Financial Statements of Fisheries and Oceans Canada

Year ended March 31, 2016

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, 2016, 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 ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of internal control over financial reporting for the year ended March 31, 2016, was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

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

The financial statements of Fisheries and Oceans Canada have not been audited.

 

Catherine Blewett
Deputy Minister
Ottawa, Canada
Tony Matson, CPA, CMA, MBA
Chief Financial Officer
Ottawa, Canada

 

Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars)
  2016 2015
Liabilities
Accounts payable and accrued liabilities (Note 4) $ 335,484 $ 286,076
Vacation pay and compensatory leave 71,275 71,010
Deferred revenue (Note 5) 10,272 12,861
Other liabilities (Note 6) 23,013 24,807
Employee future benefits (Note 7) 42,487 46,711
Contingent liabilities (Note 8) 108,944 108,683
Total gross liabilities 591,475 550,148
Liabilities held on behalf of Government
Deferred revenue (Note 5) (10,272) (12,861)
Total liabilities held on behalf of Government (10,272) (12,861)
Total net liabilities 581,203 537,287
 
Financial assets
Due from the Consolidated Revenue Fund 327,679 276,223
Accounts receivable and advances (Note 9) 33,250 37,412
Loans receivable (Note 10) - -
Total gross financial assets 360,929 313,635
Financial assets held on behalf of Government
Accounts receivable and advances (Note 9) (24,505) (30,827)
Loans receivable (Note 10) - -
Total financial assets held on behalf of Government (24,505) (30,827)
Total net financial assets 336,424 282,808
 
Departmental net debt 244,779 254,479
 
Non-financial assets
Prepaid Expenses (Note 11) 25,000 -
Inventory (Note 12) 49,602 50,918
Tangible capital assets (Note 13) 3,194,406 2,711,932
Total non-financial assets 3,269,008 2,762,850
 
Departmental net financial position (Note 14) $ 3,024,229 $ 2,508,371

Contractual obligations (Note 15)

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

 

Catherine Blewett
Deputy Minister
Ottawa, Canada
Tony Matson, CPA, CMA, MBA
Chief Financial Officer
Ottawa, Canada

 

Statement of Operations and Departmental Net Financial Position (Unaudited)

For the Year Ended March 31

(in thousands of dollars)
  Planned Results 2016 2016 2015
Expenses
Economically Prosperous Maritime Sectors and Fisheries $ 484,038 $ 495,491 $ 482,667
Sustainable Aquatic Ecosystems 264,376 269,113 261,074
Safe and Secure Waters 940,723 731,321 692,776
Internal Services 301,157 314,602 313,778
Total expenses 1,990,294 1,810,527 1,750,295
 
Revenues
Sales of goods and services 87,149 92,919 85,698
Net gain (net loss) on disposal of tangible capital assets including adjustments - (1,666) 3,394
Other revenues 5,355 5,264 4,847
Revenues earned on behalf of Government (44,589) (55,610) (49,677)
Total revenues 47,915 40,907 44,262
 
Net cost of operations before government funding and transfers 1,942,379 1,769,620 1,706,033
 
Government funding and transfers
Net cash provided by Government   2,117,036 1,709,841
Change in due from Consolidated Revenue Fund   51,456 7,628
Services provided without charge by other government departments (Note 16)   117,180 115,240
Transfer of the transition payments for implementing salary payments in arrears (Note 17)   (176) (25,295)
Transfer of assets and liabilities (to) from other government departments (Note 13)   (18) 7,381
Total Government funding and transfers   2,285,478 1,814,795
 
Net cost of operations after government funding and transfers   (515,858) (108,762)
 
Departmental net financial position - Beginning of year   2,508,371 2,399,609
Departmental net financial position - End of year   $ 3,024,229 $ 2,508,371

Segmented information (Note 18)

