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Agriculture and Agri-Food Canada Consolidated Financial Statements (Unaudited) for the year ended March 31, 2017

Financial Statements (Unaudited) For the year ending March 31, 2017 (PDF Version, 1.45 MB)

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Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2017, and all information contained in these statements rests with the management of Agriculture and Agri-Food Canada. These consolidated 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 consolidated financial statements. Some of the information in the consolidated 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 Agriculture and Agri-Food Canada's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Agriculture and Agri-Food Canada's Departmental Results Report, is consistent with these consolidated 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 consolidated 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 Agriculture and Agri-Food Canada and through conducting an annual 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, 2017 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 Agriculture and Agri-Food Canada's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of Agriculture and Agri-Food Canada's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting.

The consolidated financial statements of Agriculture and Agri-Food Canada have not been audited.

Chris Forbes, Deputy Minister
Ottawa, Canada
August 25, 2017

Pierre Corriveau, Chief Financial Officer

Consolidated Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)
2017 2016
Liabilities
Accounts payable and accrued liabilities (Note 4) $953,494 $833,211
Vacation pay and compensatory leave 26,169 23,781
Deferred revenue (Note 6) 17,518 16,081
Employee future benefits (Note 7) 19,194 24,559
Other liabilities (Note 8) 53,339 54,692
Total liabilities 1,069,714 952,324
Financial assets
Due from Consolidated Revenue Fund 958,419 830,813
Accounts receivable and advances (Note 9) 39,391 58,986
Loans receivable (Note 10) 265,587 291,131
Total gross financial assets 1,263,397 1,180,930
Financial assets held on behalf of Government
Accounts receivable and advances (Note 9) (460) (663)
Loans receivable (Note 10) (265,587) (291,131)
Total financial assets held on behalf of Government (266,047) (291,794)
Total net financial assets 997,350 889,136
Departmental net debt 72,364 63,188
Non-financial assets
Prepaid expenses and inventory 4,729 4,257
Tangible capital assets (Note 11) 412,924 390,485
Total non-financial assets 417,653 394,742
Departmental net financial position (Note 12) $345,289 $331,554

Environmental liabilities (Note 5)

Contractual obligations (Note 13)

Contingencies (Note 14)

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

Chris Forbes, Deputy Minister
Ottawa, Canada
August 25, 2017

Pierre Corriveau, Chief Financial Officer

Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31
(in thousands of dollars)
2017
Planned Results
2017 2016
Expenses
Business Risk Management $1,319,606 $1,317,160 $987,100
Science, Innovation, Adoption and Sustainability 509,637 535,343 548,574
Industry Capacity 90,812 414,511 63,493
Internal Services 254,600 286,613 257,271
Market Access, Negotiations, Sector Competitiveness, and Assurance Systems 163,157 151,468 197,668
Canadian Pari-Mutuel Agency 10,279 9,350 8,531
Farm Products Council of Canada 2,993 2,813 3,074
Expenses Incurred on behalf of Government (11) (28) (11)
Total Expenses 2,351,073 2,717,230 2,065,700
Revenues
Sale of goods and services 71,573 75,163 79,351
Interest 14,547 12,666 13,097
Crop Reinsurance Fund 1,500 1,409 1,375
Joint project and cost sharing agreements 6,505 7,067 5,953
Gain on disposal of assets 2,527 3,844 4,549
Revenues earned on behalf of Government (30,174) (33,842) (33,861)
Total Revenues 66,478 66,307 70,464
Net cost of operations before government funding and transfers 2,284,595 2,650,923 1,995,236
Government funding and transfers
Net cash provided by Government 2,480,484 1,956,536
Change in due from Consolidated Revenue Fund 127,606 8,864
Services provided without charge by other government departments (Note 15) 56,552 56,181
Transfer of the transition payments for implementing salary payments in arrears (1) (103)
Transfer of assets from other government departments 17 275
Net cost of operations after government funding and transfers (13,735) (26,517)
Departmental net financial position - Beginning of year 331,554 305,037
Departmental net financial position - End of year $345,289 $331,554

Segmented information (Note 16)

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

Consolidated Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31
(in thousands of dollars)
2017 2016
Net cost of operations after government funding and transfers $(13,735) $(26,517)
Change due to tangible capital assets (Note 11)
Acquisition of tangible capital assets 87,380 62,923
Amortization of tangible capital assets (40,885) (39,073)
Proceeds from disposal of tangible capital assets (4,347) (5,844)
Net (loss) or gain on disposal of tangible capital assets including adjustments (19,363) 3,288
Non-cash changes of tangible capital assets (363) (25)
Transfer from other government departments 17 275
Total change due to tangible capital assets 22,439 21,544
Change due to prepaid expenses and inventory 472 (428)
Net increase (decrease) in departmental net debt 9,176 (5,401)
Departmental net debt - Beginning of year 63,188 68,589
Departmental net debt - End of year $72,364 $63,188
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows (Unaudited)
For the year ended March 31
(in thousands of dollars)
2017 2016
Operating activities
Net cost of operations before government funding and transfers $2,650,923 $1,995,236
Non-cash items:
Amortization of tangible capital assets (40,885) (39,073)
Gain (Loss) on disposal of tangible capital assets (19,363) 3,288
Non-cash changes of tangible capital assets (363) (25)
Services provided without charge by other government departments (Note 15) (56,552) (56,181)
Transition payments for implementing salary payments in arrears 1 103
Variations in Consolidated Statement of Financial Position:
Increase (decrease) in accounts receivable and advances (19,392) 11,160
Increase (decrease) in prepaid expenses and inventory 472 (428)
Decrease (increase) in accounts payable and accrued liabilities (120,283) (15,044)
Decrease (increase) in vacation pay and compensatory leave (2,388) 637
Decrease (increase) in deferred revenue (1,437) (4,476)
Decrease (increase) in employee future benefits 5,365 1,925
Decrease (increase) in other liabilities 1,353 2,335
Cash used in operating activities 2,397,451 1,899,457
Capital investing activities
Acquisition of tangible capital assets 87,380 62,923
Proceeds from disposal of tangible capital assets (4,347) (5,844)
Cash used in capital investing activities 83,033 57,079
Net cash provided by Government of Canada $2,480,484 $1,956,536

