested over a defined period based on actual transactions and that any remediation is addressed.

3.2 Approach to Fisheries and Oceans Canada's Assessment

Fisheries and Oceans Canada has taken measures to assess its system of internal controls over financial reporting. In doing so, Fisheries and Oceans Canada reviewed financial reporting processes from site visits in each of the six Regional offices (Newfoundland, Central and Arctic, Quebec, Pacific, Maritimes and Gulf of St Lawrence) as well as National Capital Region and Headquarters. The site visits focused on assessing all material financial processes supporting financial statement reporting and key controls. The following processes were assessed:

For each significant account and location, Fisheries and Oceans began by gathering available information pertaining to existing processes, risks and controls relevant to internal controls over financial reporting (ICFR), including appropriate policies and procedures. Fisheries and Oceans Canada ensured that key risks and controls were adequately documented. On this basis, the department has begun to assess the design effectiveness of key process level controls and address necessary adjutments.

Fisheries and Oceans Canada also documented and assessed its entity-level controls (previously discussed in Section 2) and IT general controls. Assessment of the IT general controls was focused on walkthroughs of controls (Logical Access, System Security, Program Change, and IT Operational controls) centralized in headqurters, located in Ottawa.

Finally, Fisheries and Oceans also took into account information available from recent audits and evaluations.

4. Fisheries and Oceans Canada's assessment results

In assessing its key controls, Fisheries and Oceans Canada has focused to date on completing its design effectiveness testing which is the prerequisite to testing operating effectiveness.

4.1 Design effectiveness of key controls

When undertaking design effectiveness testing, Fisheries and Oceans Canada reviewed all documentation (including its validation by process owners) and verified whether the process and IT system documentation are in place and corresponding to actual practice. Remediation requirements were identified for each of the 6 processes listed in section 3.2. These activities covered both headquarters and all regional offices. Design effectiveness also included ensuring appropriate alignment of each key control with the associated risks.

As a result of these assessments, Fisheries and Oceans Canada identified remediation requirements which are being pursued in the following areas:

Asset Management - Capital Assets and Inventory

To address the need for a formal definition and guidance for accounting treatments of Capital Asset and Inventory that is in accordance with the Accounting guidance to facilitate consistent classification and treatment between locations. There is a need for consistent costing methodology and procedures for inventory and capital assets.

Clear roles and responsibilities for concluding a project are necessary to strengthen controls over capital assets.

Procurement to Payment

To address the need to strengthen controls, primarily in the areas of segregation of duties and preventative controls over account coding at the procurement stage. There is a need for a systematic receiving process in order that monthly accounts payable accruals can be reported, including a matching of goods received against goods procured and invoiced.

To address the need for a consistent procedure over the review and approval of Grants and Contributions claims.

Revenues

To address the need for an approach to report revenues on an accrual basis consistent with the Accounting guidance. The department needs a procedure for the reconciliations between the fishing license system and the departmental financial system in order to confirm completeness and accuracy of these revenues.

Human Resources and Compensation

To address the need for consistent procedures for sub-processes such as hiring, termination and to authorize overtime.

Monitoring and quality assurance of financial statement preparation

To address the need to continue to take measures to ensure that controls for the effective and reliable preparation and quality assurance of financial statements are sustained, including review of support for non-standard journal entries posted by the regions.

IT general system management

To address the need to strengthen controls related to access to IT programs and data, system change management and IT operational processes including appropriate segregation of duties, as well as system security controls.

4.2 Operating effectiveness of key controls

Fisheries and Oceans Canada is committed to completing the design effectiveness of control activities to identify and strengthen key controls before it can initiate the testing of operating effectiveness across all areas. When completing operating effectiveness testing, Fisheries and Oceans Canada intends to ensure that key controls are functioning over time as specified and any necessary corrective actions that are identified are initiated.

5. Action Plan of Fisheries and Oceans Canada

5.1 Progress as of March 2010

During 2009-2010 Fisheries and Oceans Canada has continued to make significant progress in assessing and improving its key controls. Below is a summary of the main progress achieved by Fisheries and Oceans Canada.

Fisheries and Oceans Canada has commenced or advanced work to address the following necessary adjustments:

5.2 Action plan

Whether it is to support control-based audits or meet the requirements of the Policy on Internal Controls, DFO is committed to maintaining an effective system of ICFR to provide reasonable assurance that

By end of 2010-11 Fisheries and Oceans Canada plans to:

Continue the in-depth review and remediation that have been substantially advanced in 2009-10 applying particular emphasis on the design effectiveness of key controls for tangible capital assets, revenues and human resources and compensation processes as well as address any related remediation; and

Initiate operating effectiveness testing of the implementation of account verification at the headquarters and regional levels.

By end of 2011-12 Fisheries and Oceans Canada plans to:

Complete all areas of design effectiveness of key controls for tangible capital assets, revenues and human resources and compensation processes as well as address any related remediation; and

Substantially complete the documentation and design testing of key controls related to procurement to pay process at the headquarters and regional levels.



1 Regulations and Legislation

2 2009-10 Public Service Renewal Action Plan

3 Corporate Risk Profile