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)
  2016 2015
Net cost of operations after government funding and transfers ($ 515,858) ($ 108,762)
Change due to tangible capital assets
Acquisition of tangible capital assets 680,873 244,649
Amortization of tangible capital assets (194,059) (199,230)
Proceeds from disposal of tangible capital assets (2,656) (16,050)
Net gain (loss) on disposal of tangible capital assets including adjustments (1,666) 3,394
Transfers (to) from other government departments (Note 13) (18) 7,381
Total change due to tangible capital assets 482,474 40,144
 
Change due to inventories (1,316) (270)
 
Change due to prepaid expenses 25,000 -
 
Net decrease in departmental net debt (9,700) (68,888)
 
Departmental net debt - Beginning of year 254,479 323,367
Departmental net debt - End of year $ 244,779 $ 254,479

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)
  2016 2015
Operating activities
Net cost of operations before government funding and transfers $ 1,769,620 $ 1,706,033
Non-cash items:
Amortization of tangible capital assets (194,059) (199,230)
Net Gain (loss) on disposal of tangible capital assets including adjustments (1,666) 3,394
Services provided without charge by other government departments (Note 16) (117,180) (115,240)
Transfer of the transition payments for implementing salary payments in arrears (Note 17) 176 25,295
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances 2,160 (805)
Increase (decrease) in prepaid expenses 25,000 -
Increase (decrease) in inventory (1,316) (270)
Decrease (increase) in accounts payable and accrued liabilities (49,408) 31,445
Decrease (increase) in vacation pay and compensatory leave (265) (2,605)
Decrease (increase) in other liabilities 1,794 1,990
Decrease (increase) in employee future benefits 4,224 9,780
Decrease (increase) in contingent liabilities (261) 21,455
Cash used in operating activities 1,438,819 1,481,242
 
Capital investing activities
Acquisitions of tangible capital assets 680,873 244,649
Proceeds from disposal of tangible capital assets (2,656) (16,050)
Cash used in capital investing activities 678,217 228,599
 
Net cash provided by Government of Canada $ 2,117,036 $ 1,709,841

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 and reports to Parliament through the Minister of Fisheries and Oceans.

Fisheries and Oceans Canada’s main legislative authorities are:

  • the Oceans Act;
  • the Fisheries Act;
  • the Species at Risk Act;
  • the Coastal Fisheries Protection Act; and
  • the Canada Shipping Act, 2001.

Fisheries and Oceans Canada has three strategic outcomes that are delivered through twenty-five programs. The three strategic outcomes are:

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

2. Summary of significant accounting policies

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

Significant accounting policies are as follows:

  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 "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2015-16 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2015-16 Report on Plans and Priorities.

  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. Due from the CRF
    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
    Expenses are recorded on the 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

    1. 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.

    2. 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
    Accounts and loans receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts and loans 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 consist of estimated costs related to the remediation of contaminated sites as well as estimated costs related to obligations associated with the retirement of tangible capital assets and other environmental liabilities.

    1. Contaminated Sites:
      A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government’s best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the cash flows required to settle or otherwise extinguish a liability are expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the government’s consolidated revenue fund monthly lending rates for periods of one year and over. The discount rates used are based on the term rate associated with the estimated number of years to complete remediation. For remediation costs with estimated future cash flows spanning more than 25 years, the 25-year Government of Canada lending rate is used as the discount rate.

    2. Asset Retirement Obligations:
      A liability for an asset retirement obligation is recognized when all of the following criteria are satisfied: there is an agreement, contract, legislation, or a constructive or equitable obligation that obligates the government to incur retirement costs in relation to a tangible capital asset, the past event or transaction giving rise to the retirement liability has occurred, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. These costs are normally capitalized and amortized over the asset’s estimated useful life based on the Government’s best estimates of the cost to retire the tangible asset. The liability reflects the present value of estimated future cash flows required to retire the assets where amounts can be reasonably estimated and is expected to be settled as the related sites, facilities or assets are removed from service.