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

Notes to the Consolidated Financial Statements (Unaudited)
For the year ended March 31
(tabular amounts in thousands of dollars)

Note 1 - Authority and objectives

The Department of Agriculture and Agri-Food was established in 1868. Under the Department of Agriculture and Agri-Food Act, the Minister is responsible for agriculture, products derived from agriculture and research related to agriculture, and products derived from agriculture including the operation of experimental farm stations unless they have been assigned by law to another department, board, or agency.

The Department provides information, research and technology, and policies and programs to achieve security of the food system, health of the environment and innovation for growth.

Business Risk Management

Agriculture and Agri-Food Canada has a comprehensive suite of Business Risk Management programs to better equip producers with the tools and capacity to manage business risks. This suite provides support for income losses, a disaster-relief framework and insurance to protect farmers against production losses due to uncontrollable natural hazards, as well as research, development, implementation, and administration of new agricultural risk management tools. In addition to the Business Risk Management suite, Agriculture and Agri-Food Canada provides producers with the ability to market their products when conditions and prices may be more favourable through loan guarantee programs.

Science, Innovation, Adoption and Sustainability

Agriculture and Agri-Food Canada contributes to innovation and sustainability of the agriculture, agri-food and agri-based products sector through science and associated activities designed to improve profitability in new and existing products, services, processes, and markets. Agriculture and Agri-Food Canada provides research, development and knowledge transfer that enhances the sector's resiliency, fosters new areas of opportunity for the sector and supports sector competitiveness, as well as coordinated and informed decision making. Agriculture and Agri-Food Canada promotes integrated planning, engaging industry, government and academia, and collaborative action to accelerate the flow of science and technology along the innovation continuum in support of industry-defined strategies for future success. Farmers, agri-entrepreneurs and agri-based enterprises are supported in their efforts to adopt new technologies and commercialize new products and services. Pathfinding and transformational research help to define future sustainable opportunities and prepare the sector for emerging opportunities and challenges.

Industry Capacity

This program helps build capacity of the sector and businesses to sustainably succeed in a market-driven and competitive world. The program encourages the use of sound business management practices, while also enabling businesses in the sector to understand their financial situation, be profitable and invest where needed. It provides for enhanced participation by young or new entrants, First Nations clients, and clients in specific sub-sectors in transition. The program also supports the sector and its businesses to improve access to key infrastructure.

Internal Services

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

Market Access, Negotiations, Sector Competitiveness, and Assurance Systems

Agriculture and Agri-Food Canada supports and equips industry for commercial success in order to maximize the sector's long-term profitability and competitiveness. In pursuing this objective, and in close collaboration with the Canadian agriculture, agri-food and agri-based products sector, Agriculture and Agri-Food Canada works to enhance access to markets, facilitates industry-led activities aimed at developing international markets and assurance systems, and provides information to help position industry to capitalize on market opportunities both at home and abroad. Assurance systems include systems, standards and tools for food safety, biosecurity, traceability, surveillance, animal welfare, and other market attributes.

Canadian Pari-Mutuel Agency

Section 204 of the Criminal Code of Canada designates the Minister of Agriculture and Agri-Food responsible for making the regulations that direct the lawful conduct of pari-mutuel betting in Canada on horse racing. The Canadian Pari-Mutuel Agency is a special operating agency within Agriculture and Agri-Food Canada that approves and supervises pari-mutuel betting conducted at racetracks and betting theatres across Canada, with the objective of ensuring that betting is conducted in a way that is fair to the betting public. Costs associated with the activities of the Canadian Pari-Mutuel Agency are recovered through a levy on every dollar bet in Canada on horse races. The levy is currently set at eight-tenths of a cent of every dollar bet. Canadian Pari-Mutuel Agency's strategic plans are focused on regulating and supervising pari-mutuel betting on horse races in the most modern, effective and transparent manner.

Farm Products Council of Canada

Established under the Farm Products Agencies Act, the Farm Products Council of Canada is an oversight body that reports to Parliament through the Minister of Agriculture and Agri-Food (the Minister). The Farm Products Agencies Act provides for the creation of national marketing agencies, which are not subject to the Competition Act, as well as promotion and research agencies. The Farm Products Council of Canada supervises these agencies, and works with them to ensure that the supply management system for poultry and eggs and promotion-research activities for beef cattle work in the balanced interest of all stakeholders, from producers to consumers, and can evolve to respond to current and future challenges. The Farm Products Council of Canada also provides advice and recommendations to the Minister, collaborates with provincial supervisory boards and actively works with the Department and Agriculture and Agri-Food portfolio organizations.

