Financial Statements of Fisheries and Oceans Canada

Year ended March 31, 2012

Fisheries and Oceans Canada

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, 2012, and all information contained in these statements rests with the management of Fisheries and Oceans Canada. These financial statements have been prepared by management using the Government’s accounting policies, which are based on Canadian public sector accounting standards.

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

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

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.

A risk-based assessment of the system of internal control over financial reporting for the year ended March 31, 2012 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 Fisheries and Oceans Canada have not been audited.

Claire Dansereau, Deputy Minister Ottawa, Canada August 23, 2012

André Léger for Roch Huppé, Chief Financial Officer Ottawa, Canada August 23, 2012

 

Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars)

	2012	2011 Restated (Note 18)
Liabilities
Accounts payable and accrued liabilities (Note 4)	286,931	289,390
Vacation pay and compensatory leave	72,647	72,558
Deferred revenue (Note 5)	7,923	8,849
Other liabilities (Note 6)	44,427	30,035
Employee future benefits (Note 7)	157,947	165,074
Environmental and contingent liabilities (Note 8)	136,725	108,699
Lease obligation for tangible capital assets (Note 9)	-	58
Total gross liabilities	706,600	674,663
Liabilities held on behalf of Government
Deferred revenue (Note 5)	(7,923)	(8,849)
Total liabilities held on behalf of Government	(7,923)	(8,849)
Total net liabilities	698,677	665,814
Financial assets
Due from Consolidated Revenue Fund	218,853	288,794
Accounts receivable and advances (Note 10)	23,095	23,961
Total gross financial assets	241,948	312,755
Financial assets held on behalf of Government
Accounts receivable and advances (Note 10)	(15,908)	(16,476)
Total financial assets held on behalf of Government	(15,908)	(16,476)
Total net financial assets	226,040	296,279
Departmental net debt	472,637	369,535
Non-financial assets
Inventory (Note 11)	47,716	40,807
Tangible capital assets (Note 12)	2,603,604	2,580,242
Total non-financial assets	2,651,320	2,621,049
Departmental net financial position (Note 13)	2,178,683	2,251,514

Environmental and contingent liabilities (Note 8)
Contractual obligations (Note 14)
The accompanying notes form an integral part of these financial statements.

 

Claire Dansereau, Deputy Minister Ottawa, Canada August 23, 2012

André Léger for Roch Huppé, Chief Financial Officer Ottawa, Canada August 23, 2012

 

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31

(in thousands of dollars)

	2012 Planned results	2012	2011 Restated (Note 18)
Expenses
Economically Prosperous Maritime Sectors and Fisheries	567,251	580,890	559,661
Sustainable Aquatic Ecosystems	323,517	381,642	311,642
Safe and Secure Waters	744,606	766,112	758,968
Internal Services	306,803	345,490	375,664
Total expenses	1,942,177	2,074,134	2,005,935
Revenues
Sales of goods and services	88,124	88,350	84,315
Gain on sale of capital assets	-	3,906	4,947
Other revenues	3,704	8,030	4,060
Revenues earned on behalf of Government	(43,813)	(54,860)	(49,111)
Total revenues	48,015	45,426	44,211
Net cost from continuing operations	1,894,162	2,028,708	1,961,724
Transferred operations (Note 16)
Expenses	27,989	18,157	28,824
Net cost of transferred operations	27,989	18,157	28,824
Net cost of operations before Government funding and transfers	1,922,151	2,046,865	1,990,548
Government funding and transfers
Net cash provided by Government	1,756,489	1,923,033	1,986,742
Change in due from the Consolidated Revenue Fund	(28,812)	(69,941)	(2,948)
Services provided without charge by other government departments (Note 15)	118,896	124,803	119,755
Transfer of assets and liabilities to other government departments (Note 12) (Note 16)	-	(3,861)	-
Total Government funding and transfers	1,846,573	1,974,034	2,103,549
Net cost of operations after government funding and transfers	75,578	72,831	(113,001)
Departmental net financial position - Beginning of year	2,290,793	2,251,514	2,138,513
Departmental net financial position - End of year	2,215,215	2,178,683	2,251,514

Segmented Information (Note 17)
The accompanying notes form an integral part of these financial statements.

Statement of Change in Departmental Net Debt (Unaudited)

For the Year Ended March 31

(in thousands of dollars)

	2012 Planned Results	2012	2011
Net cost of operations after government funding and transfers	75,578	72,831	(113,001)
Change due to tangible capital assets
Acquisition of tangible capital assets	238,608	236,918	374,788
Amortization of tangible capital assets	(196,714)	(179,615)	(185,472)
Proceeds from disposal of tangible capital assets	(5,134)	(4,452)	(5,540)
Net loss on disposal of tangible capital assets including adjustments	(15,495)	(23,464)	(17,796)
Transfers to other government departments (Note 12) (Note 16)	-	(6,025)	-
Total change due to tangible capital assets	21,265	23,362	165,980
Change due to inventories	-	6,909	(13,633)
Net increase in departmental net debt	96,843	103,102	39,346
Departmental net debt - Beginning of year	271,134	369,535	330,189
Departmental net debt - End of year	367,977	472,637	369,535

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

Statement of Cash Flows (Unaudited)

For the Year Ended March 31

(in thousands of dollars)