  10. Inventory
    Inventory held for future program delivery consists 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 15-40 years
    Work and infrastructure 5-75 years
    Machinery and equipment 3-25 years
    Informatics 3-5 years
    Other Equipment 3-25 years
    Ships and boats 5-40 years
    Aircrafts 15-25 years
    Vehicles 6-20 years
    Leasehold improvements Period of expected use; lesser of economic life of the improvement or the lease term
    Work in progress 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, contingent liabilities, environmental 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 Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, 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)
  2016 2015
Net cost of operations before government funding and transfers $ 1,769,620 $ 1,706,033
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (194,059) (199,230)
Net gain (loss) on disposal of tangible capital assets including adjustments (1,666) 3,394
Services provided without charge by other government departments (117,180) (115,240)
Transition payments for implementing salary payments in arrears (Note 17) 176 25,295
Decrease in accrued liabilities not charged to authorities 500 44,340
Increase in vacation pay and compensatory leave (265) (2,605)
Decrease in employee future benefits not charged to authorities 4,224 6,444
Decrease in contingent liabilities (261) 21,455
Decrease (increase) in deferred revenue 2,589 (1,653)
Decrease in inventory (1,316) (270)
Bad debt expense (440) (426)
Refunds of previous years expenditures 4,655 4,088
Revenues not available for spending in the current year 422 727
Increase in earmarked supplementary fines (Note 14) (65) (63)
Other (9) 29
Total Adjustments for items affecting net cost of operations but not affecting authorities (302,695) (213,715)
 
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets 680,873 244,649
Increase in prepaid expenses 25,000 -
 
Total Adjustments for items not affecting net cost of operations but affecting authorities 705,873 244,649
 
Current year authorities used $ 2,172,798 $ 1,736,967

b) Authorities provided and used

(in thousands of dollars)
  2016 2015
Authorities provided:
Vote 1 - Operating expenditures $ 1,324,552 $ 1,218,749
Vote 5 - Capital expenditures 843,027 486,380
Vote 10 - Grants and contributions 96,921 91,510
Statutory amounts 121,849 127,385
Total authorities provided 2,386,349 1,924,024
 
Less:
Authorities available for future years (2,449) (1,523)
Lapsed authorities:
Operating (70,676) (26,218)
Capital (137,771) (157,502)
Grants and Contributions (2,655) (1,800)
Spending of proceeds from the disposal of surplus Crown assets - (14)
Current year authorities used $ 2,172,798 $ 1,736,967

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)
  2016 2015
Accounts payable - Other government departments and agencies $ 41,499 $ 30,732
Accounts payable - External parties 184,936 159,267
Total accounts payable 226,435 189,999
Accrued liabilities 109,049 96,077
Total accounts payable and accrued liabilities $ 335,484 $ 286,076

5. Deferred revenue

Deferred revenue from fishing 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)
  2016 2015
Opening balance $ 12,861 $ 11,208
Amounts received 10,270 12,859
Revenue recognized (12,859) (11,206)
Gross closing balance 10,272 12,861
Deferred revenues held on behalf of Government (10,272) (12,861)
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)
  Opening balance Receipts and
other credits
Payments and
other charges
Closing balance
Research projects deposits $ 22,814 $ 7,891 ($ 9,816) $ 20,889
Federal/Provincial cost-sharing agreements 314 447 (546) 215
Sales of seized assets – Fisheries Act 1,250 383 (304) 1,329
Contractor security deposits 429 538 (387) 580
Total other liabilities $ 24,807 $ 9,259 ($ 11,053) $ 23,013

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 of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

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

    The 2015-2016 expense amounts were $80,616,921 ($84,399,113 in 2014-2015). For Group 1 members, the expense represents approximately 1.25 times (1.41 times in 2014-15) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2014-2015) the employee contributions.