Note 2 - Summary of significant accounting policies

These consolidated 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 – The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated 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 Consolidated Statement of Operations and Departmental Net Financial Position are the amounts reported in the Consolidated Future-Oriented Statement of Operations included in the 2016-17 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Debt because these amounts were not included in the 2016-17 Report on Plans and Priorities.
  2. Consolidation – These consolidated financial statements include the accounts of the sub-entities that the Deputy Minister is accountable for. The accounts of these sub-entities have been consolidated with those of the Department and all inter-organizational balances and transactions have been eliminated. The accounting entity comprises the Department of Agriculture and Agri-Food, the Farm Products Council of Canada and the Canadian Pari-Mutuel Agency. The consolidated financial statements do not include the accounts of the Canadian Grain Commission, the Canadian Dairy Commission and Farm Credit Canada because they are not under the control of Agriculture and Agri-Food Canada and therefore are not consolidated.
  3. Net Cash Provided by Government – The Department operates within the Consolidated Revenue Fund, which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the Consolidated Revenue Fund, and all cash disbursements made by the Department are paid from the Consolidated Revenue Fund. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.
  4. Amounts due from or to the Consolidated Revenue Fund are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the Consolidated Revenue Fund. Amounts due from the Consolidated Revenue Fund represent the net amount of cash that the Department is entitled to draw from the Consolidated Revenue Fund without further authorities to discharge its liabilities.
  5. 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 the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
    • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
    • Revenues that are non-respendable are not available to discharge the Department's liabilities.

      While the Deputy Minister is expected to maintain accounting control, he or 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 as a reduction to the entity's gross revenues.

  6. 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 all eligibility criteria and 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 consolidated 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 the employer's contribution to the health and dental insurance plans, accommodation, legal services, and workers' compensation are recorded as operating expenses at their estimated cost.
  7. Employee future benefits
    1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the consolidated 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.
  8. Accounts and loans receivable are stated at the lower of cost and net recoverable value. However, when the terms of the loans are concessionary, such as those provided with a low or no interest clause, they are recorded at their estimated present value. A portion of the unamortized discount is recorded as revenue each year to reflect the change in the present value of the loans outstanding. Transfer payments that are unconditionally repayable are recognized as loans receivable. A valuation allowance is recorded for accounts and loans receivable where recovery is considered uncertain.
  9. Contingencies – Contingencies are potential recoveries or liabilities which may become actual recoveries or liabilities when one or more future events occur or fail to occur.
    1. Contingent liabilities – 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 consolidated financial statements.
    2. Contingent recoveries – Contingent recoveries are not accrued in consolidated financial statements. However, a contingent recovery which is considered likely to be realized is disclosed in the notes to the consolidated financial statements.
  10. Loan and price guarantees – An allowance on loans or price guarantees is recorded in the accounts when it is likely that a payment will be made to honour a guarantee and where the amount of the anticipated loss can be reasonably estimated. The amount of the allowance for losses is determined based on historical loss experience and economic conditions adversely affecting the capacity of borrowers to reimburse the loan. The allowance is reviewed on a regular basis with any changes being charged or credited to current year expenses.
  11. Environmental liabilities consist of estimated costs related to the remediation of contaminated sites.

    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 Department 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 Department'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 which is based on the Government's cost of borrowing. 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 Government of Canada's 25-year Consolidated Revenue Fund lending rate is used as the discount rate.

    The recorded environmental liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

    If the likelihood of the Department's responsibility is not determinable, a contingent liability is disclosed in the notes to the financial statements. If measurement uncertainty exists, it is also disclosed in the notes to the financial statements.

  12. Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, and museum collections. Amortization of tangible capital assets is done on a straight line basis over the estimated useful life of the asset as follows:
    Amortization of tangible capital assets
    Asset Class Amortization Period
    Buildings 20 to 30 years
    Works and infrastructure 15 to 40 years
    Machinery and equipment 5 to 20 years
    Vehicles 7 to 25 years
    Computer hardware and software 3 to 5 years
    Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement

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

  13. Measurement uncertainty – The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, allowance for loan guarantees, the useful life of tangible capital assets, the liability for employee future benefits, and environmental liabilities. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.

Note 3 - Parliamentary authorities

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

  1. Reconciliation of net cost of operations to current year authorities used
    Parliamentary Authorities - (a) Reconciliation of net cost of operations to current year authorities used
    2017 2016
    Net cost of operations before government funding and transfers $2,650,923 $1,995,236
    Adjustments for items affecting net cost of operations but not affecting authorities:
    Amortization of tangible capital assets (40,885) (39,073)
    Gain (Loss) on disposal of tangible capital assets (19,363) 3,288
    Non-cash changes of tangible capital assets (363) (25)
    Services provided without charge by other government departments (56,552) (56,181)
    Increase (decrease) in prepaid and inventory 472 (428)
    Decrease (increase) in vacation pay and compensatory leave (2,388) 637
    Decrease (increase) in accrued liabilities (803) (14,305)
    Decrease (increase) in employee future benefits 5,461 1,625
    Decrease (increase) in allowances for bad debt expenses (14,664) (10,990)
    Refund and adjustment of prior years' expenditures (2,784) 4,846
    Respendable revenue 5,531 6,436
    Other 8,416 31,632
    Total (117,922) (72,538)
    Adjustments for items not affecting net cost of operations but affecting authorities:
    Acquisitions of tangible capital assets 87,380 62,923
    Proceeds from disposal of tangible capital assets (4,347) (5,844)
    Increase (decrease) in accounts receivable and advances 2,374 -
    Increase (decrease) in loan receivables (3,499) (51,470)
    Transition payments for implementing salary payments in arrears 1 103
    Total 81,909 5,712
    Current year authorities used $2,614,910 $1,928,410
    - represents zero
  2. Authorities provided and used
    2017 2016
    Authorities Provided:
    Vote 1 - Operating expenditures $913,242 $577,702
    Vote 5 - Capital expenditures 97,479 55,490
    Vote 10 - Transfer payments 373,327 435,756
    Statutory amounts 1,319,899 971,937
    Total 2,703,947 2,040,885
    Less:
    Authorities available for future years 18,519 18,932
    Lapsed authorities 70,518 93,543
    Total 89,037 112,475
    Current year authorities used $2,614,910 $1,928,410