	2012	2011 Restated (Note 18)
Operating activities
Net cost of operations before government funding and transfers	2,046,865	1,990,548
Non-cash Items:
Amortization of tangible capital assets	(179,615)	(185,472)
Net loss on disposal of tangible capital assets including adjustments	(23,464)	(17,796)
Services provided without charge by other government departments (Note 15)	(124,803)	(119,755)
Variations in Statement of Financial Position:
Decrease in accounts payable and accrued liabilities	2,459	2,747
Decrease (increase) in vacation pay and compensatory leave	(89)	1,483
Decrease (increase) in other liabilities	(14,392)	474
Decrease (increase) in employee future benefits	7,127	(7,550)
Increase in contingent and environmental liabilities	(28,026)	(35,124)
Decrease (increase) in accounts receivable and advances	(298)	1,496
Increase (decrease) in inventory	6,909	(13,633)
Transfer of liabilities to other government departments (Note 16)	(2,164)	-
Cash used in operating activities	1,690,509	1,617,418
Capital investing activities
Acquisitions of tangible capital assets	236,918	374,788
Proceeds from disposal of tangible capital assets	(4,452)	(5,540)
Cash used in capital investing activities	232,466	369,248
Financing activities
Lease payments for tangible capital assets	58	76
Cash used in financing activities	58	76
Net cash provided by the Government of Canada	1,923,033	1,986,742

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

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31

1. Authority and objectives

Fisheries and Oceans Canada was established under the Department of Fisheries and Oceans Act. Fisheries and Oceans Canada reports to Parliament through the Minister of Fisheries and Oceans.

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

Fisheries and Oceans Canada’s three strategic outcomes are delivered through twenty-nine program activities. The three outcomes are described below. Internal Services are activities and resources that are administered to support the needs of programs and other corporate obligations.

Economically Prosperous Maritime Sectors and Fisheries: Through its policies, programs and services, and while supporting the sustainable and effective use of Canada’s water resources, Fisheries and Oceans Canada contributes to the capacity of Canada’s Maritime Sectors and Fisheries to derive economic benefits and further enhance their competitiveness.

Sustainable Aquatic Ecosystems: Fisheries and Oceans Canada’s programs and policies contribute to the conservation, protection, and sustainability of Canada’s aquatic ecosystems through the management of risks that affect species, oceans and fish habitats.

Safe and Secure Waters: Fisheries and Oceans Canada contributes to maintaining and improving maritime safety and security through the provision of maritime infrastructure, information, products and services necessary to ensure safe navigation and the protection of life and property.

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

 

2. Summary of Significant Accounting Policies

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

Significant accounting policies are as follows:

1. Parliamentary authorities – Fisheries and Oceans Canada is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Fisheries and Oceans Canada 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 Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2011-2012 Report on Plans and Priorities. The planned results for 2011-2012 have been restated to reflect the revenue held on behalf of Government. This restatement resulted in a $0.044 million increase in net costs of operations before Government funding and transfers. In addition, the planned results have also been reclassified to conform to the current year presentation.

2. Net cash provided by Government – Fisheries and Oceans Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by Fisheries and Oceans Canada is deposited to the CRF and all cash disbursements made by Fisheries and Oceans Canada 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.

3. Amounts due from or to the CRF are the result of timing differences that occur 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 Fisheries and Oceans Canada is entitled to draw from the CRF without further authorities to discharge its liabilities.

4. 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 are recorded as deferred revenue, provided Fisheries and Oceans Canada 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.

   Revenues that are non-respendable are not available to discharge Fisheries and Oceans Canada’s liabilities. While the Deputy Minister is expected to maintain accounting control, she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity’s gross revenues.

5. Expenses – are recorded 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. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.

   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.

6. Employee future benefits:

   (i) Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. Fisheries and Oceans Canada’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Fisheries and Oceans Canada’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.

   (ii) 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.

7. Accounts and loans 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.

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

9. 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 Fisheries and Oceans Canada becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of Fisheries and Oceans Canada’s obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

10. Inventory - Inventory held for future program delivery consist of spare parts, materials, supplies and fuel. Spare parts, materials and supplies are valued at cost or net realizable value. Fuel is valued using the moving weighted average cost method.

    Inventory held for resale consists of supplies for the production of publications and publications which will be sold in the future. It is valued at the lower of cost or net realizable value.

11. 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. Fisheries and Oceans Canada 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:

    Asset Class	Amortization Period
    Buildings	10-40 years
    Work and infrastructure	5-75 years
    Machinery and equipment	3-25 years
    Informatics	3-5 years
    Furniture	10 years
    Ships and boats	5-40 years
    Aircrafts	15-25 years
    Vehicles	5-20 years
    Leasehold improvements	Period of expected use; lesser of economic life of the improvement or the lease term
    Assets under capital lease	Period of expected use; lesser of economic life of the improvement or the lease term
    Work in progress are recorded in the applicable asset class in the year that they become available for use and are not amortized until they become available for use.

     

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

 

3. Parliamentary Authorities

Fisheries and Oceans Canada receives most of its funding through annual parliamentary authorities. Items recognized in the Statements of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, Fisheries and Oceans Canada 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)

	2012	2011 Restated (Note 18)
Net cost of operations before government funding and transfers	2,046,865	1,990,548
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(179,615)	(185,472)
Net loss on disposal of tangible capital assets including adjustments	(23,464)	(17,796)
Services provided without charge by other government departments	(124,803)	(119,755)
Increase in accrued liabilities not charged to authorities	(62,018)	-
Decrease (increase) in vacation pay and compensatory leave	(539)	1,483
Decrease (increase) in employee future benefits	5,413	(7,550)
Increase in environmental and contingent liabilities	(28,026)	(35,124)
Increase (decrease) in inventory	6,909	(13,633)
Bad debt expense	(1,808)	194
Refunds of previous years expenditures	5,704	5,677
Earmarked Supplementary Fish Fines (Note 13)	461	(254)
Other	(1,172)	(283)
Total Adjustments for items affecting net cost of operations but not affecting authorities	(402,958)	(372,513)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets	236,918	374,788
Decrease in lease obligation tangible capital lease	58	76
Total Adjustments for items not affecting net cost of operations but affecting authorities	236,976	374,864
Current year authorities used	1,880,883	1,992,899

b) Authorities provided and used

(in thousands of dollars)