    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, is as follows:

(in thousands of dollars)
  2016 2015
Accrued benefit obligation, beginning of year $ 46,711 $ 56,491
Expense for the year 6,649 11,880
Benefits paid during the year (10,873) (21,660)
Accrued benefit obligation, end of year $ 42,487 $ 46,711

8. 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. Environmental Liabilities
    Remediation of contaminated sites

    The government has developed a “Federal Approach to Contaminated Sites”, which incorporates a risk-based approach to the management of contaminated sites. Under this approach the Government has inventoried the contaminated sites on federal lands that have been identified, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aides in the identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to the environment and human health.

    Fisheries and Oceans Canada has identified approximately 3,878 sites (4,368 sites in 2015) where contamination may exist and assessment, remediation and monitoring may be required. Of these, Fisheries and Oceans Canada has identified 1,369 sites (930 sites in 2015) where action is possible and for which a net liability of $108,219,424 ($104,558,273 in 2015) has been recorded. This liability estimate has been determined after the sites are assessed and is based on scientific/engineering contractors reviewing the results of site assessments, and proposing possible remediation solutions.

    In 2016, a statistical model was developed to estimate the liability for unassessed sites based on historical costs incurred for contaminated sites with similar functions. As a result, there are 452 unassessed sites where a liability estimate of $26,074,662 has been recorded prospectively in 2016. This estimate will be refined in future years as sites are assessed and estimated costs are revised.

    These two estimates combined represents management’s best estimate of the amount required to complete the remediation of the sites to the current minimum standard for its use prior to contamination, based on information available at the financial statement date. A net present value technique has been used for sites where the cash flows are expected to occur over extended future periods.

    Of the remaining 2,509 sites, 487 sites were closed, as they were either remediated or assessed and found not to be contaminated. 28 sites are not considered a priority for action because information indicates there is likely no significant environmental impact or human health threats and there is likely no need for action unless new information becomes available indicating greater concerns, in which case, the site will be re-examined.

    The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2016, and March 31, 2015. When the liability estimate is based on a future cash requirement, the Government of Canada lending rate applicable to loans with similar terms to maturity has been used to discount the estimated future expenditures. The March 2016 rates range from 0.62% for 2 year term to 2.13% for a 25 or greater year term.

    NATURE & SOURCE OF LIABILITY
    Nature & Source 2016 2015
    Number of Sites Estimated Liability Total Undiscounted Expenditures Estimated Recoveries Number of Sites Estimated Liability Total Undiscounted Expenditures Estimated Recoveries
    Radioactive Material 1 - - - - - - - -
    Former Mineral Exploration Sites 2 - - - - - - - -
    Military & Former Military Sites 3 - - - - - - - -
    Fuel Related Practices 4 83 9,892,437 10,139,557 - 88 13,810,480 14,220,843 -
    Landfill/Waste Sites 5 7 473,345 485,169 - 11 1,063,433 1,095,966 -
    Engineered Asset/Air & Land Transportation 6 1 49,757 51,000 - 1 216,836 223,591 -
    Marine Facilities/Aquatic Sites 7 1224 85,644,424 87,206,459 - 784 77,167,118 79,709,840 -
    Parks & Protected Areas 8 - - - - - - - -
    Office/Commercial/Industrial Operations 9 40 11,133,814 11,338,071 - 35 11,528,744 11,920,265 -
    Other 10 14 1,025,647 1,051,268 - 11 771,662 795,785 -
    Totals 1369 108,219,424 110,271,524 - 930 104,558,273 107,966,290 -
    1. Contamination associated with former nuclear operations, e.g. low-level radioactive waste, radioactive isotopes.
    2. Contamination associated with former mine activities, e.g. heavy metals, petroleum hydrocarbons, etc. Sites often have multiple sources of contamination.
    3. Contamination associated with the operations of military and former military sites where activities such as fuel handling and storage activities, waste sites, metals/PCB-based paint used on buildings resulted in former or accidental contamination, e.g. petroleum hydrocarbons, PCBs, heavy metals. Sites often have multiple sources of contamination.
    4. Contamination primarily associated with fuel storage and handling, e.g., accidental spills related to fuel storage tanks or former fuel handling practices, e.g. petroleum hydrocarbons, polyaromatic hydrocarbons and BTEX.
    5. Contamination associated with former landfill/waste site or leaching from materials deposited in the landfill/waste site, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX, other organic contaminants, etc.
    6. Contamination associated with the operations of engineered assets such as airports, railways and roads where activities such as, fuel storage/handling, waste sites, firefighting training facilities and chemical storage areas resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX and other organic contaminants. Sites often have multiple sources of contamination.
    7. Contamination associated with the operations of marine assets, e.g., port facilities, harbours, navigation systems, light stations, hydrometric stations, where activities such as fuel storage/handling, use of metal based paint (e.g., on light stations) resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons and other organic contaminants. Sites often have multiple sources of contamination.
    8. Contamination associated with the operations and maintenance of parks and protected areas where activities such as fuel storage/handling, waste sites and use of metal based paint resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, PCBs and other organic contaminants. Sites often have multiple sources of contamination.
    9. Contamination associated with the operations of the office/commercial/industrial facilities where activities such as fuel storage/handling, waste sites and use of metal-based paint resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, BTEX, etc. Sites often have multiple sources of contamination.
    10. Contamination from other sources, e.g. use of pesticides, herbicides, fertilizers at agricultural sites; use of PCBs, firefighting training areas, firing ranges and training facilities, etc.