Note 4 - Accounts payable and accrued liabilities

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

2017 2016
Accounts payable to other government departments and agencies $9,825 $10,227
Accounts payable to external parties 900,816 772,278
Total accounts payable 910,641 782,505
Accrued liabilities 42,853 50,706
Total accounts payable and accrued liabilities $953,494 $833,211

At March 31, 2017, the Department has recorded an obligation for termination benefits in the amount of $2,816,000 ($5,606,000 in 2015-16) as part of accrued liabilities to reflect the cost saving measures announced in 2012.

Note 5 - 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 aids 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.

The Department has identified a total of 149 sites (275 sites in 2016) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 14 sites (17 sites in 2016) where action is possible and for which a liability of $1,693,389 ($2,223,119 in 2016) has been recorded. This liability estimate has been determined after the sites are assessed and is based on environmental experts reviewing the results of site assessments, and proposing possible remediation solutions.

In addition, a model based on the average of historical costs incurred for contaminated sites with similar functions was used to estimate the liability for unassessed sites. As a result, there are 50 unassessed sites (67 sites in 2016) where a liability estimate of $1,729,699 ($2,613,622 in 2016) has been recorded using this model.

These two estimates combined, totalling $3,423,088 ($4,836,741 in 2016) represent management's best estimate of the costs required to remediate the 64 sites (84 sites in 2016) to the current minimum standard for its use prior to contamination, based on information available at the financial statement date.

Of the remaining 85 sites (191 sites in 2016), no liability for remediation has been recognized. Some of these sites are closed and some are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, the Department does not expect to give up any future economic benefits (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

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, 2017, and March 31, 2016. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast CPI rate of 2%. Inflation is included in the undiscounted amount. 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 2017 rates range from 0.89% for 2 year term to 2.55% for a 25 or greater year term.

Nature and Source of Liability
Nature and Source Number of Sites 2017 Estimated Liability 2017 Estimated Total Undiscounted Expenditures 2017 Estimated Recoveries 2017 Number of Sites 2016 Estimated Liability 2016 Estimated Total Undiscounted Expenditures 2016 Estimated Recoveries 2016
Fuel Related Practices[1] 40 $1,689 $1,717 $ - 38 $1,397 $1,415 $ -
Landfills/Waste Sites[2] 13 604 612 - 37 2,095 2,123 -
Engineered Asset/Air and Land Transportation[3] 2 325 328 - 1 304 308 -
Other[4] 9 805 821 - 8 1,041 1,059 -
Totals 64 $3,423 $3,478 $ - 84 $4,837 $4,905 $ -

- represents zero

  • [1] 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.
  • [2] 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.
  • [3] 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.
  • [4] 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.

The Department's ongoing efforts to assess contaminated sites may result in additional environmental liabilities. Any additional liabilities will be accrued in the year in which they become known and can be reasonably estimated.

Note 6 - Deferred revenue

Deferred revenue represents the balance at year end of unearned revenues stemming mainly from joint collaborative agreements and cost-sharing agreements which are restricted to fund the expenditures related to specific research projects and amounts received for fees prior to services being performed. Revenue is recognized in the period that these expenditures are incurred or the service is performed. Details of the transactions related to this account are as follows:

2017 2016
Opening balance $16,081 $11,605
Amounts received 8,518 10,782
Revenue recognized (7,081) (6,306)
Closing balance $17,518 $16,081

Note 7 - Employee future benefits

  1. Pension benefits

    The Department's employees participate in the Public Service Pension Plan (the "Plan"), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

    Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to 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 2016-17 expense amounts to $40,169,194 ($40,738,085 in 2015-16). For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015-16) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015-16) the employee contributions.

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

  2. Severance benefits

    Severance benefits provided to the Department's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2017, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

    The changes in the obligations during the year were as follows:

    Severance benefits
    2017 2016
    Accrued benefit obligation - Beginning of year $24,559 $26,484
    Expense for the year (2,278) 3,223
    Benefits paid during the year (3,087) (5,148)
    Accrued benefit obligation - End of year $19,194 $24,559

Note 8 - Other liabilities

The Department holds funds in trust from the AgriInvest program, the AgriStability program as well as security and other deposits.

AgriInvest is a producer savings account program that replaces the coverage for smaller income declines that was provided by previous programs. Program payments are cost-shared with the province or territory which producers can withdraw under specific terms and conditions. Since 2010, producers now make their AgriInvest deposits at a participating financial institution of their choice. As such, existing funds held by the federal government are being transferred to the producers' AgriInvest accounts held at the financial institutions.

