Canadian Heritage financial statements for the year ended March 31, 2017

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, 2017, and all information contained in these statements rests with the management of the Department of Canadian Heritage. 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 of Canadian Heritage’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department of Canadian Heritage’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 (ICOFR) 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 of Canadian Heritage and through conducting an annual risk-based assessment of the effectiveness of the system of ICOFR.

The system of ICOFR 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 ICOFR 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 the Department of Canadian Heritage’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department of Canadian Heritage’s operations, and by the Departmental Audit Committee, which provides objective advice and recommendations to the Deputy Minister regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes (including accountability and auditing systems).

The financial statements of the Department of Canadian Heritage have not been audited.

Original signed

Graham Flack
Deputy Minister

Andrew Francis
Chief Financial Officer

Gatineau, Canada
Date: August 25, 2017

Statement of financial position (unaudited) as at March 31
(in thousands of dollars)
20172016
Liabilities

Accounts payable and accrued liabilities (note 4)

326,81

469,142

Vacation pay

7,099

6,580

Employee future benefits (note 5)

7,687

10,465

Other liabilities

1,030

711

Total net liabilities

342,617

486,898

Financial assets

Due from the Consolidated Revenue Fund (note 2)

323,243

470,749

Accounts receivable and advances (note 6)

9,031

6,476

Total gross financial assets

332,274

477,225

Financial assets held on behalf of Government

Accounts receivable and advances (note 6)

(106)

(95)

Total financial assets held on behalf of Government

(106)

(95)

Total net financial assets

332,168

477,130

Departmental net debt

10,449

9,768

Non-financial assets

Prepaid expenses

1,123

340

Inventory (note 7)

2,129

2,075

Tangible capital assets (note 8)

10,741

7,879

Total non-financial assets

13,992

10,294

Departmental net financial position

3,544

526

Contractual Obligations (note 9)
Contingent Liabilities (note 10)

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

Original signed

Graham Flack
Deputy Minister

Andrew Francis
Chief Financial Officer

Gatineau, Canada
Date: August 25, 2017

2017: Statement of operations and departmental net financial position (unaudited) for the year ended March 31
(in thousands of dollars)
Planned Results 2017 2016
Expenses

Official Languages

353,759

367,032

360,170

Cultural Industries

307,715

311,625

306,405

Sport

206,432

211,413

220,825

Arts

117,536

195,756

112,350

Engagement and Community Participation

69,750

52,449

47,421

Attachment to Canada

155,449

155,850

102,454

Heritage

33,165

33,849

32,348

Multiculturalism for Newcomers and all Canadians

-

10,353

-

Internal Services

81,036

82,960

90,189

Total expenses

1,324,842

1,421,287

1,272,161

Revenues

Revenue from the 1979 Federal-provincial Lottery-agreement

73,270

73,013

71,904

Miscellaneous revenues

6,045

6,025

7,940

Sale of goods and services

5,617

3,987

4,303

Revenues earned on behalf of Government

(73,332)

(73,355)

(72,213)

Total revenues

11,600

9,670

11,934

Net cost from continuing operations

1,313,242

1,411,617

1,260,227

2017 2016
Transferred operations

Expenses

-

3,788

Revenues

-

-

Net cost of transferred operations

-

3,788

Net cost of operations before government funding and transfers

1,411,617

1,264,015

Government funding and transfers

Net cash provided by Government of Canada

1,534,185

1,295,946

Reduction in amounts due from the Consolidated Revenue Fund

(147,506)

(50,726)

Services provided without charge by other government departments (note 12)

27,958

26,982

Transition payments for implementing salary payments in arrears (note 13)

(2)

(50)

Transfer of assets and liabilities to/from other government departments (note 14)

-

(1,161)

Net cost of operations after government funding and transfers

(3,018)

(6,976)

Departmental net financial position - Beginning of year

526

(6,450)

Departmental net financial position - End of year

3,544

526

Non-monetary transactions (note 11)
Segmented information (note 15)

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)
2017 2016
Net cost of operations after government funding and transfers (3,018) (6,976)
Change due to tangible capital assets (note 8)

Acquisition of tangible capital assets

5,398 4,366
Amortization of tangible capital assets (2,522) (2,128)
Proceeds from disposal of tangible capital assets (12) -
Net gain (loss) on disposal of tangible capital assets including adjustments (2) (6)
Total change due to tangible capital assets 2,862 2,232
Change due to inventories 54 (29)
Change due to prepaid expenses 783 (245)
Net increase (decrease) in departmental net debt 681 (5,018)
Departmental net debt – Beginning of year 9,768 14,786
Departmental net debt – End of year 10,449 9,768

