Consolidated Financial Statements (Unaudited) for the year ended March 31, 2017

From Employment and Social Development Canada

Official title: Employment and Social Development Canada 2016–2017 Departmental Results Report

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 Employment and Social Development Canada (ESDC). 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 ESDC’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in ESDC’s Departmental Results Report (DRR), is consistent with these consolidated financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) 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 ESDC and through conducting an annual risk based assessment of the effectiveness of the system of ICFR.

The system of ICFR 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 ICFR for the year ended September 30, 2016 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

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

The consolidated financial statements of ESDC have not been audited.

Signed in Gatineau, Canada on August 29, 2017 by:

  • Mark Perlman, CPA, CMA
    Chief Financial Officer
    Employment and Social Development Canada
  • Louise Levonian
    Deputy Minister
    Employment and Social Development Canada

Consolidated statement of financial position (unaudited) as at March 31

Table - Consolidated statement of financial position (unaudited) as at March 31 (in thousands of dollars)
Details 2017 2016
Financial assets
Accounts receivable and advances (note 4) $4,319,773 $4,635,457
Loans receivable (note 5) 15,271,548 14,769,792
Total gross financial assets 19,591,321 19,405,249
Financial assets held on behalf of Government
Loans receivable (note 5) (167,721) (180,287)
Total net financial assets 19,423,600 19,224,962
Liabilities
Due to Consolidated Revenue Fund 480,796 552,326
Due to Canada Pension Plan (note 6) 105,508 34,729
Accounts payable and accrued liabilities (note 7) 1,824,340 1,705,498
Vacation pay and compensatory leave 72,209 62,162
Designated Amount Fund - Trust Account (note 8) 82,397 82,151
Government Annuities Account  (note 9) 120,487 133,820
Employee future benefits (note 10) 73,353 94,163
Total net liabilities 2,759,090 2,664,849
Departmental net financial asset 16,664,510 16,560,113
Non-financial assets
Prepaid expenses 9,001 7,446
Tangible capital assets (note 11) 237,383 270,476
Total non-financial assets 246,384 277,922
Departmental net financial position (note 12) $16,910,894 $16,838,035

Contractual obligations (note 14)

Contingent liabilities (note 15)

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

Signed in Gatineau, Canada on August 29, 2017 by:

  • Mark Perlman, CPA, CMA
    Chief Financial Officer
    Employment and Social Development Canada   
  • Louise Levonian
    Deputy Minister
    Employment and Social Development Canada

Consolidated statement of operations and departmental net financial position (unaudited) for the year ended March 31

Table - Consolidated statement of operations and departmental net financial position (unaudited) for the year ended March 31 (in thousands of dollars)
Details 2017 Planned results 2017 2016
Expenses
Income Security $49,183,500 $49,127,488 $46,302,293
Skills and Employment 22,547,272 23,781,831 22,162,481
Learning 2,917,081 3,072,847 2,593,769
Social Development 7,922,733 2,234,791 7,728,867
Internal Services 891,300 858,226 928,560
Delivery of Services for Other Government of Canada Programs 167,650 137,432 143,086
Labour 181,522 135,843 132,295
Service Network Supporting Government Departments 74,242 67,099 68,249
Expenses incurred on behalf of Government (44,798) (33,570) (53,093)
Total expenses 83,840,502 79,381,987 80,006,507
Revenues
Employment Insurance (note 12) 22,767,200 22,603,337 23,586,111
Interest on loans receivable 709,488 662,360 634,874
Recovery of CPP administration costs 273,086 327,248 316,230
Recovery of Passport service delivery costs 206,378 172,454 176,016
Other 61,768 62,512 66,594
Revenues earned on behalf of Government (809,460) (770,734) (751,443)
Total revenues 23,208,460 23,057,177 24,028,382
Net cost of operations before government funding and transfers 60,632,042 56,324,810 55,978,125
Government funding and transfers
Net cash provided by Government 56,261,351 58,523,743
Change in due to the Consolidated Revenue Fund 71,530  (517,224)
Services provided without charge by other government departments (note 16) 64,861 53,291
Transfer of the transition payments for  implementing salary payments in arrears (52) (527)
Transfer of assets to other government departments (21) N/A
Net revenue of operations after government funding and transfers 72,859 2,081,158
Departmental net financial position - Beginning of year 16,838,035 14,756,877
Departmental net financial position - End of year $16,910,894 $16,838,035

Segmented information (note 17)

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

Consolidated statement of change in departmental net financial asset (unaudited) for the year ended March 31

Table - Consolidated statement of change in departmental net financial asset (unaudited) for the year ended March 31 (in thousands of dollars)
Details 2017 2016
 Net revenue of operations after government funding and transfers $72,859 $2,081,158
Change due to tangible capital assets
Acquisition of tangible capital assets (41,879) (48,667)
Amortization of tangible capital assets 73,587 74,723
Proceeds from disposal of tangible capital assets 128 70    
Net loss on disposal of tangible capital assets including adjustments 1,236 5,631
Transfer to other government departments 21 N/A 
Total change due to tangible capital assets 33,093 31,757
Change due to prepaid expenses (1,555) (5,478)
Net increase in departmental net financial asset 104,397 2,107,437
Departmental net financial assets - Beginning of year 16,560,113 14,452,676
Departmental net financial assets - End of year $16,664,510 $16,560,113