The AgriStability program helps producers protect their farming operations against larger drops in income. Program payments are shared 60% federally and 40% provincially/territorially. The provincial/territorial share of the contributions and interest paid on the contributions are held in a specified purpose account until the producers draw down their funds.

AgriInvest, AgriStability and security and other deposit account activity during the year was as follows:

AgriInvest, AgriStability and security deposit account activity
2017 2016
Opening balance $54,692 $57,027
Deposits 297,052 273,649
Withdrawals (298,405) (275,984)
Ending balance $53,339 $54,692

Note 9 - Accounts receivable and advances

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

2017 2016
Receivables from other government departments and agencies $17,033 $20,293
Receivables from external parties 46,320 68,489
Employee advances 75 141
Subtotal 63,428 88,923
Allowance for doubtful accounts on receivables from external parties (24,037) (29,937)
Gross accounts receivable 39,391 58,986
Accounts receivable held on behalf of Government 505 694
Allowance for doubtful accounts held on behalf of Government (45) (31)
Net accounts receivable held on behalf of Government 460 663
Net accounts receivable $38,931 $58,323

Note 10 - Loans receivable

The following table presents details of the Department's loans receivable balances:

2017 2016
Transfer payments recoverable $135,517 $118,235
Loans resulting from loan guarantee programs 306,855 393,126
Subtotal 442,372 511,361
Less: Allowance for uncollectibility (176,785) (220,230)
Gross loans receivable 265,587 291,131
Loans receivable held on behalf of Government 265,587 291,131
Net loans receivable $ - $ -
- represents zero
  1. Transfer payments recoverable

    Transfer payments recoverable relate to contributions made to outside parties which are repayable based on conditions specified in the contribution agreement that have come into being. An allowance of $14,532,000 ($10,058,000 in 2016) has been recorded.

  2. Loans resulting from loan guarantee programs

    The Department's loan receivables are the result of the exercise of loan guarantees by the initial lender under the terms of various loan guarantee programs. These loans are in default with the initial lender and due immediately to the Department. Interest rates on these loans vary according to the initial terms of the loans and applicable government regulations. An allowance of $162,253,000 ($210,172,000 in 2016) relating to these loans has been recorded.

Note 11 - Tangible capital assets

Tangible capital assets - Cost
Capital Asset Class Opening Balance Acquisitions Adjustments[1] Disposals and Write-Offs Closing Balance
Land $12,497 $- $598 $173 $12,922
Buildings 660,866 200 25,464 5,063 681,467
Works and infrastructure 63,398 - 10,530 36,801 37,127
Machinery and equipment 215,612 14,486 (98) 4,496 225,504
Vehicles 70,196 2,359 - 4,718 67,837
Leasehold improvements 29,092 - 233 113 29,212
Computer hardware and software 49,944 192 (21) 176 49,939
Assets under construction 37,401 70,143 (37,056) 4 70,484
$1,139,006 $87,380 $(350) $51,544 $1,174,492
- represents zero

[1] Adjustments of $37,056,000 include assets under construction of $36,833,000 that were transferred to the other categories upon completion of the assets.

Tangible capital assets - Accumulated Amortization
Capital Asset Class Opening Balance Amortization Adjustments[1] Disposals and Write-Offs Closing Balance
Land $- $- $- $- $-
Buildings 466,746 18,626 118 4,354 481,136
Works and infrastructure 29,792 1,782 (119) 14,333 17,122
Machinery and equipment 141,381 12,604 5 4,315 149,675
Vehicles 46,047 4,538 - 4,545 46,040
Leasehold improvements 20,751 1,257 - 114 21,894
Computer hardware and software 43,804 2,078 (8) 173 45,701
Assets under construction - - - - -
$748,521 $40,885 $(4) $27,834 $761,568
- represents zero

[1] Adjustments of $37,056,000 include assets under construction of $36,833,000 that were transferred to the other categories upon completion of the assets.

Net Book Value - Tangible capital assets
Capital Asset Class 2017 2016
Land $12,922 $12,497
Buildings 200,331 194,120
Works and infrastructure 20,005 33,606
Machinery and equipment 75,829 74,231
Vehicles 21,797 24,149
Leasehold improvements 7,318 8,341
Computer hardware and software 4,238 6,140
Assets under construction 70,484 37,401
Total $412,924 $390,485

Note 12 - Departmental net financial position

A portion of the Department's net financial position is used for a specific purpose. Related revenues and expenses are included in the Consolidated Statement of Operations and the Departmental Net Financial Position. The Department operates two programs which under legislation require that the revenues be earmarked to offset the expenses of the program.

The Crop Reinsurance Fund was established pursuant to the Farm Income Protection Act and provides insurance to participating provinces for costs they incur in operating crop insurance programs. The fund records receipts and disbursements under the terms of reinsurance agreements. When there are insufficient revenues to meet payments, the Minister of Finance may authorize an advance of additional funds to cover these obligations.

The Agricultural Commodities Stabilization Accounts were established pursuant to the Agricultural Stabilization Act, under which the commodity accounts formerly operated, and has since been repealed and replaced by the Farm Income Protection Act effective April 1, 1991. The purpose of these accounts was to reduce income loss to producers from market risks through stabilizing prices. Premiums were shared equally by the Government of Canada, the governments of participating provinces and participating producers. Current activities are limited to collection of accounts receivable.