  2. Claims and Litigations

    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 $725,000 ($4,125,000 in 2014-2015) 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 $559,414,160 ($573,157,300 in 2014-2015) will be pending at March 31, 2016.

9. Accounts receivable and advances

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

(in thousands of dollars)
  2016 2015
Accounts receivable and advances
Receivables - Other government departments and agencies $ 17,567 $ 16,514
Receivables - External parties 46,160 50,977
Accountable advances 232 282
Subtotal 63,959 67,773
Less: Allowance for doubtful accounts on receivables from external parties (30,709) (30,361)
Gross accounts receivable and advances 33,250 37,412
Accounts receivable held on behalf of Government (24,505) (30,827)
Net accounts receivable and advances $ 8,745 $ 6,585

10. Loans receivable

The following table presents details of Fisheries and Oceans Canada's loans receivable balances:

(in thousands of dollars)
  2016 2015
Loans receivable
Loans receivable 1 $ 1,472 $ 1,472
Accrued interest on loans 1,556 1,556
Less: Allowance on loans (3,028) (3,028)
Total loans receivable held on behalf of Government $ - $ -

(1) Loans of $1,471,652 have been made to haddock fishermen ($1,343,337, interest of 8% per annum, repayable over 4 years until 1979) and to Canadian producers of frozen groundfish ($128,315, 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. Prepaid Expenses

The following table presents details of prepaid expenses:

(in thousands of dollars)
  2016 2015
National Shipbuilding Procurement Strategy - Offshore Fisheries Science Vessels $ 25,000 $  -

12. Inventory

The following table presents details of inventory:

(in thousands of dollars)
  2016 2015
Inventory held for future program delivery $ 49,577 $ 50,503
Inventory held for resale 25 415
Total inventory $ 49,602 $ 50,918

The cost of consumed inventory recognized as an expense in the Statement of Operations and Departmental Net Financial Position is $50,364,812 in 2015-2016 ($71,297,936 in 2014-2015).

