Financial statements - Canadian Forces Housing Agency Annual Report 2018-2019

Statement of management responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2019, and all information contained in these statements rests with the management of CFHA. These financial statements have been prepared by management in accordance with the accounting policies set out in Note 2 of the statements, on a basis consistent with that of the preceding year. 

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 fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the Agency's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada and included in the Department of National Defence (DND) Departmental Results Report is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislations, regulations, authorities and policies.

Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the Agency.

The CFHA financial statements have not been audited.

Approved by:

David Thompson
Chief Executive Officer
Canadian Forces Housing Agency

Anthony Soares, CPA, CA
A/General Manager
Finance, Procurement and Resource Management

Statement of financial position (unaudited)

As of March 31

(in thousands of dollars) 2019 2018
Assets    
Financial assets    
Accounts receivable (note 4) 73 101
Non-financial assets    
Tangible capital assets (note 5) 408,440 368,489
Total assets 408,513 368,590
Liabilities    
Accounts payable and accrued liabilities (note 7) 78,009 34,280
Vacation pay and compensatory leave 1,061 980
Employee future benefits (note 8) 956 999
Total liabilities 80,026 36,259
Equity of Canada 328,487 332,331
Total 408,513 368,590

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

Statement of operations (unaudited)

For the year ended March 31

(in thousands of dollars) 2019 2018
Operating expenses    
Maintenance and repair 61,051 55,991
Salaries and employee benefits 21,226 21,588
Professional and special services 12,877 13,786
Amortization (note 5) 11,043 9,654
Utilities, materials and supplies 7,344 6,655
Accommodation 4,767 4,964
Other services 1,515 1,618
Travel and relocation 750 1,025
Expenses related to tangible assets (note 5) 468 952
Equipment and other rentals 121 148
Loss on disposal   103
Communication 27 29
Advertising, printing and related services 13 19
Other 13 13
Bad debts (499) (4)
Total operating expenses 120,716 116,541
Revenues    
Shelter charges 95,593 94,480
Miscellaneous revenues (note 6) 6,522 6,140
Total revenues 102,115 100,620
Net cost of operations 18,610 15,921

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

The expenses related to tangible assets include those assets that were not capitalized because they were lower than the capitalization threshold established by the Department (refer to Note 2(h) of these financial statements).

Statement of equity of Canada (unaudited)

For the year ended March 31

(in thousands of dollars) 2019 2018
Equity of Canada, beginning of year 332,331 292,460
Net cost of Operations (18,602) (15,921)
Current funding used (note 3) 56,212 68,897
Change in net position in the Consolidated Revenue Fund (note 3) (43,217) 15,068
Services received without charge from other government departments (note 9) 1,763 1,964
Equity of Canada, end of year 328,487 332,331

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

Statement of cash flows (unaudited)

For the year ended March 31

(in thousands of dollars) 2019 2018
Operating activities    
Net cost of operations 18,602 15,921
Non-cash items    
Amortization of tangible capital assets (note 5) (11,043) (9,654)
Services provided without charge by other government departments (note 9) (1,763) (1,964)
Disposals and transfers to tangible capital assets   (103)
Variations in statement of financial position    
Increase (decrease) in accounts receivable (28) 28
(Increase) decrease in liabilities (43,767) (15,402)
Cash used by operating activities (37,999) (11,174)
Capital investment activities    
Acquisitions of tangible capital assets (note 5) 50,994 65,001
Cash used by capital investment activities 50,994 65,001
Net cash provided by Government of Canada 12,995 53,827

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

Notes to the financial statement (unaudited)

1. Authority and purpose

CFHA was established as a provisional special operating agency of DND in October 1995. In March 2004, it received permanent special operating agency status. DND is granted revenue spending authority from Parliament through the approval of an Appropriation Act. DND funds CFHA’s operating activities from vote-netted revenues generated by shelter charges collected from the housing portfolio and credited to the Defence appropriation. The capital investment program of the Agency is funded through departmental appropriations.