Activity in the accounts is as follows:

2017 2016
Crop Reinsurance Fund - Restricted
Balance - Beginning of year $295,453 $294,078
Revenues 1,409 1,375
Expenses - -
Balance - End of year 296,862 295,453
Agricultural Commodities Stabilization Accounts - Restricted 647 647
Unrestricted 47,780 35,454
Departmental net financial position - End of year $345,289 $331,554
- represents zero

Note 13 - Contractual obligations

The nature of the Department's activities can result in some large multi-year contracts and obligations whereby the Department will be obligated to make future payments in order to carry out its transfer payment programs. Significant non revocable contractual obligations that can be reasonably estimated are summarized as follows:

2018 2019 2020 2021 2022 and thereafter Total
Transfer payments $322,757 $6,627 $4,948 $4,296 $ - $338,628
- represents zero

Note 14 - Contingencies

Contingencies arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into four categories as follows:

  1. Claims and litigation
    Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has also been named in other legal claims against the Government of Canada, related to the agricultural industry, for which amounts and likelihood of liability cannot be determined. The limited disclosure regarding the contingent liabilities for legal claims recognized by the Department is a direct reflection of the sensitivity and status of on-going claims.

  2. Loan or price guarantees
    Authorized limit Outstanding guarantees Allowance as at March 31
    2017 2016 2017 2016
    Loans according to the Advance Payments Program under the Agricultural Marketing Programs Act $5,000,000 $1,245,811 $1,164,648 $35,245 $38,786
    Loans to farmers under the Canadian Agricultural Loans Act 3,000,000 103,675 104,116 1,037 1,041
    Price guarantee agreements with marketing agencies pursuant to the Price Pooling Program under the Agricultural Marketing Programs Act No limit - 839 - -
    National Biomass Ethanol Program 140,000 19,639 24,960 - -
    Total $1,369,125 $1,294,563 $36,282 $39,827
    - represents zero

    The allowance for losses is the amount recorded for estimated losses on outstanding loan guarantees and which is included in accrued liabilities. No allowance has been recorded for the Price Pooling Program of the Agricultural Marketing Programs Act and for the National Biomass Ethanol Program as no costs are likely to occur.

    Under the Advance Payments Program of Agricultural Marketing Programs Act, the Department guarantees the repayment of advances made by producer organizations to farmers in the spring and in the fall, creating a more stable business environment. The maximum cash advance of the program is $400,000. The loans generally have a repayment term of 18 to 24 months.

    Under the Canadian Agricultural Loans Act, the Department guarantees loans by financial institutions to farmers for improvement and development of farms, and the processing, distribution or marketing of farm products. This program guarantees 95 percent of the value of loans provided to farms and co-operatives by financial institutions. For individual applicants, including corporations, the maximum amount for a Canadian Agricultural Loans Act loan is $500,000. Most loans are repayable within ten years. For loans on land purchases, the repayment period is 15 years.

    Under the Price Pooling Program of the Agricultural Marketing Programs Act, the Department provides a price guarantee that protects marketing agencies and producers against unanticipated declines in the market price of their products.

    The Minister of Agriculture and Agri-Food is authorized to guarantee Line of Credit Agreements entered into by Farm Credit Canada under the National Biomass Ethanol Program.

  3. Transfer payments - Conditionally repayable contributions
    Under the Ruminant Slaughter Loan Loss Reserve Program, which ended in 2007, there were no conditionally repayable contributions outstanding in 2017, in comparison to $1,149,613 outstanding in 2016. The funds contributed and accumulated interest are repayable within 10 years and no later than December 31, 2017, net of the amounts used to cover a portion of the loan defaults.

    Under the EcoAgriculture Biofuels Capital Initiative, conditionally repayable contributions which are outstanding in 2017 total $55,627,141 ($55,941,084 in 2016). Repayments are determined by a project's profitability, and have a maximum repayment period of 10 years and no later than March 31, 2023.

    Under the Slaughter Improvement Program, conditionally repayable contributions which are outstanding in 2017 total $38,263,447 ($42,153,401 in 2016). Repayments are determined by a project's profitability, and have a maximum repayment period of 10 years. The final payment is due no later than June 1, 2024.

    Under the Slaughter Waste Innovation Program, conditionally repayable contributions which are outstanding in 2017 total $18,417,207 ($19,803,077 in 2016). Repayments are determined by a project's profitability as well as whether and how a project demonstrates the destruction or deactivation of Specified Risk Material. Contributions have a maximum repayment period of 10 years and the final payment is due no later than March 31, 2024.

    As these are conditionally repayable contributions, the amounts that will become repayable cannot be currently estimated as contribution agreements are subject to specific program requirements, which require annual determinations as to the value which must be repaid each year. Thus, to forecast a specific amount repayable each year is not possible due to the varying factors facing each recipient as it relates to their economic and production performances.

  4. Contingent recoveries
    AgriStability and Canadian Agricultural Income Stabilization programs are federally and provincially/territorially cost shared programs and Canadian Agricultural Income Stabilization Inventory Transition Initiative is a federally funded program. When provincial/territorial governments deliver these programs and overpayments occur, the federal government is entitled to recover its share of funding if and when overpayments are recovered. The Department has estimated the contingent recoverable amount as $7,936,598 ($8,810,176 in 2016). Contingent recoveries are not recorded in the consolidated financial statements.

Note 15 - Related party transactions

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

  1. Common services provided without charge by other government departments

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

    2017 2016
    Employer's contribution to the health and dental insurance plans $35,514 $33,232
    Accommodation 18,986 20,828
    Legal services 995 1,034
    Workers' compensation 1,057 1,087
    Total $56,552 $56,181

    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 the Department's Consolidated Statement of Operations and Departmental Net Financial Position.