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

Statement of cash flow (unaudited) for the year ended March 31
(in thousands of dollars)
2017 2016
Operating activities
Net cost of operations before government funding and transfers (note 3) 1,411,617 1,264,015
Non-cash items:
Amortization of tangible capital assets (2,522) (2,128)
Loss on disposal of tangible capital assets (2) -
Services provided without charge by other government departments (note 12) (27,958) 26,982)
Adjustments to tangible capital assets (note 8) - (6)
Transition payments for implementing salary payments arrears (note 13) 2 50
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances 2,544 3,758
Increase (decrease) in prepaid expenses 783 (245)
Increase (decrease) in inventory 54 (29)
Decrease (increase) in accounts payable and accrued liabilities 142,341 53,104
Decrease (increase) in vacation pay (519) (1,021)
Decrease (increase) in employee future benefits 2,778 (173)
Decrease (increase) in other liabilities (319) 76
Transfer of net liabilities to/from other government departments (note 14) - 1,161
Cash used in operating activities 1,528,799 1,291,580
Capital investing activities
Acquisition of tangible capital assets 5,398 4,366
Proceeds from disposal of tangible capital assets (12) -
Cash used in capital investing activities 5,386 4,366
Net cash provided by Government of Canada 1,534,185 1,295,946

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

Notes to the financial statements (unaudited) for the year ended March 31, 2017

1. Authority and Objectives

The Department of Canadian Heritage was established in 1995 under the Department of Canadian Heritage Act.

The Department of Canadian Heritage is responsible for formulating policies and delivering programs that help all Canadians participate in their shared cultural and civic life.

The Department of Canadian Heritage’s work is structured around the following three strategic outcomes:

  • Canadian artistic expressions and cultural content are created and accessible at home and abroad;
  • Canadians share, express and appreciate their Canadian identity; and
  • Canadians participate and excel in sport.

The Department of Canadian Heritage is specifically responsible for formulating and implementing cultural policies related to copyright, foreign investment and broadcasting, as well as policies related to arts, heritage, multiculturalism, official languages, sports, state ceremonial and protocol, and Canadian symbols.

The programs include:

  • Arts: The Arts Program improves Canadians’ opportunities to engage with the arts, contributes to the resilience of the arts sector and deepens the connections between cultural organizations and their communities. This Program encourages access and participation, resilience and excellence in the arts for all Canadians by supporting institutions that offer artists and performers training of the highest calibre in preparation for professional careers, the presentation of professional arts festivals or performing arts series, the improvement of arts and heritage infrastructure, the improvement of business practices of arts and heritage organizations, and the development of partnerships in the sector. Policy, legislative and regulatory measures targeting the Canadian arts sector also further this Program’s objectives.
  • Cultural Industries: This Program supports Canadian cultural industries in adapting to a changing and challenging global marketplace. This is achieved through the delivery of grants, contributions and tax credits as well as policy, regulatory and legislative measures. Fostering the competitiveness and creative output of these industries ensures that Canadian and international audiences access a range of Canadian content across a variety of formats and platforms and contributes to the Canadian economy.
  • Heritage: The Heritage Program ensures that Canada’s cultural heritage is preserved and accessible to Canadians today and in the future. It enables the heritage sector to improve professional knowledge, skills and practices, to preserve and present heritage collections and objects, and to create and circulate exhibitions and other forms of heritage content. This is accomplished by providing funding such as grants, contributions and tax incentives; information, expertise, training and other services; and regulatory and legislative measures. The primary goal of this Program is to promote the preservation and presentation of Canada’s cultural heritage.
  • Attachment to Canada: This Program strengthens Canadian identities by promoting pride and a shared purpose among Canadians. It celebrates and commemorates Canada and enhances understanding of shared values, cultural diversity and knowledge of Canada. Also, it promotes civic education and participation among Canadians, including youth, as well as provides them with the opportunity to learn about and understand Canada’s society, diversity, history and institutions. This is achieved through delivering programs and services in the form of grants and contributions. The core concept of this program is to promote knowledge and experiences of Canada among Canadians.
  • Engagement and Community Participation: This Program aims to engage Canadians and provide them with opportunities to participate in the civil, social and cultural aspects of life in Canada and in their communities. This is accomplished through funding programs and initiatives that support the efforts of communities to build stronger citizen engagement and social inclusion through the performing and visual arts; express, celebrate and preserve local heritage; contribute to increasing the respect for and awareness of human rights in Canada; and develop innovative and culturally appropriate initiatives to support the efforts of indigenous communities in the revitalization and preservation of their languages and cultures. This Program has strong social benefits, as it contributes to the preservation of the history and identity of Canada’s diverse communities, while offering a way for traditions and identities to evolve over time. The Program supports the Department’s mandate to strengthen Canadian identity and values, and build attachment to Canada.
  • Official Languages: Canadian Heritage plays an important role in the horizontal coordination of official languages within the federal government and especially with respect to coordination and support to federal institutions in the implementation of the government’s commitment towards the development of official-language minority communities and the promotion of linguistic duality, pursuant to section 42 of the Official Languages Act (OLA). Canadian Heritage is also responsible for the planning, implementation and management of the Official Languages Support Programs pertaining to the promotion of linguistic duality within Canada and the development of official-language minority communities, in accordance with section 43 of the OLA. These activities contribute to achieving the following Government of Canada Outcome: “A diverse society that promotes linguistic duality and social inclusion”.
  • Multiculturalism: In accordance with the Canadian Multiculturalism Act, the Multiculturalism Program seeks to build an integrated, socially cohesive society; improve the responsiveness of institutions to the needs of a diverse population; and engage in discussions on multiculturalism, integration and diversity at the international level. To advance these objectives, the Multiculturalism Program: provides grants and contributions to not-for-profit organizations, the private sector, non-federal public institutions, and individuals; conducts direct public outreach and promotional activities; helps federal institutions to meet their obligations under the Act; supports the annual tabling in Parliament of a report on the operation of the Act; and engages non-federal public institutions seeking to respond to diversity. The Multiculturalism Program also supports Canada’s participation in international agreements and institutions.
  • Sport: This Program promotes development and excellence in sport among Canadians and Canadian communities through initiatives that provide direct support to Canadian high-performance athletes; enhance Canada’s ability to host the Canada Games and international sport events in Canada; support the development of excellence in the Canadian sport system; and contribute to increasing participation in sport by Canadians of all ages and abilities. The core concept of this Program is to enhance and promote Canadian participation and excellence in sport, by providing funding, expertise and other services to Canadian athletes, sport organizations, stakeholders and event organizers.
  • 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. These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

2. Summary of Significant Accounting Policies

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

Significant accounting policies are as follows:

a. Parliamentary authorities

The Department of Canadian Heritage is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department of Canadian Heritage 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 2016-2017 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 2016-2017 Report on Plans and Priorities.

b. Consolidation

These consolidated financial statements include the accounts of the following sub-entities that the Deputy Minister is accountable for: Canadian Conservation Institute and Canadian Heritage Information Network. The accounts of these sub-entities have been consolidated with those of the Department of Canadian Heritage, and all inter-organizational balances and transactions have been eliminated.

c. Net Cash Provided by Government of Canada

The Department of Canadian Heritage operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department of Canadian Heritage is deposited to the CRF, and all cash disbursements made by the Department of Canadian Heritage 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.

d. Amounts due from or to the Consolidated Revenue Fund

Amounts due from or to the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department of Canadian Heritage is entitled to draw from the CRF without further authorities to discharge its liabilities.

e. Non-monetary transactions

In the normal course of business, the Department of Canadian Heritage regularly signs non-monetary agreements, which result in the exchange of non-monetary assets, goods or services for other non-monetary assets, goods or services with little or no monetary consideration involved. When a non-monetary transaction has a commercial substance, the transaction is recorded at the fair value of the asset, good or service given up, unless the fair value of the asset, good or service received is more reliable. If the transaction lacks commercial substance, it is recorded at the carrying amount of the asset, good or service given up.

f. Revenues

Revenues from sale of goods and services are recognized in the accounts based on the goods and services provided in the year.