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

Consolidated statement of cash flow (unaudited) for the year ended March 31

Table - Consolidated statement of cash flow (unaudited) for the year ended March 31 (in thousands of dollars)
Details 2017 2016
Operating activities
Net cost of operations before government funding and transfers $56,324,810 $55,978,125
Non-cash items:
Amortization of tangible capital assets (note 11) (73,587) (74,723)
Loss on disposal of tangible capital assets including adjustments (1,236) (5,631)
Services provided without charge by other government departments (note 16) (64,861) (53,291)
Transition payments for implementation salary payments in arrears 52 527
Variations in statement of financial position
Increase (decrease) in accounts receivable and advances (315,684) 278,916
Increase in loans receivable 514,322 703,094
Increase in prepaid expenses 1,555 5,478
Decrease (increase) in due to Canada Pension Plan (70,779) 177,331
Decrease (increase) in accounts payable and accrued liabilities (118,842) 1,230,784
Increase in vacation pay and compensatory leave (10,047) -7,789
Decrease (increase) in the designated amount fund - Trust Account (246) 219,827
Decrease in Government Annuities Account 13,333 15,778
Decrease in employee future benefits 20,810 6,720
Cash used in operating activities 56,219,600 58,475,146
Capital investing activities
Acquisitions of tangible capital assets (note 11) 41,879 48,667
Proceeds from disposal of tangible capital assets (128) (70)
Cash used in capital investing activities 41,751 48,597
Net cash provided by Government of Canada  $56,261,351 $58,523,743

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

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

1. Authority and objectives

Employment and Social Development Canada (ESDC) is a Department in the core public administration.  ESDC is a department named in Schedule I of the Financial Administration Act and reports to Parliament through the Ministers responsible for Employment and Social Development (ESDC).

The legislative mandate of ESDC is to improve the standard of living and quality of life of all Canadians by promoting a highly skilled and mobile workforce and an efficient and inclusive labour market, as well as to promote social well-being and income security.

Acts and Regulations for which ESDC Ministers are responsible include the: Department of Employment and Social Development Act, Old Age Security Act, Employment Insurance Act, Canada Pension Plan, Canada Student Financial Assistance Act, Canada Student Loans Act, Universal Child Care Benefit Act, Canada Disability Savings Act, Canada Education Savings Act, Labour Adjustment Benefits Act, Government Annuities Act, Government Annuities Improvement Act, Civil Service Insurance Act, Public Pensions Reporting Act, Apprentice Loans Act, Federal-Provincial Fiscal Arrangements Act, Canada Labour Code, Government Employees Compensation Act and, where applicable, related Regulations.

Employment and Social Development Canada achieves its objectives under eight major programs:

Income Security

This program ensures that Canadians are provided with retirement pensions, survivor pensions, disability benefits and benefits for children through the Old Age Security (OAS) program, the Canada Pension Plan, the Canada Disability Savings Program and the National Child Benefit program.

Skills and Employment

This program is intended to ensure that Canadian labour market participants are able to access the supports that they need to enter or reposition themselves in the labour market so that they can contribute to economic growth through full labour market participation. Initiatives in this program contribute to the common overall objectives of promoting skills development, enhancing labour market participation and ensuring labour market efficiency.

Learning

This program helps Canadians participate in post-secondary education to acquire the skills and credentials that enable them to improve their labour market outcomes and adapt to changing labour market conditions. It reduces barriers to education by providing financial assistance to students and apprentices as well as incentives for families to save for a child's post-secondary education.

It also provides information and awareness about opportunities to acquire education and skills. The program contributes to the inclusiveness of the workforce by giving Canadians with the required academic abilities a more equal opportunity to participate in post-secondary education. The program is delivered with the provinces and territories, a third-party service provider, the voluntary sector, financial institutions and other key stakeholders to help Canadians pursue post-secondary education.

Social Development

This program supports programs for the homeless or those individuals at risk of homelessness, as well as programs for children, families, seniors, communities and persons with disabilities. It provides these groups with the knowledge, information and opportunities to move forward with their own solutions to social and economic challenges.

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 activitites and resources that apply across an organization, and not those provided to a specific program. The groups of activities are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; and Acquisition Services.

Delivery of Services for Other Government of Canada Programs

This program provides service delivery, oversight and monitoring on behalf of other government department programs through service delivery agreements. It provides Canadians access to a range of Government of Canada programs, benefits and services in person, by phone, by mail and over the Internet through the provision of basic and detailed program and service information; application intake and review for completeness; client authentication and validation of identity documents; quick and direct access to specialized agents within the other department; and provision of space in the service delivery network for other departments. It enables a move from department and program siloes to the achievement of a seamless service delivery network, resulting in timelier, accurate and cost-effective service delivery to Canadians.