  2. Other transactions with related parties
    2017 2016
    Expenses - Other Government departments and agencies $177,635 $138,372
    Revenues - Other Government departments and agencies $18,351 $17,044

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

Note 16 - Segmented information

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

BRM SIA&S IC IS MANSC&AS CPMA FPCC 2017 Total 2016 Total
Expenses
Transfer payments $1,245,645 $155,914 $41,758 $- $88,575 $- $- $1,531,892 $1,258,193
Salaries and employee benefits 18,881 245,329 14,188 146,228 44,054 3,109 2,225 474,014 480,029
Professional and other services 7,275 50,197 3,444 48,848 17,646 5,331 532 133,273 124,971
Allowance for loan guarantees and bad debts 45,045 4,308 16 25 - - - 49,394 42,101
Materials and supplies 144 36,074 2,085 4,914 543 106 44 43,910 49,304
Amortization of tangible capital assets - - - 40,434 - 451 - 40,885 39,073
Accommodation and other 142 13,162 352,061 45,434 393 201 12 411,405 36,310
Travel 5 696 24 39 72 - - 836 975
Repairs and maintenance 23 12,770 724 733 113 145 - 14,508 18,763
Electricity and other public services - 16,893 211 (42) 72 7 - 17,141 15,992
Expenses incurred on behalf of Government - - - (28) - - - (28) (11)
Total expenses 1,317,160 535,343 414,511 286,585 151,468 9,350 2,813 2,717,230 2,065,700
Revenues
Sale of goods and services 1,314 28,961 16,491 18,191 - 10,206 - 75,163 79,351
Interest 12,097 140 18 375 3 33 - 12,666 13,097
Crop Reinsurance Fund 1,409 - - - - - - 1,409 1,375
Joint project and cost sharing agreements - - - 7,067 - - - 7,067 5,953
Gain on disposal of assets - - - 3,844 - - - 3,844 4,549
Revenues earned on behalf of Government (14,416) (7,506) (407) (11,510) (3) - - (33,842) (33,861)
Total revenues 404 21,595 16,102 17,967 - 10,239 - 66,307 70,464
Net cost of operations $1,316,756 $513,748 $398,409 $268,618 $151,468 $(889) $2,813 $2,650,923 $1,995,236

- represents zero

BRM – Business Risk Management; SIA&S – Science, Innovation, Adoption and Sustainability; IC - Industry Capacity; IS – Internal Services; MANSC&AS – Market Access, Negotiations, Sector Competitiveness, and Assurance Systems; CPMA – Canadian Pari-Mutuel Agency; FPCC – Farm Products Council of Canada

Annex to the Statement of Management Responsibility Including Internal Control Over Financial Reporting of Agriculture and Agri-Food Canada for Fiscal Year 2016-2017 (Unaudited)

Note to the Reader

In accordance with the Treasury Board Policy on Internal Control, departments are required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting.

Under 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 Statements of Management Responsibility a summary of their assessment results and action plans.

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

The system of internal control over financial reporting is not designed to eliminate all risks, but 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 a reasonable 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 those departmental assessments of the effectiveness of their system of internal control over financial reporting will vary from one organization to another based on risks and taking into account their unique circumstances.

1. Introduction

This document provides summary information on the measures taken by Agriculture and Agri-Food Canada to maintain an effective system of internal control over financial reporting, including information on internal control management, assessment results and related action plans.

1.1 Authority, Mandate and Program Activities

Detailed information on the Department's authority, mandate and program activities can be found in the Departmental Results Reports and the Departmental Plans websites.

2. Agriculture and Agri-Food Canada's System of Internal Control Over Financial Reporting

Agriculture and Agri-Food Canada recognizes the importance of setting the tone from the top to help ensure that staff at all levels understand their roles in maintaining effective systems of internal control over financial reporting and are well equipped to exercise these responsibilities effectively. Agriculture and Agri-Food Canada's focus is to ensure risks are well managed through a responsive and risk-based control environment that enables continuous improvement and innovation.

2.1 Internal Control Management

Agriculture and Agri-Food 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:

Key Positions, Roles and Responsibilities

Below are Agriculture and Agri-Food Canada's key positions and committees with responsibilities for maintaining and reviewing the effectiveness of its system of internal control over financial reporting.

Deputy Minister
Agriculture and Agri-Food Canada's Deputy Minister, as Accounting Officer, assumes overall responsibility and leadership for the measures taken to maintain an effective system of internal control. In this role, the Deputy Minister is advised by the Departmental Audit Committee and the Departmental Management Committee.
Chief Financial Officer (CFO)
Agriculture and Agri-Food Canada's CFO reports directly to the Deputy Minister and provides leadership for the coordination, coherence and focus on the design and maintenance of an effective and integrated system of internal control over financial reporting, including its annual assessment. Falling under the CFO responsibilities is also the management of the Corporate Risk Profile of Agriculture and Agri-Food Canada.
Senior Departmental Managers
Agriculture and Agri-Food Canada's senior departmental managers in charge of program delivery are responsible for maintaining and reviewing the effectiveness of the system of internal control over financial reporting falling within their mandate.
Chief Audit Executive (CAE)
Agriculture and Agri-Food Canada's CAE reports directly to the Deputy Minister and provides assurance through periodic internal audits which are instrumental to the maintenance of an effective system of internal control over financial reporting.
Departmental Audit Committee (DAC)
The DAC is an advisory committee that provides objective views on the Department's risk management, control and governance frameworks and processes. It is comprised of three external members and two ex-officio members, the Deputy Minister and Associate Deputy Minister. The DAC formally meets at least three times per year.
Departmental Management Committee (DMC)
The DMC is chaired by the Deputy Minister and serves as an executive forum to address departmental management and operational issues such as human resources, finance, assets, information management/information technology, and public affairs.
Policy and Programs Management Committee (PPMC)
Chaired by the Deputy Minister, the PPMC is responsible for guiding the development and implementation of cohesive and comprehensive policies, programs and services, and monitoring of results.
2.1.1 Key Measures taken by Agriculture and Agri-Food Canada