CFHA manages Crown-controlled residential accommodation assets for DND, to ensure that those assets, occupied or available to be occupied, are maintained to a suitable standard. CFHA also develops and implements plans to meet the future residential needs of members of the CAF.

2. Summary of significant accounting policies

The financial statements have been prepared in accordance with government accounting policies which are based on Canadian public sector accounting standards. Significant accounting policies are as follows:

(a) Net voting authority

CFHA receives authority to operate net voting from Parliament with the approval of an Appropriation Act. Net Voting is the authority to expend revenues generated by shelter charges to offset related expenditures.

The Agency also receives additional funding from Departmental appropriations to provide DND-directed activities.

(b) Net cash provided by Government of Canada

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

(c) Change in net position in the Consolidated Revenue Fund

The change in net position in the CRF is the difference between the net cash provided by Government and vote-netted revenues plus additional funding used in a year, excluding the amount of non-respendable revenue recorded by the Agency. It results from timing differences between when a transaction affects vote-netted revenues and when it is processed through the CRF.

(d) Revenues

(e) Expenses

Expenses are recorded on the accrual basis:

(f) Employee future benefits

i. Pension benefits

Eligible civilian employees participate in the Public Service Pension Plan (the Plan), a multi-employer plan administered by the Government of Canada. 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.

ii. Severance benefits

Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. 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.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits of termination from the public service.

(g) Accounts receivables

Receivables are stated at amounts expected to be ultimately realized; an allowance for doubtful accounts is made for receivables where recovery is considered uncertain. The allowance for doubtful accounts represents management’s best estimate of probable losses in receivables. The allowance is determined based on an analysis of historic loss experience and an assessment of current condition.

(h) Tangible capital assets

All tangible capital assets, having an initial cost of $30,000 or more are recorded at their acquisition cost.

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

Asset class Amortization period
Buildings (new construction) 40 years
Buildings (betterment) 20 years
Work in progress Once in service, in accordance with asset class

(i) Measurement uncertainty

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

(j) Remediation liabilities

Remediation liabilities are recorded as accrued liabilities to recognize the estimated costs related to the management and remediation of contaminated sites where the Agency is obligated, or likely to be obligated, to remediate the sites.

3. Reconciliation of current year funding used

(a) Reconciliation of net cost of operations to current year funding used

(in thousands of dollars) 2019 2018
Net cost of operations 18,602 15,921
Adjustments for items affecting net cost of operations but not affecting funding    
Amortization of tangible capital assets (note 5) (11,043) (9,654)
Vacation pay and compensatory leave (81) (69)
Employee severance benefits 43 (77)
Adjustment to previous year's accounts payable (53) (168)
Services provided without charge by other government departments (note 9) (1,763) (1,964)
Disposal and transfer of tangible capital assets   (103)
Other (486) 9
Total of adjustments for items affecting net cost of operations but not affecting funding 5,219 3,895
Adjustments for items not affecting net cost of operations but affecting funding    
Acquisitions of tangible capital assets (note 5) 50,994 65,001
Current year funding used 56,213 68,896

(b) Reconciliation of net cash provided by government to current year funding used

(in thousands of dollars) 2019 2018
Net cash provided by government 12,995 53,827
Revenue not available for spending    
Change in net position in the Consolidated Revenue Fund    
(Increase) decrease in accounts receivable and advances
28 (28)
(Decrease) increase in accounts payable, accrued liabilities and transfer payments payables 43,728 15,255
Adjustment to previous year's accounts payable (53) (168)
Other adjustments (486) 9
Total of change in net position in the Consolidated Revenue Fund 43,217 15,068
Current year funding used 56,212 68,896