Labour

This program seeks to promote and sustain stable industrial relations and safe, fair, healthy, equitable and productive workplaces in the federal jurisdiction (interprovincial transportation, post office and courier companies, telecommunications, banking, grain handling, nuclear facilities, federal Crown corporations, companies that have contracts with the federal government and Indigenous governments and their employees). It develops labour legislation and regulations to achieve an effective balance between workers’ and employers’ rights and responsibilities. The program ensures that workplaces under the federal jurisdiction respect the rights and obligations established under labour and employment equity legislation. The program also manages Canada’s international and intergovernmental labour affairs, as well as Indigenous labour affairs responsibilities.

Service Network Supporting Government Departments

This program supports Government of Canada programs by ensuring that Canadians have the information necessary to make informed choices about available programs and services, and the tools to access them, while supporting migration to preferred service channels. Canadians are able to access information about ESDC and other Government of Canada programs and services in the most accessible and convenient way, have their questions answered quickly and accurately, and receive or are directed to the information or service they need. Under this program, information and services are delivered to Canadians through the Internet, the 1 800 O-Canada and its customized telephone services as well as through a network of in-person points of service.

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:

(a) Parliamentary authorities – ESDC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to ESDC 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 2016-2017 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 Financial Asset because these amounts were not included in the 2016-2017 Report on Plans and Priorities.

(b) Consolidation – These consolidated financial statements include the transactions of the Employment Insurance Operating (EIO) Account, a consolidated specified purpose account which includes revenues credited and expenses charged under the Employment Insurance Act and for which the Deputy Minister as Chairperson of the Canada Employment Insurance Commission is accountable. The accounts of the EIO Account have been consolidated with those of ESDC, and all inter-organizational balances and transactions have been eliminated.

The Canada Pension Plan is excluded from ESDC's reporting entity because changes to the CPP require the agreement of two thirds of participating provinces and it is therefore not controlled by the Government.

(c) Net cash provided by Government – ESDC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by ESDC is deposited to the CRF, and all cash disbursements made by ESDC 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 to or due from CRF – These amounts 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 to the CRF represent the net amount of cash that have been credited to authorities used, but were not collected and deposited to the CRF at year-end.

(e)  Revenues – Revenues are recorded on the accrual basis:

  • Employment Insurance (EI) premiums are recognized as revenue in the period in which they are earned, when workers, through their employment, generate these premiums and the related employer's contribution. Premiums earned in the period are measured from amounts assessed by the Canada Revenue Agency (CRA) and from estimates of amounts not assessed. Premium revenue also includes adjustments between actual and estimated premiums of previous years.
  • Interest revenues on loans receivable are recognized in the year they are earned. Interest revenues are not recorded on impaired loans.
  • Recoveries of CPP administration costs are recognized based on the 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 ESDC's liabilities. While the Deputy Minister is expected to maintain accounting control, she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(f)   Expenses – Expenses are recorded on an accrual basis:

  • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
  • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  • Services provided without charge by other government departments for employer contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.
  • The expenses incurred on behalf of Government are linked to the assets held on behalf of Government. As a result, these expenses are considered to be incurred on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross expenses.

(g)  Employee future benefits:

  • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. ESDC’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. ESDC'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.

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

(i) Loans receivable – Canada Student Loans (CSL) and Canada Apprentice Loans (CAL) are recorded at original cost less reimbursements, forgiveness, write-offs and valuation allowances. The allowances for bad debts and Repayment Assistance Plan (RAP) for direct loans of CSL and for CAL are calculated based on rates determined according to an actuarial estimate and as per historical collection rates for guaranteed and risk-shared loans of CSL.

(j) 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 consolidated financial statements.

(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. ESDC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian 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 years
Computer hardware 5 years
Computer software 3 years - Purchased
5 years - Developed in-house
Other equipment and furniture 5 years
Vehicles 5 years
Leasehold improvements Lesser of the remaining term of lease or useful life of the improvement
10 years - Service delivery space
15 years - Office space

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.

(l) 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 the determination of part of the EI premiums, the allowances for doubtful accounts, the OAS and EI benefit repayments, the liability for employee future benefits, the recovery of CPP administration costs, the accrued liabilities, the useful life of tangible capital assets, the liability of the Government Annuities Account, the estimated overpayments and underpayments of benefits disclosed in note 13 and the contingent 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.