13. Tangible capital assets


(in thousands of dollars)
Cost
  Opening Balance Acquisitions Adjustments1 Disposals and write-offs Closing Balance
Land $ 22,221 $ - $ 1 $ 5 $ 22,217
Buildings 724,358 - 7,002 1,023 730,337
Works and infrastructure 2,435,137 - 73,202 14,538 2,493,801
Machinery and equipment 358,607 3,253 34,469 7,525 388,804
Informatics 99,704 136 1,480 770 100,550
Other equipment 46 - - - 46
Ships and boats 1,995,603 60 27,857 17,811 2,005,709
Aircrafts 42,322 - 135,508 1,393 176,437
Vehicles 65,676 3,734 412 2,948 66,874
Leasehold improvements 502,751 348 7,580 3,419 507,260
Work in progress 326,128 673,342 (272,566) 13,425 713,479
  $ 6,572,553 $ 680,873 $ 14,945 $ 62,857 $ 7,205,514
(in thousands of dollars)
Accumulated amortization
  Opening Balance Amortization Adjustments1 Disposals and write-offs Closing Balance
Land $ - $ - $ - $ - $ -
Buildings 460,462 15,706 33 292 475,909
Works and infrastructure 1,289,874 76,716 362 11,179 1,355,773
Machinery and equipment 245,719 18,471 (138) 6,524 257,528
Informatics 83,206 7,842 - 770 90,278
Other equipment 35 3 - - 38
Ships and boats 1,361,814 56,627 (73) 17,151 1,401,217
Aircrafts 30,569 2,910 - 1,394 32,085
Vehicles 50,810 3,497 (3) 2,855 51,449
Leasehold improvements 338,132 12,287 (395) 3,193 346,831
  $ 3,860,621 $ 194,059 ($ 214) $ 43,358 $ 4,011,108
(in thousands of dollars)
Net book value
  2015 2016
Land $ 22,221 $ 22,217
Buildings 263,896 254,428
Works and infrastructure 1,145,263 1,138,028
Machinery and equipment 112,888 131,276
Informatics 16,498 10,272
Other equipment 11 8
Ships and boats 633,789 604,492
Aircrafts 11,753 144,352
Vehicles 14,866 15,425
Leasehold improvements 164,619 160,429
Work in progress 326,128 713,479
  $ 2,711,932 $ 3,194,406

(1) Adjustments include work in progress of $272,565,915 that were transferred to other categories upon completion of the assets, net transfers to other departments for a net book value of $17,958 and other adjustments for a net book value of $15,178,608.

Difference may be due to rounding.

14. 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 Fines – Fisheries Act 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 Supplementary Fines – Species at Risk Account was established pursuant to the Species at Risk 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 the purpose of conducting research into the protection of the wildlife species in respect of which the offence was committed.

Activity in the aforementioned accounts is as follows:

(in thousands of dollars)
  2016 2015
Restricted - Supplementary Fines
Fisheries Act
Balance - Beginning of year $ 1,676 $ 1,744
Revenues 44 42
Expenses (109) (110)
Balance - End of year 1,611 1,676
Species at Risk Act
Balance - Beginning of year 35 30
Revenues - 5
Expenses - -
Balance - End of year 35 35
 
Total Balance - End of year - Restricted 1,646 1,711
 
Unrestricted 3,022,583 2,506,660
Departmental net financial position - End of year $ 3,024,229 $ 2,508,371

15. 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)
  2017 2018 2019 Total
Construction of assets $ 365,847 $ 232,017 $ 6,997 $ 604,861
Business Services 15,525 15,525 15,525 46,575
Total $ 381,372 $ 247,542 $ 22,522 $ 651,436

16. 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)
  2016 2015
Employer's contribution to the health and dental insurance plans $ 65,433 $ 63,040
Accommodation 46,028 47,576
Legal services 4,738 3,490
Worker’s compensation 981 1,134
Total $ 117,180 $ 115,240

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 Services and Procurement 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)
  2016 2015
Accounts receivable - Other Government departments and agencies $ 17,567 $ 16,514
Accounts Payable - Other Government departments and agencies 41,499 30,732
Expenses - Other Government departments and agencies 228,223 230,262
Revenues - Other Government departments and agencies (750) 12

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

17. Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Department. However, it did result in the use of additional spending authorities by the Department. Prior to year end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.