Agriculture and Agri-Food Canada's control environment also includes a series of measures to equip its staff to manage risks through raising awareness, providing appropriate knowledge and tools as well as developing skills. The most relevant are:

2.2 Service Arrangements relevant to financial statements

Agriculture and Agri-Food Canada relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common Arrangements
Specific Arrangements

3. Agriculture and Agri-Food Canada's assessment results during fiscal year 2016–2017

Agriculture and Agri-Food Canada has developed baseline architecture of all key control points for business process and main IT systems that have been based on and assessed against the Common Financial Management Business Process developed by the Office of the Comptroller General. The Department has adopted an ongoing risk-based monitoring approach to support testing of internal control over financial reporting. Under this approach, all entity level controls, business cycle controls and information technology general controls are assigned a risk rating of high, medium, or low. High risk areas are assessed annually, medium risk at least every two years, and low risk, at least every three years.

In completing ongoing monitoring of its key controls, Agriculture and Agri-Food Canada first confirmed that there were no material changes within the Department that would impact the departmental system of internal control over financial reporting and warrant an adjustment to the planned ongoing monitoring schedule for fiscal year 2016-2017. As no changes were required, the Department completed validation and testing of documented controls for the key areas described in Section 3.1.

3.1 Ongoing Monitoring Program

Adopting the ongoing monitoring schedule outlined in the Department's Annex for 2015–2016, Agriculture and Agri-Food Canada validated and tested internal controls in the following areas during 2016–2017:

The ITGCs testing also included the SAP and PeopleSoft process and controls performed by the Department as an administrator and service provider under service arrangements to other federal government departments and agencies.

The testing period for these controls covered January 1, 2016 to December 31, 2016.

Agriculture and Agri-Food Canada completed operating effectiveness testing of all internal control areas identified for assessment in FY 2016–2017 according to the departmental internal control over financial reporting program with the exception of PeopleSoft. Design effectiveness testing of PeopleSoft service provider controls was completed given that there was only minor maintenance performed on the system during the testing period.

During this testing, it was noted the Department continues to have a number of key controls designed and implemented and operating effectively. Progress is continuing to address recommendations for improvement identified in 2015–2016 where corrective action required more time to complete. Areas noted for improvement during the 2016–2017 assessment, which include service provider assessments for SAP and PeopleSoft, are as follows:

Where feasible, corrective actions were implemented shortly after adjustments were identified. Otherwise, management action plans either have been or are currently being developed to fully address the recommendations within a reasonable timeframe. A follow-up will be performed to ensure action plans are being implemented as planned.

4. Agriculture and Agri-Food Canada's action plan

4.1 Progress during fiscal year 2016–2017

The Department achieved its commitments for 2016-2017 from the 2015-2016 action plans by completing activities as follows:

In addition, the Department also undertook a review of its risked-based monitoring strategy implemented in 2012–2013. The review resulted in the alignment of the department's entity-level control framework with the 2013 COSO framework and an update to its ongoing monitoring guide based on current business processes and systems and a revised risk assessment framework, which will be used to assess the department's internal controls starting with the 2017–18 year.

4.2 Action plan for the next fiscal year and subsequent years

Under the Policy on Internal Control, departments are required to maintain an effective system of internal control over financial reporting with the objective to provide reasonable assurance that a) transactions are appropriately authorized, b) financial records are properly maintained, c) assets are safeguarded and d) applicable laws, regulations and policies are followed.

Agriculture and Agri-Food Canada is positioned to take corrective measures in 2017-2018 to improve controls in the areas noted during testing this year. The Department will also proceed with ongoing risk-based monitoring of key internal control over financial reporting based on the updated monitoring guide on the following cycle:

Business Processes
Key Control Areas Year 1
2017–2018
Year 2
2018–2019
Year 3
2019–2020
Higher Risk (Annual) Financial Close & Reporting X X X
Forecasting X X X
Payroll X X X
Medium Risk
(2 year cycle)
Capital Assets X
Low Risk
(3 year cycle)
AgriInsurance X
AgriStability/AgriInvest X
Budgeting X
Generic Grants and Contributions X
Loan Guarantees X
Operating Expenditures X
Revenues X
X: applicable
IT Processes
Key Control Areas Year 1
2017–2018
Year 2
2018–2019
Year 3
2019–2020
Higher Risk
(Annual)
PeopleSoft X X X
SAP (ECC/BW/BPC) X X X
Medium Risk
(2 year cycle)
Advance Payments Program Electronic Delivery
System (APPEDS)
X X
Business Risk Management Suite (BRMS) X
Production Insurance National Statistical
System (PINSS)
X
Low Risk
(3 year cycle)
Entity Level Controls X
X: applicable
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