3. Parliamentary authorities

ESDC 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. Furthermore, as a consolidated specified purpose account, the EIO Account expenses and revenues recognized in ESDC’s Consolidated Statement of Operations and Departmental Net Financial Position do not affect parliamentary authorities. Accordingly, ESDC 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)

Details 2017 2016
Net cost of operations before government funding and transfers $56,324,810 $55,978,125
Adjustments for items affecting net cost of operations but not affecting authorities:
Bad debt expense (excluding EI bad debts) -102,850 -133,000
Refund of programs and prior years' expenditures 127,069 71,087
Revenue not available for spending 104,918 109,020
Allowance expense for the Repayment Assistance Plan program of Canada Student Loans -305,042 -231,010
Amortization of tangible capital assets (note 11) -73,587 -74,723
Decrease in employee future benefits 20,810 6,720
Net EIO Account transactions (note 12) 84,426 2,393,223
Decrease (increase) in accounts payable and accrued liabilities not charged to authorities -70,750 1,265,073
Services provided without charge by other government departments (note 16) -64,861 -53,291
Other adjustments -31,931 -16,237
Total items affecting net cost of operations but not affecting authorities -311,798 3,336,862
Adjustments for items not affecting net cost of operations but affecting authorities:
Net Canada Student Loans disbursed 576,127 750,686
Net Canada Apprentice Loans disbursed 63,095 66,463
Canada Student Loans debt write-offs 174,802 172,045
Acquisition of tangible capital assets (note 11) 41,879 48,667
Canada Student Loans forgiveness 67,923 53,419
Transition payments for implementing salary payments in arrears 52 527
Other adjustments 42,949 8,382
Total items not affecting net cost of operations but affecting authorities 966,827 1,100,189
Current year authorities used $56,979,839 $60,415,176

(b) Authorities provided and used (in thousands of dollars)

Details 2017 2016
Authorities provided:
Vote 1 - Operating expenditures $732,183 $647,795
Vote 5 - Grants and contributions 2,023,569 1,717,778
Vote 7 - Debt write-offs 178,370 176,022
Statutory amounts 54,242,687 58,056,287
Less:
Authorities available for future years (1,825) (1,310)
Lapsed authorities:
Operating expenditures (46,825) (19,084)
Grants and contributions (144,752) (158,100)
Debt write-offs (3,568) (3,915)
Statutory amounts N/A (297)
Current year authorities used $56,979,839 $60,415,176

4. Accounts receivable and advances

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

Table - Accounts receivable and advances (in thousands of dollars)
Details 2017 2016
Receivables - Other government departments and agencies
EI premiums receivable from CRA $1,559,492 $1,994,721
EI and OAS benefit repayments receivable from CRA 1,870,320 1,892,053
Other 86,719 55,462
Subtotal of receivable - Other government departments and agencies 3,516,531 3,942,236
Receivables and advances - External parties
EI and OAS overpayments and penalties to be recovered 1,067,052 1,014,875
Other 412,498 381,682
Subtotal of receivables and advances - External parties 1,479,550 1,396,557
Subtotal accounts receivable and advances 4,996,081 5,338,793
Allowance for doubtful accounts on receivables from external parties -676,308 -703,336
Net accounts receivable and advances $4,319,773 $4,635,457

5. Loans receivable

Table – Loans receivable - Canada Student Loans (in thousands of dollars)
Details Direct loans Guaranteed  loans Risk-shared loans Apprentice loans 2017 Total 2016 Total
Principal
Gross loans - Beginning of year $18,091,457 $136,170 $68,354 $85,272 $18,381,253 $17,626,379
New loans and repurchases 2,719,464 4,891 3,079 67,963 2,795,397 2,874,744
Reimbursements (1,901,895) (4,568) (2,613) (4,868) (1,913,944) (1,849,496)
Loan write-offs and forgiveness (241,442) (27,798) (9,969) N/A (279,209) (270,374)
Gross loans - End of year 18,667,584 108,695 58,851 148,367 18,983,497 18,381,253
Unamortized discount N/A N/A (52,008) N/A (52,008) (61,085)
Allowance for bad debts (3,698,656) (96,863) (2,008) (13,468) (3,810,995) (3,704,707)
Net loans 14,968,928 11,832 4,835 134,899 15,120,494 14,615,461
Interest
Gross accrued interest - Beginning of year 349,496 47,567 24,711 N/A 421,774 446,698
New interest 570,559 11,499 4,977 166 587,201 558,068
Reimbursements (345,406) (4,074) (2,583) (66) (352,129) (349,197)
Interest write-offs and forgiveness (216,086) (13,519) (5,797) (1) (235,403) (233,795)
Gross accrued interest - End of year 358,563 41,473 21,308 99 421,443 421,774
Unamortized discount N/A N/A (20,083) N/A (20,083 (23,336)
Allowance for bad debts (214,420) (35,513) (373) N/A (250,306 (244,107)
Net accrued interest 144,143 5,960 852 99 151,054 154,331
Total net loans and net accrued interest 15,113,071 17,792 5,687 134,998 15,271,548 14,769,792
Loans and accrued interest held on behalf of Government (144,143) (17,792) (5,687) (99) (167,721) (180,287)
Total loans receivable $14,968,928 N/A N/A $134,899 $15,103,827 $14,589,505

The breakdown of the gross loans is as follows:

Table - Loans receivable - Canada Student Loans - Gross loans breakdown (in thousands of dollars)
Details Direct loans Guaranteed loans Risk-shared loans Apprentice loans 2017 Total 2016 Total
Loans in good standing $18,362,393 $87,417 $46,600 $148,367 $18,644,777 $18,055,066
Impaired Loans 305,191 21,278 12,251 N/A 338,720 326,187
Gross loans $18,667,584 $108,695 $58,851 $148,367 $18,983,497 $18,381,253

Canada Student Loans

Since August 1, 2000, Canada Student Loans are issued under the Direct Loan Regime. Before this date, the loans were issued under the Guaranteed Loan Regime (1964-1995) or under the Risk-Shared Loan Regime (1995-2000). Direct Loans issued on or after August 1, 2000 are administered under the authority of section 6.1 of the Canada Student Financial Assistance Act, which authorizes the Minister of Employment, Workforce Development and Labour to enter into loan agreements directly with any qualifying students. Guaranteed Loans provided by financial institutions between 1964 and August 1995, under the Canada Student Loans Act, are fully guaranteed by ESDC to the lenders. Risk-shared Loans issued prior to August 1, 2000 and on or after August 1, 1995 are amounts related to student loans subrogated to the Crown under the authority of the Canada Student Financial Assistance Act.

An allowance is recorded to provide for bad debts and Repayment Assistance Plan (RAP) for Canada Student Loans. The allowance for Direct Loans is determined according to an actuarial estimate provided by the Office of the Superintendent of Financial Institutions (Chief Actuary). Based on projected defaulted loans and recovery rates, the Chief Actuary establishes the allowance rates to be applied to the outstanding balances of the portfolio according to the status of the loans.  For the year ended March 31, 2017, the bad debt and RAP allowance rates on Direct Loans were established as follow:

Status of the loans Allowance rate as at March 31, 2017 Allowance rate as at March 31, 2016
Bad debt allowance
Loans in-study 7.8% 8.5%
Loans in-repayment 3.8% 5.1%
Loans in-default 79.5% 78.9%
RAP allowance
Loans in-study 4.7% 4.2%
Loans in-repayment 1.0% 0.95%
Loans in RAP 20.5% 17.9%

Source: Actuarial Report on the Canada Student Loans Program, as at July 31, 2016.

The total amount of direct loans issued under the authority of the Canada Student Financial Assistance Act and outstanding risk-shared loans bought-back by ESDC may not exceed $24 billion. The total amount of direct loans and outstanding risk-shared loans as at March 31, 2017 amounted to $18,726.4 million ($18,159.8 million in 2016).

Canada Apprentice Loans

Canada Apprentice Loans (CAL) are administrated under the authority of section 4 of the Apprentice Loans Act which came into effect on January 2, 2015. The Minister of Employment, Workforce Development and Labour is authorized to enter into a loan agreement directly with any eligible apprentice.

An allowance is recorded to provide for CAL bad debts and Repayment Assistance Plan (RAP). The allowance is determined according to an actuarial estimate provided by the Chief Actuary. Based on projected defaulted loans and recovery rate, the Chief Actuary establishes the allowance rates to be applied to the outstanding balances of the portfolio according to the status of the loans. For the year ended March 31, 2017, the bad debt allowance rate was established at 6.12% and the RAP allowance rate was established at 2.97%, resulting in an allowance of $13.5 million. For the year ended March 31, 2016, the bad debt allowance rate was established at 12.67% for the loans in-training, resulting in an allowance of $10.8 million.

The total amount of CAL issued under the authority of Apprentice Loans Act may not exceed $1.5 billion. The total amount of outstanding apprentice loans as at March 31, 2017 amounted to $148.4 million ($85.3 million in 2016).

Interest and repayment terms

Under these two programs, no security is received from the borrowers and the loans bear interest at either a variable rate (prime rate + 2.5%) or a fixed rate (prime rate + 5.0%). Borrowers are not required to pay interest on their loans while they are still studying or enrolled in their apprentice program.

Borrowers having difficulty repaying their loans may be eligible for assistance under the Repayment Assistance Plan. The typical repayment period is 10 years, with a maximum period of 15 years for borrowers that are eligible if their affordable payment, which is based on family income and family size, is less than their required monthly payment. Depending on their regime, borrowers may also benefit from another type of loan forgiveness program in the event of severe permanent disability or death.

When ESDC no longer has reasonable assurance of recovering the full amount of a loan at the expected date, the loan becomes impaired. Interest revenue is not recorded on impaired loans. Loans that are considered impaired are eventually subject to the write-off process. Subsequent recoveries on these loans are recorded as a reduction of the expense in the consolidated statement of operations and departmental net financial position. For the year ended March 31, 2017, the total bad debt expense on loans receivable amounted to $82.0 million ($120.1 million in 2016).

6. Due to Canada Pension Plan

The Canada Pension Plan (CPP) is a federal/provincial plan established by an Act of Parliament in 1965.  The CPP is administered by the Government of Canada and the participating provinces; therefore, it is excluded from ESDC's reporting entity.