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 of Canadian Heritage’s liabilities. While the Deputy Minister is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the Department of Canadian Heritage’s gross revenues.

g. 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 is 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.

h. Employee future benefits

  • Pension benefits:  Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Department of Canadian Heritage’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department of Canadian Heritage’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor.
  • Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

i. Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

j. Inventory

Inventory consists of parts, materials and supplies held for future program delivery and not intended for resale. Inventory is valued at the actual cost. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.

k. Tangible capital assets

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

Asset class Amortization period
Machinery and equipment 5 and 10 years
Computer Hardware 5 years
Computer Software 3 and 5 years
Vehicles 7 and 10 years

Leasehold improvements

Lesser of the remaining term of lease or useful life of the improvement

l. 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.

m. Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are respectively included in the miscellaneous revenues and other operating expenses in the Statement of Operations and Departmental Net Financial Position.

n. Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee future benefits, the useful life of tangible capital assets, the allowance for doubtful accounts, and the fair value of non-monetary transactions. 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

The Department of Canadian Heritage receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department of Canadian Heritage 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)
2017 2016
Net cost of operations before government funding and transfers 1,411,617 1,264,015
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (2,522) (2,128)
Loss on disposal of tangible capital assets (2) -
Adjustments to tangible capital assets - (6)
Services provided without charge by other government departments (27,958) (26,982)
Decrease (increase) in vacation pay (519) (1,021)
Decrease (increase) in employee future benefits 2,778 (173)
Decrease (increase) in accrued liabilities not charged to authorities 1,143 (248)
Bad debt expense (255) (11)
Refund of prior years’ expenditures 2,607 3,358
Miscellaneous revenues 12 25
Outstanding respendable revenue 133 (16)
Total items affecting net cost of operations but not affecting authorities (24,583) (27,202)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets 5,398 4,366
Increase (decrease) in prepaid expenses 783 (245)
Transition payments for implementing salary payments in  arrears (note 13) (2) 50
Increase (decrease) in inventory 54 (29)
Other adjustment - (7)
Total items not affecting net cost of operations but affecting authorities 6,233 4,135
Current year authorities used 1,393,267 1,240,948
b. Authorities provided and used (in thousands of dollars)
2017 2016
Authorities provided:
Vote 1 – Operating expenditures 211,480 186,162
Vote 5 – Grants and contributions 1,204,970 1,068,791
Statutory amounts 23,899 24,917
Less:
Authorities available for future years (21) (21)
Lapsed: Operating expenditures (1) (24,586) (7,297)
Lapsed: Grants and contributions (2) (22,475) (31,604)
Current year authorities used 1,393,267 1,240,948
  1. The lapse of $24,586K in Operating expenditures includes a $10,000K for a special purpose allotment created in order to reflect non-monetary transactions received from sponsors for the Canada 150 initiative. PCH was able to set aside $6,746K to help with future pressures resulting from the renewal of collective bargaining agreements. Also contributing to the lapse is an amount of $2,092K in frozen allotments for Government-wide Initiatives such as the Back-Office Transformation, the Budget 2016 reduction for professional services, advertising and travel and for the tax to convert salary dollars to operating dollars (funds withheld by Treasury Board Secretariat which cannot be spent by Canadian Heritage). An amount of $278K is also attributable to the special purpose allotment which can only be spent on advertising initiatives for the 150th Anniversary of Confederation. The remaining lapse of $5,470K has been approved by Treasury Board to be carried over to 2017-2018.
  2. The lapse of $22,475K in Grants and Contributions is due to $11,871K put aside for an anticipated reprofile request to 2017-18. An amount of $9,337K is related to unused funds for the provision of services in French and Indigenous languages in the Territories which must be placed in a frozen allotment, pursuant to the Treasury Board decision, and $1,227K for an approved reprofile of funds to 2017-18 related to Road to 2017 initiative.

4. Accounts payable and accrued liabilities

The following table presents details of the Department of Canadian Heritage’s accounts payable and accrued liabilities (in thousands of dollars) :

2017 2016
Accounts payable - External parties 310,134 455,399
Accounts payable - Other government departments and agencies 2,481 1,396
Accrued salaries, wages and employee benefits (1) 14,186 12,347
Total accounts payable and accrued liabilities 326,801 469,142
  1. In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013. As a result, the Department of Canadian Heritage recorded an obligation for termination benefits as part of the accrued liabilities to reflect the estimated workforce adjustment costs. There is no remaining balance of these measures as of March 31, 2017 ($248K in 2015-2016).

5. Employee future benefits

a. Pension benefits

The Department of Canadian Heritage’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans 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 EAP 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 2016-2017 expense amounts to $21,252K ($22,228K in 2015-2016). For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015-2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015-2016) the employee contributions.

The Department of Canadian Heritage’s responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor.

b. Severance benefits

The Department of Canadian Heritage 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.