18. Segmented information

Presentation by segment is based on Fisheries and Oceans Canada's program alignment architecture. The presentation by segment is based on the same accounting policies as described in the Summary of Significant Accounting Policies in Note 2. The following table presents the expenses incurred and revenues generated 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 2016 2015
Transfer Payments
First Nations and Inuit people $ 65,051 $ 669 $ - $ - $ 65,720 $ 66,562
Non-profit organizations 4,530 15,591 5,634 1,116 26,871 20,678
Other levels of governments within Canada 515 - - 210 725 1,133
Individuals - 551 - 154 705 1,137
Other countries and international organizations 40 13 87 - 140 115
Industry - 105 - - 105 85
Total transfer payments 70,136 16,929 5,721 1,480 94,266 89,710
 
Operating Expenses
Salaries and employee benefits 196,552 160,147 418,576 161,778 937,053 916,731
Professional and special services 62,307 49,898 51,579 62,422 226,206 226,796
Amortization of tangible capital assets 72,163 7,840 79,518 34,538 194,059 199,230
Repair and maintenance 35,362 2,542 86,554 14,716 139,174 113,531
Utilities, materials, supplies and fuel 34,062 9,931 37,760 9,227 90,980 105,850
Travel, relocation and freight 10,168 11,112 20,784 4,499 46,563 41,367
Machinery and equipment 3,871 5,496 21,665 8,636 39,668 42,400
Rental 5,236 2,414 3,403 5,122 16,175 12,968
Payments in Lieu of Taxes Paid to municipalities 39 - - 9,623 9,662 10,140
Telecommunications 723 823 4,842 146 6,534 7,393
Communications services 552 313 689 524 2,078 1,780
Variation in contingent liabilities (3,400) - - 3,661 261 (21,455)
Other 7,720 1,668 230 (1,770) 7,848 3,854
Total operating expenses 425,355 252,184 725,600 313,122 1,716,261 1,660,585
 
Total expenses 495,491 269,113 731,321 314,602 1,810,527 1,750,295
 
Revenues
Sales of goods and services 61,945 257 30,632 85 92,919 85,698
Net gain (net loss) on disposal of tangible capital assets including adjustments 8,727 (189) (11,247) 1,043 (1,666) 3,394
Revenues earned on behalf of Government (48,183) (2,296) (2,531) (2,600) (55,610) (49,677)
Other revenues 667 2,064 18 2,515 5,264 4,847
Total revenues 23,156 (164) 16,872 1,043 40,907 44,262
 
Net cost of operations $ 472,335 $ 269,277 $ 714,449 $ 313,559 $ 1,769,620 $ 1,706,033

Fisheries and Oceans Canada

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

Fiscal Year 2015-2016

Table of Contents

  1. Introduction

  2. Departmental system of internal control over financial reporting
    2.1 Internal Control Management
    2.2 Service arrangements relevant to financial statements

  3. Departmental assessment results during fiscal year 2015-2016

  4. Departmental Action Plan
    4.1 Progress during fiscal year 2015-2016
    4.2 Action plan for the next fiscal year and subsequent years

1. Introduction

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, including information on internal control management, assessment results and related action plans.

Detailed information on the department’s authority, mandate and program activities can be found in the 2015-2016 Departmental Performance Report and the 2015-2016 Report on Plans and Priorities.

2. Departmental system of internal control over financial reporting

2.1 Internal Control Management

Fisheries and Oceans Canada has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Minister, is in place and includes:

  • Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers in their areas of responsibility for control management;
  • values and ethics;
  • ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
  • quarterly monitoring of and regular updates on internal control management, as well as the provision of related assessment results and action plans to the Deputy Minister and departmental senior management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee provides advice to the Deputy Minister on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service Arrangements relevant to financial statements

Fisheries and Oceans Canada relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements

  • Public Services and Procurement Canada centrally administers the payroll and the procurement of goods and services in accordance with the Fisheries and Oceans Canada's Delegation of Authority, and provides accommodation services;
  • the Treasury Board Secretariat provides Fisheries and Oceans Canada with information used to calculate various accruals and allowances, such as the accrued severance liability;
  • the Department of Justice Canada provides legal services to Fisheries and Oceans Canada; and
  • Shared Services Canada provides information technology (IT) infrastructure services to Fisheries and Oceans Canada in the areas of data center and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and Fisheries and Oceans Canada.