In accordance with the Canada Pension Plan, the financial activities of the CPP are recorded in the CPP Account.  CPP’s revenues and expenses, such as contributions, interests, investment income or loss from the CPP Investment Board, pension benefits and operating expenses, are reported as increases and decreases to the liability and are reported separately  in the CPP consolidated financial statements.  The CPP Account also records the amounts transferred to or received from the CPP Investment Board.

Table - Due to Canada Pension Plan (in thousands of dollars)
Details 2017 2016
Due to Canada Pension Plan - Beginning of year $34,729 $212,060
Receipts and other credits 78,074,187 74,740,072
Payments and other charges (78,003,408) (74,917,403)
Due to Canada Pension Plan - End of year $105,508 $34,729

7. Accounts payable and accrued liabilities

The following table presents details of ESDC’s accounts payable and accrued liabilities:

Table - Accounts payable and accrued liabilities (in thousands of dollars)
Details 2017 2016
Accounts payable -  Other government departments and agencies
Income taxes payable to CRA $221,586 $231,303
Universal Child Care Benefits payable to CRA 118,339 126,464
Other 31,088 36,456
Subtotal of  accounts payable - other government departments and agencies 371,013 394,223
Accounts payable -  External parties
EI benefits payable to individuals 738,921 676,547
OAS and Guaranteed Income Supplement benefits payable to individuals 61,074 83,668
Other 241,143 227,072
Subtotal of  accounts payable - external parties 1,041,138 987,287
Accrued liabilities 171,305 119,562
Allowance for alternative payments for non-participating provinces to Canada Student and Apprentice Loans 240,884 204,426
Total accounts payable and accrued liabilities $1,824,340 $1,705,498

8. Designated amount fund Trust account

This account was established pursuant to section 21 of the Financial Administration Act, to record amounts received and paid under Article 5 of the Indian Residential Schools Settlement Agreement. It was established on September 19, 2007, and provides for the payments referred to as Common Experience Payments (CEP) to eligible former students of recognized Indian Residential Schools and personal credits for educational programs and services to CEP recipients or to certain family members. The account is credited with interest, pursuant to section 21(2) of the Financial Administration Act. The Designated Amount Fund is co-administered by the Trustee, the Government of Canada, represented jointly by the Minister of Families, Children and Social Development and the Minister of Indigenous and Northern Affairs.

Table - Designated Amount Fund - Trust Account (in thousands of dollars)
Details 2017 2016
Designated Amount Fund - Beginning of year $82,151 $301,978
Interest credited to the Trust account 371 897
Payments and other charges (125) (220,724)
Designated Amount Fund - End of year $82,397 $82,151

9. Government annuities account

ESDC administers the Government Annuities Account. This account was established by the Government Annuities Act, and modified by the Government Annuities Improvement Act, which discontinued sales of annuities in 1975. The account is valued on an actuarial basis each year, with the deficit or surplus charged or credited to the Consolidated Revenue Fund.

The purpose of the Government Annuities Act was to assist Canadians to provide for their later years through the purchase of Government annuities.

Receipts and other credits consist of premiums received, funds reclaimed from the Consolidated Revenue Fund for previously untraceable annuitants, earned interest and any transfer needed to cover the actuarial deficit. Payments and other charges represent matured annuities, the commuted value of death benefits, premium refunds and withdrawals, as well as actuarial surpluses and unclaimed annuities. The amounts of unclaimed annuities related to untraceable annuitants are transferred to non-tax revenues.

Table - Government Annuities Account (in thousands of dollars)
Details 2017 2016
Government Annuities Account - Beginning of year $133,820 $149,598
Receipts and other credits 8,735 9,850
Payments and other charges (22,068) (25,628)
Government Annuities Account - End of year $120,487 $133,820

10. Employee future benefits

(a) Pension benefits: ESDC’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 Plans benefits and they are indexed to inflation.

Both the employees and ESDC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada's 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 2017 expense amounted to $159.6 million ($160.1 million in 2016). For group 1 members, the expense represents approximately 1.12 times (1.25 times in 2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2016) the employee contributions.

ESDC'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: 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, all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

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

Table - Employee future benefits - Severance benefits (in thousands of dollars)
Details 2017 2016
Accrued benefit obligation - Beginning of year $94,163 $100,883
Expense for the year (17,507) 9,760
Benefits paid during the year (3,303) (16,480)
Accrued benefit obligation - End of year $73,353 $94,163