	2012	2011
Authorities provided:
Vote 1 - Operating expenditures	1,385,821	1,344,584
Vote 5 - Capital expenditures	366,803	453,686
Vote 10 - Grants and contributions	129,472	133,416
Statutory amounts	142,847	141,367
Less:
Authorities available for future years	(3,793)	(4,432)
Lapsed authorities:
Operating	(72,227)	(36,072)
Capital	(67,215)	(33,243)
Grants and contributions	(825)	(6,407)
Current year authorities used	1,880,883	1,992,899

4. Accounts payable and accrued liabilities

The following table presents the details of Fisheries and Oceans Canada’s accounts payable and accrued liabilities:

(in thousands of dollars)

	2012	2011
Accounts payable - Other government departments and agencies	20,255	42,193
Accounts payable - External parties	121,513	169,487
Total accounts payable	141,768	211,680
Accrued liabilities	145,163	77,710
Total accounts payable and accrued liabilities	286,931	289,390

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013. As a result, Fisheries and Oceans Canada has recorded at March 31, 2012 an obligation for termination benefits for an amount of $62 million as part of accrued liabilities to reflect the estimated workforce adjustment costs.

 

5. Deferred revenue

Deferred revenue from the Fisheries and Aquaculture Management licenses represents the balance at year-end of unearned revenues stemming from fees received prior to services being performed. Other revenues are from external parties which are restricted to fund the expenditures related to specific projects. Revenue is recognized in the period in which these expenditures are incurred or in which the service is performed.

(in thousands of dollars)

	2012	2011 Restated (Note 18)
Opening balance	8,849	9,645
Amounts received	7,906	8,826
Revenue recognized	(8,832)	(9,622)
Gross closing balance	7,923	8,849
Deferred revenues held on behalf of Government	(7,923)	(8,849)
Net closing balance	-	-

6. Other liabilities

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

(in thousands of dollars)

	2012	2011
Research projects deposits	42,909	28,304
Federal/Provincial cost-sharing agreements	263	680
Sales of seized assets – Fisheries Act	942	692
Contractor security deposits	313	359
Total other liabilities	44,427	30,035

Research projects deposits: This account was established to record contributions received from organizations and individuals, for the furtherance of research work.

Federal/provincial cost-sharing agreements: This account was established to record the deposit of money received from the provinces for cost-shared programs. The funds are disbursed according to agreements.

Sale of seized assets: This account was established to record the proceeds of sale of seized items by Fisheries and Oceans Canada from a person contravening the Fisheries Act. Money so received is held in the Consolidated Revenue Fund pending final resolution of the case by the Minister of Fisheries and Oceans Canada or the courts.

Contractor security deposits: This account was established to record money held to ensure that a contractor's obligations under contracts are carried out, to protect the interests of subcontractors, sub-subcontractors and suppliers, and to protect the Crown against loss should a bidder fail to honor a contract.

 

7. Employee future benefits

1. Pension benefits

   Fisheries and Oceans Canada’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. 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/Quebec Pension Plans benefits and they are indexed to inflation.

   Both the employees and Fisheries and Oceans Canada contribute to the cost of the Plan. The 2011-2012 expense amounts were $96 million ($95 million in 2010-2011), which represents approximately 1.8 times (1.9 times in 2010-2011) the contributions by employees.

   Fisheries and Oceans Canada’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.

2. Severance benefits

   Fisheries and Oceans Canada 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 the collective agreement negotiations with certain employee groups, and changes to the 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 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.

Information about the severance benefits, measured as at March 31, 2012, is as follows:

(in thousands of dollars)

	2012	2011
Accrued benefit obligation - Beginning of year	165,074	157,524
Transferred to other government department (Note 16)	(1,714)	-
Subtotal	163,360	157,524
Expense for the year	58,863	23,745
Benefits paid during the year	(64,276)	(16,195)
Accrued benefit obligation - End of year	157,947	165,074

8. 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:

1. Contaminated sites

   Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where Fisheries and Oceans Canada is obligated or likely to be obligated to incur such costs. Fisheries and Oceans Canada has identified approximately 935 sites (940 sites in 2010-2011) where such action is possible and for which a liability of $102.1 million ($108.7 million in 2010-2011) has been recorded. Fisheries and Oceans Canada has estimated additional clean-up costs of $119.7 million ($130.4 million in 2010-2011) that are not accrued, as these are not considered likely to be incurred at this time. Fisheries and Oceans Canada’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 by Fisheries and Oceans Canada in the year in which they become likely and are reasonably estimable.

2. Claims and litigation

   Claims have been made against Fisheries and Oceans Canada in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. Fisheries and Oceans Canada has recorded an allowance of $34.6 million (Nil in 2010-2011) for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Based on the Department’s assessment, legal proceedings for claims estimated at $313.4 million ($30.3 million in 2010-2011) were pending at March 31, 2012.

9. Lease obligation for tangible capital assets

Fisheries and Oceans Canada has entered into agreements to rent information technology equipment under capital leases with a cost of $0.53 million and accumulated amortization of $0.53 million as at March 31, 2012. There are no obligations for the upcoming years:

(in thousands of dollars)

	2012	2011
Maturing year 2012	-	59
Total future minimum lease payments	-	59
Less: imputed interest (4.1%)	-	(1)
Balance of obligations under leased tangible capital assets	-	58

10. Accounts receivable and advances

The following table presents details of Fisheries and Oceans Canada’s accounts receivable and advances balances:

(in thousands of dollars)

	2012	2011 Restated (Note 18)
Accounts receivable
Receivables - Other government departments and agencies	13,733	16,755
Receivables - External parties	37,280	33,594
Refunds of program expenses	269	274
Allowance for doubtful account on receivables from external parties	(29,958)	(28,428)
Subtotal - Receivables	21,324	22,195
Loans and advances
Loans (1)	1,472	1,472
Accrued interest on loans	1,556	1,556
Accountable advances	215	210
Allowance on loans and advances	(1,472)	(1,472)
Subtotal loans and advances	1,771	1,766
Total gross accounts receivable and advances	23,095	23,961
Accounts receivable held on behalf of Government	(15,908)	(16,476)
Net accounts receivable and advances	7,187	7,485

⁽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, Fisheries and Oceans Canada has established an allowance equivalent to the total amount of principal and interest on the loans receivable.