Specific Arrangements

  • Until fall of 2015, an external service provider, pursuant to a contract with the Government of Canada, administered the Marine Navigation Services Fee revenues for the west coast on behalf of the Canadian Coast Guard Marine Navigation program. The external service provider had the authority and responsibility to ensure that billing and collection of the Western Region’s Marine Navigation Services Fee were made in accordance with the terms and conditions set out by the Canadian Coast Guard Marine Navigation program. As a result, reliance was placed on the control procedures of the external service provider; and
  • Public Services and Procurement Canada provides Fisheries and Oceans Canada billing, banking, electronic funds processing and similar payment services for a significant portion of the revenues from commercial fishing licenses.

3. Departmental assessment results during fiscal year 2015-2016

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

New or significantly amended key controls:

In 2015-2016, Fisheries and Oceans Canada has completed the transition of a number of pay related control activities to the Government of Canada Pay Centre located in Miramichi, New Brunswick. The Department will be re-assessing the business process and the controls in 2016-2017. There were no other significantly amended key controls in existing processes which required a reassessment.

Ongoing monitoring program:

The final two business processes, tangible capital assets and inventory were planned for completion in 2016-2017. DFO decided to advance the target completion of these two processes in its 2015-2016 internal control work plan. With these two reviews completed, the department is now completely at the ongoing monitoring phase.

As part of its ongoing monitoring plan, the department completed the assessment of the financial controls within the business processes of financial close, budgeting and forecasting, grants and contributions and environmental liabilities, as well as information technology general controls of the salary management system.

For the most part, the key controls that were tested performed as intended, with remediation required in the case of the inventory balance (financial close sub-process) where it was noted that improvement could be made in reporting its accounting value.

A management action plan for the business process, addressing the recommendation was developed by the process owner.

4. Departmental Action Plan

4.1 Progress during fiscal year 2015-2016

Fisheries and Oceans Canada continued to conduct its ongoing monitoring according to the previous fiscal year’s rotational plan as shown in the following table.

Previous year’s rotational ongoing monitoring plan for current year Status
Budgeting and Forecasting, Environmental Liabilities, Grants and Contributions, Information Technology General Controls - Salary Management Completed as planned; no remedial actions required.
Financial Close (Inventory) Completed as planned; remedial actions started.
Previous year’s outstanding remediation action  
Entity Level Controls Completed as planned; no remedial actions required.
Salary and Benefits Salary and Benefits controls to be tested in 2016- 2017.
Tangible Capital Assets The department has continued to implement the recommendations for the material management rationalization initiative.

In 2015-2016, the department conducted the following work in addition to the progress made in ongoing monitoring:

  • Testing of the design and operating effectiveness of Inventory and Capital Assets.

4.2 Action plan for the next fiscal year and subsequent years

Fisheries and Oceans Canada’s rotational ongoing monitoring plan over the next three years, based on an annual validation of the high- risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Rotational Ongoing Monitoring Plan
Key Control Areas Future On-going Monitoring Plan
2016-2017 2017-2018 2018-2019
Entity Level Controls No Yes No
Tangible Capital Assets Yes Yes Yes
Inventory Yes Yes Yes
Financial Close Yes Yes Yes
Revenue
  • Marine services
  • Fisheries Licensing

Yes
No

Yes
Yes

Yes
No
Budgeting and Forecasting Yes Yes Yes
Operating Expenditures Yes No Yes
Environmental Liabilities No No Yes
Salaries and Benefits Yes No Yes
Grants and Contributions No No Yes
Information Technology General Controls
Financial system Yes No Yes
Delegation of authority No Yes No
Salary Management No No No