11. Tangible capital assets

Table - Tangible capital assets - Cost (in thousands of dollars)
Class Cost Accumulated amortization Net book value
Opening
balance
Acquisitions AdjustmentsFootnote 1 Disposals and
write-offs
Closing
balance
Opening
balance
Amortization Adjustments Disposals and
write-offs
Closing
balance
2017 2016
Machinery & equipment $1,590 $15 N/A N/A $1,605 $1,468 $62 N/A N/A $1,530 $75 $122
Computer hardware        98 43 N/A N/A 141 81 5 N/A N/A 86 55 17
Computer software        437,408 314 33,707 (3,179) 468,250 269,255 55,212 N/A (2,585) 321,882 146,368 168,153
Other equipment & furniture 4,908 N/A N/A (282) 4,626 3,687 509 N/A (282) 3,914 712 1,221
Vehicles        2,946 343 (36) (519) 2,734 2,211 191 (15) (517) 1,870 864 735
Assets under construction 22,512 41,164 (37,251) (767) 25,658 N/A N/A N/A N/A N/A 25,658 22,512
Leasehold improvements 309,731 N/A 3,543 N/A 313,274 232,015 17,608 N/A N/A 249,623 63,651 77,716
Total $779,193 $41,879 $(37) $(4,747) $816,288 $508,717 $73,587 $(15) $(3,384) $578,905 $237,383 $270,476

Transfers of tangible capital assets to other departments amounted to a net book value of $20,578 ($35,857 of cost less $15,279 of accumulated amortization). These transfers are included in the adjustments columns.

12. Departmental net financial position

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

The Employment Insurance Operating (EIO) Account was established in the accounts of Canada by the Employment Insurance Act (the Act). All amounts received under the Act are deposited in the Consolidated Revenue Fund (CRF) and credited to the EIO Account. The benefits and the costs of administration of the Act are paid out of the CRF and charged to the EIO Account.

Table - Departmental net financial position - EIO Account - Restricted (in thousands of dollars)
Details 2017 2016
Balance - Beginning of year - Restricted $2,914,929 $521,706
Revenues
EI premiums 22,537,353 23,491,100
Penalties and interest on EI receivables 65,984 95,011
Subtotal of revenues 22,603,337 23,586,111
Expenses
Benefits and support measures Income benefits 18,794,322 17,632,921
Transfers to provinces and territories related to Labour Market Development Agreements 2,067,435 1,938,683
Support measures 112,490 111,660
Benefits repayments from higher income claimants (263,109) (264,639)
Administration costs 1,775,852 1,653,336
Bad debts 31,921 120,927
Subtotal of expenses 22,518,911 21,192,888
Net EIO Account transactions 84,426 2,393,223
Balance - End of year - Restricted 2,999,355 2,914,929
Unrestricted 13,911,539 13,923,106
Departmental net financial position - End of year $16,910,894 $16,838,035

13. Estimated overpayments and underpayments of benefits

Given the large volume of EI claims and OAS related applications (OAS, Guaranteed Income Supplement and Allowance) and the need for prompt service, ESDC applies a risk-based approach to its control procedures. The verification of EI claims and OAS related applications is conducted both prior and after the payment of benefits, using a combination of up-front and automated control measures and post-payment verification activities.

In order to measure the accuracy of EI and OAS related benefit payments, respective programs were put in place to establish an annual payment accuracy rate and estimate, through statistical extrapolation, the most likely value of incorrect benefit payments. For benefits paid during the twelve months ended March 31, 2017, these undetected overpayments and underpayments are estimated to be $655.7 million ($863.7 million as at March 31, 2016) and $219.1 million ($232.4 million as at March 31, 2016) respectively for EI claims and $1,333.7 million ($591.4 million as at March 31, 2016) and $54.2 million ($40.3 million as at March 31, 2016) respectively for OAS related applications. The annual payment accuracy rate and estimated value of errors are used by the EI and OAS related programs to assess the quality and accuracy of decisions and the need, if any, to improve its systems and practices of processing claims and applications.

The overpayments established during the year, as indicated in Note 4, are not directly linked to the above noted estimated overpayments and underpayments of benefits for the same period.

14. Contractual obligations

The nature of ESDC’s activities can result in some large multi-year contracts and obligations whereby ESDC 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:

Table - Contractual obligations (in thousands of dollars)
Details 2018 2019 2020 2021 2022 and thereafter Total
Labour Market Development Agreements 2,141,756 N/A N/A N/A N/A $2,141,756
Other transfer payments 1,399,602 665,582 527,332 1,160 42 $2,593,718
Operating and Maintenance 46,531 N/A N/A N/A N/A 46,531
Total 3,587,889 665,582 527,332 1,160 42 $4,782,005

Labour Market Development Agreements with eight of the provinces and territories require a two year notice for cancellation of the agreements. The obligations for 2019 cannot be reasonably estimated.

15. Contingent liabilities

Claims, litigations and grievances have been made against ESDC 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. ESDC has recorded 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.

Beginning in January 2013, ten proposed class action claims were filed with the Federal Court, Ontario Superior Court, Alberta Court of Queen’s Bench, Manitoba Queen’s Bench, Saskatchewan Queen’s Bench and the Supreme Court of British Columbia against the Attorney General of Canada or Her Majesty the Queen. The claimants are claiming damages as a result of a privacy incident involving an external hard drive from an ESDC office, which may contain the personal information of 583,000 Canada Student Loans Program participants. Following decisions by the Federal Court and the Federal Court of Appeal, the class action was certified on the following claims: breach of contract, breach of warranty, intrusion upon seclusion, negligence and breach of confidence. The outcome of this claim is not determinable at this time. One of these plaintiffs requested consent to discontinue their action without costs. The Attorney General of Canada was instructed to accept this request.