11. Inventory

The following table presents details of the inventory:

(in thousands of dollars)

	2012	2011 Restated (Note 18)
Inventory held for future program delivery	46,593	39,884
Inventory held for resale	1,123	923
Total Inventory	47,716	40,807

The cost of consumed inventory recognized as an expense in the Statement of Operations and Departmental Net Financial Position is $6.9 million in 2011-2012 ($13 million in 2010-2011).

12. Tangible capital assets

(in thousands of dollars)

	Opening balance, April 1, 2011	Acquisitions	Adjustments (1)	Disposals / write-offs	Closing balance, March 31, 2012
Land	20,570	-	2,270	125	22,715
Buildings	528,812	-	174,262	9,816	693,258
Works and infrastructure	2,173,264	90	164,203	31,547	2,306,010
Machinery and equipment	323,561	3,814	11,123	13,527	324,971
Informatics	78,671	68	(5,899)	1,795	71,045
Furniture	102	-	-	10	92
Ships and boats	1,744,170	172	17,816	18,922	1,743,236
Aircrafts	35,610	-	-	-	35,610
Vehicles	72,237	4,433	40	5,846	70,864
Leasehold improvements	567,562	-	(64,408)	13,100	490,054
Work in progress	504,571	228,331	(316,419)	25,533	390,950
Assets under capital lease	525	10	-	-	535
Total	6,049,655	236,918	(17,012)	120,221	6,149,340

(in thousands of dollars)

		Accumulated Amortization				Net Book Value
	Opening balance, April 1, 2011	Amortization	Adjustments(1)	Disposals / write-offs effect on amortization	Closing balance, March 31, 2012	March 31, 2012	March 31, 2011
Land	-	-	-	-	-	22,715	20,570
Buildings	356,407	17,727	59,181	9,816	423,499	269,759	172,405
Works and infrastructure	1,134,436	61,286	16,345	29,916	1,182,151	1,123,859	1,038,828
Machinery and equipment	222,077	15,716	(2,331)	13,527	221,935	103,036	101,484
Informatics	68,410	5,593	(10,694)	1,795	61,514	9,531	10,261
Furniture	64	3	1	10	58	34	38
Ships and boats	1,240,661	53,155	(330)	18,491	1,274,995	468,241	503,509
Aircrafts	31,125	797	-	-	31,922	3,688	4,485
Vehicles	46,156	6,706	(64)	5,705	47,093	23,771	26,081
Leasehold improvements	369,630	18,544	(73,095)	13,045	302,034	188,020	197,932
Work in progress	-	-	-	-	-	390,950	504,571
Assets under capital lease	447	88	-	-	535	-	78
Total	3,469,413	179,615	(10,987)	92,305	3,545,736	2,603,604	2,580,242

⁽¹⁾Adjustments include work in progress of $316 million that were transferred to other categories upon completion of the assets. Effective November 15, 2011, the Fisheries and Oceans Canada transferred assets of $17.471 million and accumulated amortization of $11.513 million to Shared Services Canada. Throughout fiscal year 2011-2012, Fisheries and Oceans Canada also received assets of $0.036 million and accumulated amortization of $0.029 million and transferred assets of $0.493 million and accumulated amortization of $0.419 million to Other Government Departments other than Shared Services Canada.

13. Departmental net financial position

A portion of Fisheries and Oceans Canada's net financial position is used for a specific purpose. Related revenues and expenses are included in the Statement of Operations and Departmental Net Financial Position.

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. Activity in the account is as follows:

(in thousands of dollars)

	2012	2011
Supplementary fish fines – Restricted
Balance – Beginning of year – Restricted	1,092	1,346
Revenues	586	175
Expenses	(125)	(429)
Balance – End of year – Restricted	1,553	1,092
Unrestricted	2,177,130	2,250,422
Departmental net financial position - End of year	2,178,683	2,251,514

14. Contractual obligations

The nature of Fisheries and Oceans Canada's activities can result in some large multi-year contracts and obligations whereby Fisheries and Oceans Canada will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

	2013	2014	2015	2016	2017 and thereafter	Total
Construction of assets	36,943	59,389	13,828	2,266	-	112,426
Business Services	12,659	12,659	12,658	-	-	37,976
Total	49,602	72,048	26,486	2,266	-	150,402

15. Related party transactions

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

a) Common services provided without charge by other government departments

During the year, Fisheries and Oceans Canada 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 recognized in Fisheries and Oceans Canada’s Statement of Operations and Departmental Net Financial Position as follows:

(in thousands of dollars)

	2012	2011
Employer's contribution to the health and dental insurance plans	70,751	67,219
Accommodation	47,397	45,115
Legal services	5,617	6,367
Worker’s Compensation	1,038	1,054
Total	124,803	119,755

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 Fisheries and Oceans Canada’s Statement of Operations and Departmental Net Financial Position.

b) Other transactions with related parties

(in thousands of dollars)

	2012	2011
Expenses - Other Government departments and agencies	257,001	267,323
Revenues - Other Government departments and agencies	32	24

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

16. Transfer to other government department

Effective November 15, 2011, Fisheries and Oceans Canada transferred responsibility for the delivery of Information Technology Services to Shared Services Canada as per Order-in-Council P.C. 2011-1291 to P.C. 2011-1297, including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, Fisheries and Oceans Canada transferred the following balances of assets and liabilities to Shared Services Canada on November 15, 2012:

(in thousands of dollars)

Assets
Tangible capital assets (net book value) (Note 12)	5,958
Total assets transferred	5,958
Liabilities
Vacation pay and compensatory leave	450
Employee future benefits (Note 7)	1,714
Total liabilities transferred	2,164
Adjustment to the departmental net financial position	3,794

In addition, the 2011 comparative figures have been reclassified on the Statement of Operations and Departmental Net Financial Position to present the expenses of the transferred operations.