Information about the severance benefits, measured as at March 31, is as follows (in thousands of dollars):

2017 2016
Accrued benefit obligation - Beginning of year 10,465 10,292
Expense for the year (1,716) 2,748
Benefits paid during the year (1,062) (2,575)
Accrued benefit obligation - End of year 7,687 10,465

6. Accounts receivable and advances

The following table presents details of the Department of Canadian Heritage’s accounts receivable and advances (in thousands of dollars):

2017 2016
Receivables - External parties 4,453 5,697
Receivables - Other government departments and agencies 5,094 1,185
Employee advances 12 12
Subtotal 9,559 6,894
Allowance for doubtful accounts on receivables from external parties

(528)

(418)

Gross accounts receivable 9,031 6,476
Accounts receivable held on behalf of Government (106) (95)
Net accounts receivable 8,925 6,381

7. Inventory

The following table presents details of the inventory, measured at cost using the actual cost method (in thousands of dollars):

2017 2016
Canadian Symbols - Promotional items 1,990 1,912
Canadian Gift Bank for Dignitaries 139 163
Total inventory 2,129 2,075

8. Tangible capital assets

(in thousands of dollars)

Cost Accumulated amortization Net Book Value
Capital Asset Class Opening Balance Acquisi-tions Adjustments Disposals and Write-Offs Closing balance Opening balance Amortization Adjustments Disposals and Write-offs Closing balance 2017 2016
Machinery and equipment 9,963 621 (1) - 10,583 5,426 1,048 - - 6,474 4,109 4,537
Computer Hardware 92 11 - - 103 92 - -  - 92 11 -
Computer Software 5,097 - 1 - 5,098 4,863 234 -  - 5,097 1 234
Vehicles 485 - - 25 460 342 31 - 11 362 98 143
Leasehold improvements 14,054 381 - - 14,435 11,089  1,209 - - 12,298 2,137 2,965
Software - under construction (1) - 4,385 - - 4,385 - - - - - 4,385 -
Total 29,691 5,398 - 25 35,064 21,812 2,522 - 11 24,323 10,741 7,879

9. Contractual Obligations

The nature of the Department of Canadian Heritage’s activities can result in some large multi-year contracts and obligations whereby the Department of Canadian Heritage 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) 2018 2019 2020 2021 2022 and thereafter Total
Transfer payments 700,582 137,341 68,316 7,942 5,951 920,132

10. Contingent liabilities

Claims have been made against the Department 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. The Department of Canadian Heritage would record an allowance 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. There are no claims for 2016-2017 ($0K in 2015-2016) and litigations for which the outcome is determinable and a reasonable estimate can be made by management at March 31, 2017.

Pursuant to s. 3(1) of the Canada Travelling Exhibition Indemnification Act (the "Act") the Minister of Canadian Heritage is authorized to enter into indemnification agreements with owners of objects or appurtenances on loan to travelling exhibitions in Canada. Under the Act, maximum levels of liability are established including: no more than $600M in respect of each travelling exhibition and; no more than $3,000M at any given time in respect of all travelling exhibitions. The Canada Travelling Exhibitions Indemnification Regulations set out specific requirements to be met when owners are seeking indemnification agreements with the Minister. The Regulations also set limitations on the scope of indemnity, establish deductibles, define maximums for and period of coverage, set requirements for condition reporting, outline a claims procedure and provide for dispute resolution, among other things.

11. Non-monetary transactions

During the year, the Department of Canadian Heritage entered into sponsorship agreements through which it received various goods or services. In exchange, the sponsors received various benefits, including exclusive marketing rights and visibility. These non-monetary transactions with unrelated parties were recorded equally in revenues and cost of operations. The estimated value of these transactions is $1.3 million ($1.5 million in 2016), which represents the fair value of the goods and services received.

12. Related party transactions

The Department of Canadian Heritage is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department of Canadian Heritage enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Department of Canadian Heritage has various agreements such as the one with Parks Canada for the provision of functional services related to the financial system. During the year, the Department of Canadian Heritage received common 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, the Department of Canadian Heritage received services without charge from certain common service organizations, related to accommodation, legal services, the employer’s contribution to the health and dental insurance plans and workers’ compensation coverage. These services provided without charge have been recorded in the Department of Canadian Heritage’s Statement of Operations and Departmental Net Financial Position as follows:

2017 2016
Employer’s contribution to the health and dental insurance plans 13,330 12,575
Accommodation 13,419 13,258
Legal services 1,195 1,136
Workers’ compensation 14 13
Total 27,958 26,982

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, are not included in the Department of Canadian Heritage’s Statement of Operations and Departmental Net Financial Position.

b. Other transactions with related parties (in thousands of dollars)

2017 2016
Accounts receivable – Other government departments and agencies 4,367 1,185
Accounts payable – Other government departments and agencies 2,474 1,396
Expenses – Other government departments and agencies 34,400 31,334
Revenues – Other government departments and agencies 3,032 2,667

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

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

The Government of Canada implemented salary payments in arrears in 2014-2015. 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.