On February 1, 2013, a proposed class action claim was filed with the Federal Court against Her Majesty the Queen. The claimants are claiming damages as a result of a privacy incident involving a memory key, which contains the personal information of approximately 5,045 Canadians. The claimants are alleging breach of contract, breach of warranty, negligence, breach of confidence and intrusion upon seclusion. The outcome of this claim is not determinable at this time.

16. Related party transactions

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

During the year, ESDC received and provided common services which were obtained or delivered without charge from other government departments as disclosed below.

(a) Common services provided without charge by other government departments

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

Table - Related party transactions - Common services provided without charge by other government departments (in thousands of dollars)
Details 2017 2016
Employers' contribution to the health and dental insurance plans $59,110 $49,915
Legal services 5,751 3,376
Total $64,861 $53,291

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, information technology infrastructure services provided by Shared Services Canada and audit services provided by the Office of the Auditor General are not included in the ESDC’s Consolidated Statement of Operations and Departmental Net Financial Position.

(b) Common services provided without charge to other government departments

During the year, ESDC provided services without charge to other government departments, related to the provision of workers’ compensation services, amounted to $27.0 million in 2017 ($26.6 million in 2016).

(c) Other transactions with related parties

In the normal course of business, ESDC enters into transactions with government departments, agencies and Crown corporations. The revenues and expenses related to these transactions are as follows:

Table - Related party transactions - Other transactions with related parties (in thousands of dollars)

Details 2017 2016
Expenses - Other government departments, agencies and Crown corporations 733,245 664,707
Revenues - Other government departments, agencies and Crown corporations 183,799 184,863

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

17. Segmented information

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

Table - Segmented information (in thousands of dollars)
Details Income Security Skills and Employment Learning Social Development Internal Services Delivery of Services for Other Government of Canada Programs Labour Service Network Supporting Government Departments 2017
Total
 2016
Total
Benefits and transfer payments
Individuals $48,661,965 $100,353 $2,516,166 $1,965,849 N/A N/A $ (197) N/A $53,244,136 $55,579,218
EI benefits and support measures N/A 20,711,138 N/A N/A N/A N/A N/A N/A 20,711,138 19,418,625
Other N/A 1,518,032 316,411 229,081 N/A N/A 1,698 N/A 2,065,222 1,701,337
Subtotal of benefits and transfer payments 48,661,965 22,329,523 2,832,577 2,194,930 N/A N/A 1,501 N/A 76,020,496 76,699,180
Operating expenses
Salaries and benefits 356,699 786,191 30,444 29,655 400,324 132,540 91,707 27,927 1,855,487 1,793,825
Professional and special services 22,501 241,174 129,777 2,990 248,099 2,876 15,805 24,702 687,924 644,441
EI administration costs charged by CRA N/A 230,178 N/A N/A N/A N/A N/A N/A 230,178 218,630
Accommodation and rentals 28,844 58,883 62 421 115,398 223 380 8,455 212,666 212,556
Bad debts 26,282 31,921 77,648 4,638 934 N/A 22,521 N/A 163,944 307,083
Transportation 16,118 57,632 764 1,848 8,963 720 2,288 913 89,246 55,709
Other 7,094 31,117 632 305 42,509 1,052 1,545 (2,225) 82,029 53,453
Amortization 7,985 15,212 943 4 41,999 21 96 7,327 73,587 74,723
Expenses incurred on behalf of Government N/A N/A (33,570) N/A N/A N/A N/A N/A (33,570) (53,093)
Subtotal of operating expenses 465,523 1,452,308 206,700 39,861 858,226 137,432 134,342 67,099 3,361,491 3,307,327
Total of payments and expenses 49,127,488 23,781,831 3,039,277 2,234,791 858,226 137,432 135,843 67,099 79,381,987 80,006,507
Revenues
Employment Insurance (note 12) N/A 22,603,337 N/A N/A N/A N/A N/A N/A 22,603,337 23,586,111
Interest on loans receivable N/A N/A 662,360 N/A N/A N/A N/A N/A 662,360 634,874
Recovery of CPP administration costs 236,861 N/A N/A N/A 90,387 N/A N/A N/A 327,248 316,230
Recovery of Passport service delivery costs N/A N/A N/A N/A 32,488 139,966 N/A N/A 172,454 176,016
Other 31 50,970 1,245 11 2,601 542 2,953 4,159 62,512 66,594
Revenues earned on behalf of Government (24,521) (42,403) (663,605) (11) (6,580) (31,039) (2,304) (271) (770,734) (751,443)
Subtotal of revenues 212,371 22,611,904 N/A N/A 118,896 109,469 649 3,888 23,057,177 24,028,382
Net cost (revenue) of operations $48,915,117 $1,169,927 $3,039,277 $2,234,791 $739,330 $27,963 $135,194 $63,211 $56,324,810 $55,978,125
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