During the transition period from November 15, 2011 to March 31, 2012, Fisheries and Oceans Canada continued to administer the transferred activities on behalf of Shared Services Canada. The administered expenses amounted to $10.9 million for the period. These expenses are not recorded in the financial statements.

17. Segmented information

Presentation by segment is based on Fisheries and Oceans Canada'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 by strategic outcomes, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars)

	Economically Prosperous Maritime Sectors and Fisheries	Sustainable Aquatic Ecosystems	Safe and Secure Waters	Internal Services	2012 Total	2011 Total Restated (Note 18)
Transfer Payments
First Nations and Inuit people	83,272	150	-	-	83,422	87,489
Non-profit organizations	30,839	2,332	5,124	-	38,295	31,036
Individuals	4,634	-	-	-	4,634	5,988
Other levels of governments within Canada	2,066	-	-	-	2,066	2,080
Other countries and international organizations	115	9	15	-	139	416
Industry	91	-	-	-	91	-
Total transfer payments	121,017	2,491	5,139	-	128,647	127,009
Operating expenses
Salaries and employee benefits	210,272	233,349	475,083	198,376	1,117,080	1,016,051
Professional and special services	65,296	55,085	55,742	59,814	235,937	254,851
Amortization of tangible capital assets	59,242	9,059	72,820	37,095	178,216	183,251
Repair and maintenance	53,105	3,229	59,131	15,305	130,770	120,995
Utilities, materials, supplies and fuel	31,823	19,793	33,599	8,878	94,093	101,697
Travel and relocation	13,988	14,347	17,868	5,354	51,557	52,188
Machinery and equipment	5,309	5,095	25,810	4,665	40,879	50,204
Loss on write-offs and write-downs of capital assets and inventory	2,967	(600)	12,936	12,067	27,370	22,743
Telecommunications	498	1,144	5,024	(1,297)	5,369	6,034
Rental	7,553	2,610	2,486	1,507	14,156	14,274
Communications services	720	740	474	913	2,847	3,954
Variation in environmental and contingent liabilities	1,500	33,000	-	(6,474)	28,026	35,124
Other	7,600	2,300	-	9,287	19,187	17,560
Total operating expenses	459,873	379,151	760,973	345,490	1,945,487	1,878,926
Total expenses	580,890	381,642	766,112	345,490	2,074,134	2,005,935
Revenues
Sales of goods and services	56,864	291	30,891	304	88,350	84,315
Gain on sale of capital assets	74	634	2,927	271	3,906	4,947
Other revenues	3,517	2,823	497	1,193	8,030	4,060
Revenues earned on behalf of Government	(48,041)	(2,248)	(3,197)	(1,374)	(54,860)	(49,111)
Total Revenues	12,414	1,500	31,118	394	45,426	44,211
Net cost from continuing operations	568,476	380,142	734,994	345,096	2,028,708	1,961,724

18. Accounting changes and change in accounting policy

During 2011, amendments were made to Treasury Board Accounting Standard 1.2–Departmental and Agency Financial Statements to improve financial reporting by government departments and agencies. The amendments are effective for financial reporting of fiscal years ending March 31, 2012, and later. The significant changes to Fisheries and Oceans Canada’s financial statements are described below.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position. Accompanying this change, Fisheries and Oceans Canada now presents a Statement of Change in Net Debt and no longer presents a Statement of Equity.

Revenue and related accounts receivable are now presented net of non-respendable amounts in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position. The effect of this change was to increase the net cost of operations before government funding and transfers by $55 million for 2012 ($49 million for 2011) and decrease total financial assets by $15.9 million for 2012 ($16.5 million for 2011).

Government funding and transfers, as well as the credit related to services provided without charge by other government departments, are now recognized in the Statement of Operations and Departmental Net Financial Position below “Net cost of operations before government funding and transfers.” In previous years, Fisheries and Oceans Canada recognized these transactions directly in the Statement of Equity of Canada. The effect of this change was to decrease the net cost of operations after government funding and transfers by $1,974 million for 2011-2012 ($2,104 million for 2010-2011).

During the year, Fisheries and Oceans Canada reviewed its processes and procedures related to fuel supplies available for future program delivery, and adopted a change in accounting policy to record fuel as part of its inventory balance. As a result, the financial statements for the year ended March 31, 2011 have been revised to show fuel as an inventory held for consumption. This resulted in an understatement of non-financial assets of $14.6 million and an understatement of expenses of $0.6 million.

As a result of the transfer of operations to Shared Services Canada, detailed in Note 16, total expenses for 2010-2011 were decreased by $28.8 million. These expenses are shown separately from operating expenses on the Statement of Operations and Departmental Net Financial Position.

These changes have been applied retroactively, and comparative information for 2010-2011 has been restated.

(in thousands of dollars)

	2011 As previously stated	Effect of transferred operations	Effect of change in accounting policy	Effect of change in accounting presentation	2011 Restated
Statement of Financial Position:
Liabilities held on behalf of Government	-	-	-	(8,849)	(8,849)
Assets held on behalf of Government	-	-	-	(16,476)	(16,476)
Inventory	26,252	-	14,555	-	40,807
Departmental net financial position	2,244,586	-	14,555	(7,627)	2,251,514
Statement of Operations and Departmental Net Financial Position:
Expenses	2,034,161	(28,824)	598	-	2,005,935
Revenues	93,322	-	-	(49,111)	44,211
Government funding and transfers
Net cash provided by Government	-	-	-	1,986,742	1,986,742
Change in due from Consolidated Revenue Fund	-	-	-	(2 948)	(2,948)
Services provided without charge by other government departments	-	-	-	119,755	119,755
Transfer of assets and liabilities to other government departments	-	-	-	-	-

19. Comparative information

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

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Fisheries and Oceans Canada

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

Fiscal year 2011-2012

NOTE TO THE READER

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

As part of this policy departments are expected to conduct annual assessments of their system of internal control over financial reporting, establish action plan(s) to address any necessary adjustments, and to attach to their Statement of Management Responsibility Including Internal Control over Financial Reporting a summary of their assessment results and action plan.