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.

14. Transfer to / from other government departments and agencies

On November 4th, 2015, the Department of Citizenship and Immigration transferred responsibility for the Multiculturalism program to the Department of Canadian Heritage in accordance with Order in Council (P.C. 2015-1247), including stewardship responsibility for the operations, assets and liabilities related to the program. Accordingly, the Department of Citizenship and Immigration transferred assets and liabilities related to the Multiculturalism program to the Department of Canadian Heritage on March 31, 2017.

The impact on the financial statements are as follows (in thousands of dollars):

2017 2016
Assets:
Employee advances - 1
Total assets transferred - 1
Liabilities:
Accounts payable and accrued liabilities - 945
Vacation pay - 104
Employee future benefits (note 5) - 113
Total liabilities transferred - 1,162
Expenses:
Adjustment to the Statement of operations and departmental net financial position - 1,161

15. Segmented information

Presentation by segment is based on the Department of Canadian Heritage’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:

(in thousands of dollars) Sport Arts Cultural Industries Heritage Attachment to Canada Engagement and Community Participation Official Languages Multiculturalism for Newcomers and All Canadians  Internal Services Unallocated 2017 2016
Transfer payments
Non-profit organizations 169,748 164,956 157,332 15,654 100,450 33,119 72,329 7,373 - - 720,963 599,292
Other levels of government within Canada - 16,134 - 548 6,485 176 276,531 335 - - 300,208 279,607
Industry - - 113,808 - 5,606 - - - - - 119,414 113,915
Individuals 27,944 - 6 - 1,959 - - - - - 29,909 29,633
Other countries and international organizations - - 10,119 - 634 - - 43 - - 10,795 10,641
Total transfer payments 197,692 181,090 281,265 16,202 115,134 33,295 348,860 7,751 - - 1,181,289 1,033,089
Operating expenses
Salaries and employee benefits 10,325 12,872 24,782 12,568 21,887 11,595 14,985 2,173 63,212 - 174,399 180,601
Professional services 1,200 348 2,375 813 5,629 2,822 900 148 8,904 - 23,138 22,289
Accommodation 791 816 1,692 988 2,310 1,063 1,036 145 4,578 - 13,419 13,258
Information 64 19 204 20 5,857 569 63 31 1,517 - 8,342 7,693
Travel and relocation 488 225 491 217 757 194 325 89 384 - 3,170 2,499
Utilities, materials and supplies 399 122 278 800 1,249 1,750 369 9 1,737 - 6,714 5,151
Amortization  1 2 2 1,126 1,050 4 7 - 330 - 2,522 2,128
Freight and communications 73 23 47 49 125 44 72 0 147 - 581 753
Repairs and maintenance 5 2 4 176 288 25 6 0 546 - 1,052 1,003
Rentals 71 21 54 812 960 372 69 7 1,546 - 3,912 2,386
Loss on disposal of capital assets - - - - - - - - 2 - 2 -
Other operating expenses 303 218 430 80 605 715 341 0 55 - 2,747 1,313
Total operating expenses 13,722 14,666 30,360 17,647 40,715 19,154 18,172 2,602 82,960 - 239,998 239,072
Total expenses 211,413 195,756 311,625 33,849 155,850 52,449 367,032 10,353 82,960 - 1,421,287 1,272,161
Revenues
Revenue from the 1979 Federal-provincial Lottery agreement - - - - - - - - - 73,013 73,013 71,904
Miscellaneous revenues - 22 5,198 1 822 3 1 - - - 6,025 7,940
Sale of goods and services - - - 808 1,376 - - - 1,803 - 3,987 4,303
Revenues earned on behalf of Government - (22) (8) - (291) (3) (1) - (39) (73,013) (73,355) (72,213)
Total revenues - - 5,190 809 1,907 - - - 1,764 - 9,670 11,934
Total revenues - - 5,190 - 1,907 - - - 1,764 (73,013) (53,673) (48,036)
Net cost of operations before government funding and transfers 211,413 195,756 306,435 33,040 153,943 52,449 367,032 10,353 81,196 - 1,411,617 1,260,227
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