4. Accounts receivable and advances

(in thousands of dollars) 2019 2018
Receivables from other federal government departments and agencies 9 6
Receivables from external parties 177 707
Gross accounts receivable 186 713
Less: allowance for doubtfull accounts on external receivables (113) (612)
Total 73 101

5. Tangible capital assets

Tangible capital assets
(in thousands of dollars) Opening balance Acquisitions Transfer Disposals Closing balance
Residential houses 255,380   25,622   281,002
Work in progress 181,051 50,994 (25,622)   206,423
Total tangible capital assets 436,431 50,994     487,425
Accumulated amortization
(in thousands of dollars) Opening balance Current year amortization Disposals and transfers Closing balance
Residential houses 67,941
11,043   78,984
Total accumulated amortization 67,941
11,043   78,984
Net book value
(in thousands of dollars) 2019 2018
Residential houses 202,018 187,439
Work in progress 206,423
181,050
Total net book value 408,441 368,489

Amortization expenses for the year ended March 31, 2018 is $11,042,650 (2018-2019 - $9,654,052)

The expenses related to tangible assets on the Statement of Operations include those assets that were not capitalized because they were lower than the $30,000 capitalization threshold.

CFHA-managed residential housing assets were transferred from DND at the time of CFHA formation with “0” cost value instead of a historical cost of the assets and fully amortized value because the residential housing portfolio was more than 50 years old and there was a lack of accurate cost information dating back to that time.

6. Miscellaneous Revenues

(in thousands of dollars) 2019 2018
Recovery of utility charges
4,903 4,715
Recovery from foreign military training 1,361 1,228
Others 258 196
Total 6,522 6,139

7. Accounts payable and accrued liabilities

(in thousands of dollars) 2019 2018
Federal government departments and agencies 2,768 2,075
External parties    
Accounts payable 72,359 30,073
Remediation liabilities 579 335
Other liabilities 2,303 1,797
Total accounts payable and accrued liabilities 78,009 34,280

Remediation liabilities – Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of environmentally contaminated sites where the Agency is obligated or likely to be obligated to incur such costs. Liability estimates are based on information known at a given point in time. These estimates are subject to variability due to: professional judgment involved in developing estimates, the possibility that additional volumes of contaminated media may be discovered upon implementation of the remedial action plan, and/or new technologies becoming available during the course of implementing the remedial action plan.

The Agency has identified eleven sites where it is obligated to remediate and has recorded a remediation liability of $579,200 for these sites.

8. Employee future benefits

(a) Pension benefits

The Agency’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/Quebec 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 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 2018-2019 expense amounts to $1,958,307 ($1,814K in 2016-2017). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-2018) the employee contributions and, for Group 2 members, approximately 1.00 time (1.00 time in 2017-2018) the employee contributions.

(in thousands of dollars) 2019 2018
Pension expense 1,958 1,814

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

(in thousands of dollars) 2019 2018
Accrued future benefit obligation, beginning of year 999 922
Expense for the year 89 211
Benefits paid during the year (132) (134)
Accrued future benefit obligation, end of year 956 999

9. Related party transactions

The Agency is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms.

(a) Services received without charge

Also, during the year, the Department received without charge from another department, the employer’s contribution to the health and dental insurance plans. These services without charge have been recognized in the Agency’s Statement of Operations as follows:

(in thousands of dollars) 2019 2018
Employer's contributions to the health and dental insurance plans paid by TBS 1,763 1,964
Total 1,763 1,964

(b) Payable outstanding at the year end with related parties

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The cost of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included as an expense in the Agency’s Statement of Operations.

(in thousands of dollars) 2019 2018
Accounts payable to other government department and agencies 2,768 2,075
Total 2,768 2,075

10. Contractual obligations

The nature of the Agency’s activities results in some large multi-year contracts and obligations whereby the Agency will be obligated to make future payments when services and/or goods are received.

Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024 and thereafter Total
Project 46,948 6,782 - - - 53,730
Operating lease 4,409 779 867 652 4,369 11,076
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