Effective systems of internal control over financial reporting aim to achieve reliable financial statements and to provide assurances that:

• transactions are appropriately authorized;
• financial records are properly maintained;
• assets are safeguarded from risks such as waste, abuse, loss, fraud and mismanagement; and
• applicable laws, regulations and policies are followed.

It is important to note that the system of internal control over financial reporting 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 system of internal control over financial reporting is designed to mitigate risks to an acceptable level based on an on-going process to identify key risks, to assess the effectiveness of associated key controls and adjust as required, as well as to monitor the system in support of continuous improvement. As a result, the scope, pace and status of departmental assessments of the effectiveness of the system of internal control over financial reporting will vary from one organization to another based on risks and taking into account their unique circumstances.

Table of Contents

1. INTRODUCTION
   
   1.1 Authority and Program Activities
   1.2 Financial profile highlights
   1.3 Service arrangements relevant to financial statements
   1.4 Material changes in fiscal-year 2011-2012

2. FISHERIES AND OCEANS CANADA'S CONTROL ENVIRONMENT RELEVANT TO INTERNAL CONTROL OVER FINANCIAL REPORTING
   
   2.1 Key positions, roles and responsibilities
   2.2 Key measures taken by Fisheries and Oceans Canada

3. ASSESSMENT OF FISHERIES AND OCEANS CANADA'S SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING
   
   3.1 Assessment approach
   3.2 Scope of Fisheries and Oceans Canada's Assessment during 2011-2012

4. FISHERIES AND OCEANS CANADA'S ASSESSMENT RESULTS
   
   4.1 Design effectiveness of key controls
   4.2 Operating effectiveness of key controls

5. ACTION PLAN OF FISHERIES AND OCEANS CANADA
   
   5.1 Progress during 2011-2012
   5.2 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 2011-2012. As required by the Treasury Board Policy on Internal Control, 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. In particular, it provides summary information on the assessments conducted by Fisheries and Oceans Canada as at March 31, 2012, including progress, results and related action plans along with some financial highlights pertinent to understanding the control environment unique to the department. This is the third annex produced by the Department.

1.1 Authority 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.

Further details regarding Fisheries and Oceans Canada’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 2011-2012. More information can be found in Fisheries and Oceans Canada’s Financial Statements (unaudited) and the Public Accounts of Canada.

• Fisheries and Oceans Canada provides services to Canadians through three strategic outcomes and twenty-nine program activities, which includes the Canadian Coast Guard designated as a Special Operating Agency (SOA).

• Fisheries and Oceans Canada has over 10,960 employees, operating in six decentralized regions across the country, with salary costs representing 54% of all expenses (including operating and transfer payments).

• The Department’s Net cost from continuing operations for the 2011-2012 fiscal year, net of revenues earned on behalf of Government of $45.4 million, was $2,029 million and represents an increase of 3.4% from 2010-2011. Across Fisheries and Oceans Canada’s strategic outcomes, the cost of operations was as follows:

  • $568 million (28% of net operating costs) —used to ensure economically prosperous maritime sectors and fisheries.
  • $380 million (19% of net operating costs) —used to ensure sustainable aquatic ecosystems.
  • $735 million (36% of net operating costs) —used to ensure safe and secure waters.

• The Department has reported net debt of $473 million from net liabilities of $699 million and net financial assets of $226 million. Non-financial assets are comprised of tangible capital assets of $2.6 billion and inventory of $48 million.

• There are finance and accounting functions in each of the regional offices which reports to the Regional Directors General under the functional leadership of the Chief Financial Officer in headquarters.

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 Other government service providers

Common Arrangements:

• Accommodation services, as well as some of the administration of procurement of goods and services, are provided by Public Works and Government Services Canada.

• The Treasury Board Secretariat provides the Department with information to calculate various accruals and allowances, such as for severance liability and the Employee Benefit Plan (EBP), and pays the employer’s contribution to the health and dental insurance plans.

• Administration costs and commissions paid to provincial workers’ compensation boards are provided by Human Resources and Skills Development Canada.

• Shared Services Canada was created on August 4, 2011 to consolidate, streamline and improve the government’s information technology (IT) infrastructure services, specifically email, data centre and network services for 43 federal departments and agencies. Effective November 15, 2011, the responsibility for email, data centres and network services, including associated resources, was transferred from Fisheries and Oceans Canada to Shared Services Canada. The administration and delivery of these services were shared during the 2011-12 transition period while Shared Services Canada was being established.

• Legal services are provided by Justice Canada.

Specific Arrangements:

• Billing, banking, electronic funds processing and similar payment services are provided by the Receiver General for Canada within the department of Public Works and Government Services Canada for much of the revenues from commercial fishing licenses.

1.3.2 Non-government service providers

• Billing and related administrative services for Marine Services revenues for the Pacific coast are provided by a private sector organization under contract with Fisheries and Oceans Canada. The external service provider has the authority and responsibility to manage the billing and collection of the Pacific region’s Marine Navigation Service Fee on behalf of the Government of Canada for which reliance is placed on the control environment of the external service provider.

1.4 Material changes in fiscal-year 2011-2012

In 2011-2012, there were no significant changes to the authorities of Fisheries and Oceans Canada, senior departmental management positions were unchanged, and no new programs were introduced.

2. Fisheries and Oceans Canada's control environment relevant to internal control over financial reporting

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 to ensure that governance structures and management policies are carried out to ensure effective risk management at the departmental level. Key entity-level controls currently in place and relevant to internal control over financial reporting are set out below.

2.1 Key positions, roles and responsibilities

• Deputy Minister - As the Accounting Officer for Fisheries and Oceans Canada, the Deputy Minister 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 - Fisheries and Oceans Canada has a qualified Chief Financial Officer (CFO), with a professional accounting designation, who reports directly to the Deputy Minister, and is a member of the Departmental Management Board. The Chief Financial Officer is the focal point of accountability to ensure rigorous stewardship of financial management, investment planning, and materiel resource management across the department. Since 2010-2011, a dedicated Division for Internal Controls over Financial Reporting within the Chief Financial Officer Sector provides the coordination, coherence and focus on the design and maintenance of effective and integrated system of internal controls.

• Chief Audit Executive - Fisheries and Oceans Canada has a qualified Chief Audit Executive who reports directly to the Deputy Minister. Independent from line management, the Chief Audit Executive provides assurance through periodic internal audits focused on risk management, control, and governance processes.

• Departmental Audit Committee - Fisheries and Oceans Canada established a Departmental Audit Committee in 2007. This committee is comprised of three external members and is chaired by an external member. In 2011-2012, the Departmental Audit Committee met on a quarterly basis, providing advice and guidance on such matters as governance, risk management, financial disclosures and internal 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 Minister are responsible for the management and oversight of the resources and controls falling within their mandate, including financial management, reporting and disclosures.

• Senior Committees - A new governance structure for Fisheries and Oceans Canada, including the Canadian Coast Guard, was introduced and implemented in 2010-2011. The new structure includes the Deputy Minister Policy Committee and the Departmental Management Board. They are supported by four Assistant Deputy Minister-level Strategic Outcome Committees: Economic Prosperity, Sustainable Ecosystems, Safety and Security and Integrated Business Management. This committee structure enables improved integration and enhanced strategic capacity across the organization.

2.2 Key measures taken by Fisheries and Oceans Canada

Key measures taken by Fisheries and Oceans Canada contribute to preparing departmental personnel for managing risks by raising awareness and providing appropriate knowledge, skills, and enablers. In doing so, Fisheries and Oceans Canada places particular focus on the following key control governance instruments and measures:

• Values and Ethics - Fisheries and Oceans Canada has its own guidelines on conflict of interest to supplement the Values and Ethics Code for the Public Service and has established a Centre of Values, Integrity and Conflict Resolution reporting directly to the Deputy Minister.

• Departmental Financial Management Framework – Since 2010-2011, Fisheries and Oceans Canada has implemented a financial management framework which describes the key expectations and requirements of the Deputy Minister as Accounting Officer, the Chief Financial Officer, Senior Departmental Managers (those reporting directly to the Deputy Minister), Departmental Managers, Financial Officers, and separately the Departmental Audit Committee for effective financial management, investment planning, internal control, and oversight.

• Integrated Investment Plan - Fisheries and Oceans Canada during 2010-2011 received Treasury Board approval of its five-year integrated investment plan that describes the strategic use of planned government resources.

• Integrated Risk Management – Integrated risk management at Fisheries and Oceans Canada falls under the accountability of all Senior Departmental Managers, with responsibility for monitoring and reporting held by the Chief Financial Officer.

• Risk-based Audit Plan – Fisheries and Oceans Canada annually prepares a three-year risk-based audit plan whose deliverables are instrumental to the departmental system of internal control over financial reporting. The annual risk-based audit plan, approved by the Deputy Minister upon recommendation by the Departmental Audit Committee, continues to support the departmental controls framework.

• Integrated Business and Human Resources Plan - describes the key human resources and business challenges Fisheries and Oceans Canada may face over the next twelve months and its strategies for addressing them, including an assessment of the need to strengthen capabilities and capacities.

3. Assessment of Fisheries and Oceans Canada's system of internal control over financial reporting

3.1 Assessment approach

The Fisheries and Oceans Canada assessments and action plans are fundamental in meeting the requirements of the Treasury Board 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.

In support of the Policy on Internal Control, Fisheries and Oceans Canada is required to assess design and operating effectiveness of the system of internal controls over financial reporting leading to ensuring the on-going monitoring and the continuous improvement of the departmental system of internal control over financial reporting. Such assessments cover all departmental control levels which include corporate or entity, general computer and business process controls.

Design effectiveness means to ensure that key control points are identified, documented, in place and that they are aligned with the risks (i.e. controls are balanced with and proportionate to the risks they aim to mitigate) and that any remediation is addressed. This includes the mapping of key processes and information technology systems to the main accounts by location as applicable.

Operating effectiveness means that the application of key controls has been tested over a defined period and that any required remediation is addressed.

3.2 Scope of Fisheries and Oceans Canada's Assessment during 2011-2012

As of March 31, 2012, the design effectiveness testing phase is substantially advanced and there is a plan in place for implementation of operating effectiveness testing and on-going monitoring. Sub-processes having risks and controls relevant to internal controls over financial reporting were documented in previous years. The Department identified the following key processes for substantial advancement of testing in 2011-2012:

Assessment of Design Effectiveness of Key Controls

Sub-process	Completed	Substantially advanced
Scope of Assessment during 2011-2012:
Entity level controls (includes Budgeting and Forecasting)	✔
Procurement to Payment	✔
Tangible Capital Assets		✔
Inventory		✔
Respendable Revenues	✔
Assessments completed in previous years:
Entity Level Controls	✔
Pay Administration	✔
Non-respendable Revenues	✔
Information Technology General Controls	✔

Results and remediation requirements were identified in Action Plans communicated to Departmental Management Board and the Departmental Audit Committee each of the completed sub-processes in scope and remediation is underway. Testing of remediation was initiated where adjustments were completed. These activities covered both headquarters and regional offices.

4. Fisheries and Oceans Canada's assessment results

Overall, the assessment of design effectiveness of key controls is substantially advanced.

4.1 Design effectiveness of key controls

Fisheries and Oceans Canada performs a formal assessment of its controls over financial reporting, including tests that confirm the design of the controls. Although work to assess the design effectiveness of tangible capital assets has begun in 2011-2012, the assessment will only be completed in 2012-2013 along with assessments of contingent and environmental liabilities. Design effectiveness also included ensuring appropriate alignment of each key control with the associated risks. As a result of its assessments listed at section 3.2, the Department identified in action plans adjustments required in the management of revenue, receivables and receipts, as well as in its management of procurement to payment. The following assessment results and action plans related to internal controls were presented by the Chief Financial Officer to the Departmental Audit Committee:

Procurement to payment

• Overall, the design effectiveness testing determined that application controls are working well as designed. There is inconsistent performance of manual controls with lack of supporting evidence of control performance.

• The master vendor maintenance process has effective application controls. However the lack of a formal process and broad system access is a concern.

• There are significant changes underway to strengthen the accounts payable, receivable and procurement functions aimed at reducing cost, modernizing service delivery, and enhancing accountability.

Revenue, receivables and receipts

• Design effectiveness testing identified weaknesses for ensuring completeness and proper revenue recognition for financial reporting. There is also reliance on obsolete technologies and a lack of management monitoring controls.

• There is work underway within Ecosystems and Fisheries Management to implement a national licensing system and a plan has been developed with the Coast Guard to modernize obsolete payment mechanisms for marine services.

• The Chief Financial Officer has also developed a policy and directive for revenue to assign roles, responsibilities and requirements.

Assets, other business processes and management frameworks

• A capital assets verification project has been launched and work-in-process certifications have been initiated to address observations from the Office of the Auditor General.

• The Chief Financial Officer sector has developed several policies to assign roles and responsibilities where gaps have been identified.

4.2 Operating effectiveness of key controls and on-going monitoring program

Fisheries and Oceans Canada is committed to completing the testing of the design effectiveness of key controls and the required remediation prior to initiating the on-going monitoring of key controls. Fisheries and Oceans Canada has developed a risk-based monitoring plan that identifies key controls to be tested over a multi-year period in order to ensure that key controls are functioning over time as specified and any necessary corrective actions that are identified are initiated. The Department monitors the remediation of issues identified during design effectiveness testing and this monitoring includes tests of operating effectiveness, as necessary, in order to confirm whether remediation requirements identified have been addressed.

5. Action Plan of Fisheries and Oceans Canada

5.1 Progress during 2011-2012

During 2011-2012 Fisheries and Oceans Canada has continued to make significant progress in assessing and improving its key controls. As indicated above, the testing of design effectiveness of key controls is partially complete and will continue in 2012-2013.

The Department met commitments for 2011-2012 in the 2010-2011 action plan as follows:

• completed the implementation of a standardized approach to ensure the consistency, quality, reliability and availability of documentation of business process and related key controls across headquarters;

• completed the testing of the design effectiveness of key controls with particular focus to entity level controls and procurement to payment and substantially advanced the design effectiveness testing of tangible capital assets;

• substantially advanced remediation activities to strengthen key areas of pay administration, revenue management, and tangible capital asset management; and

• completed departmental financial policy development for revenue recognition, internal control over financial reporting, account verification and tangible capital assets.

The Department also made progress during 2011-2012 in the following areas:

• completed the assessment of Fisheries and Oceans Canada procurement to payment process against the common government-wide financial management procurement to payment guideline; and

• substantially advanced documentation and remediation of key control deficiencies for tangible capital assets and inventory business processes with a view to improve consistency of application of policy across all sectors and regions.

5.2 Action plan

Fisheries and Oceans Canada is committed to improving its framework of internal control and internal controls over financial reporting to ensure that the key controls appropriately mitigate associated risks.

As a result of Departmental initiatives to restructure its operations, consolidate internal services and leverage technology to realize efficiencies and achieve savings, the Department will focus efforts to systematically identify, recommend, document and assist in the implementation of controls based on related risks as significant transformation is undertaken. Therefore, the extent and the results of future-oriented plans indicated below are commensurate with available resources and subject to emerging Departmental priorities.

By end of 2012-2013 Fisheries and Oceans Canada plans to:

• complete testing of the design effectiveness of key controls with particular focus to tangible capital assets, grants and contributions and contingent and environmental liabilities;

• continue remediation activities to strengthen key areas with particular focus to tangible capital assets, revenue management, and procurement to payment;

• review its internal control action plan in light of emerging departmental priorities; and

• initiate operating effectiveness testing for pay administration, revenue and financial statement close process.

In 2013-2014, Fisheries and Oceans Canada plans to:

• continue advancement of testing of operating effectiveness of key controls having addressed any related required remediation, with a focus on procurement to payment and capital assets; and

• initiate the ongoing monitoring framework for the entity level controls and business processes listed at section 3.2 of this Annex.

In subsequent years, Fisheries and Oceans Canada plans to:

• fully implement the ongoing monitoring of information technology general controls within evolving financial system and business intelligence performance reporting environments; and

• fully implement the ongoing monitoring of pay administration, procurement to payment, and revenues within evolving system modernization and business process environments.

Action plan summary – next fiscal year and subsequent years:

Sub-process	Year 1 (2012-2013)	Year 2 (2013-2014)	Year 3 (2014-2015) and subsequent years
Operating Effectiveness Testing
Entity level controls	✔	✔
Procurement to Payment		✔	✔
Tangible Capital Assets		✔	✔
Inventory		✔	✔
Pay Administration	✔	✔
Revenue	✔	✔
Grants and Contributions		✔	✔
Environmental Liabilities		✔	✔
Financial Statement Close Process	✔	✔
Information Technology General Controls			✔
Ongoing Monitoring Framework(1)			✔

⁽¹⁾Ongoing Monitoring Framework is subject to review in light of emerging departmental priorities of the department. Additional details are expected to be made available in the 2012-2013 Annex summary of internal controls over financial reporting.