Consolidated Financial Statements (Unaudited) for the year ended March 31, 2016

Official title: Employment and Social Development Canada 2015–2016 Departmental Performance Report

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Employment and Social Development Canada 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, 2016, 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 Performance Report (DPR), 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 March 31, 2016 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of 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.

___________________________________________

Alain P. Séguin, MBA, CPA, CGA
Chief Financial Officer
Employment and Social Development Canada

___________________________________________

Louise Levonian
Deputy Minister
Employment and Social Development Canada

Gatineau, Canada
September 1, 2016

Employment and Social Development Canada Consolidated statement of financial position (Unaudited) as at March 31

Financial Information 2016 2015
(in thousands of dollars)
Financial assets
Accounts receivable and advances (note 4) 4,635,457 4,356,541
Loans receivable (note 5) 14,769,792 14,079,858
Total gross financial assets 19,405,249 18,436,399
Financial assets held on behalf of Government
Loans receivable (note 5) (180,287) (193,447)
Total net financial assets 19,224,962 18,242,952
Liabilities
Due to Consolidated Revenue Fund 552,326 35,102
Due to Canada Pension Plan (note 6) 34,729 212,060
Accounts payable and accrued liabilities (note 7) 1,705,498 2,936,282
Vacation pay and compensatory leave 62,162 54,373
Designated Amount Fund - Trust Account (note 8) 82,151 301,978
Government Annuities Account  (note 9) 133,820 149,598
Employee future benefits (note 10) 94,163 100,883
Total net liabilities  2,664,849 3,790,276
Departmental net financial asset 16,560,113 14,452,676
Non-financial assets
Prepaid expenses 7,446 1,968
Tangible capital assets (note 11) 270,476 302,233
Total non-financial assets 277,922 304,201
Departmental net financial position (note 12) 16,838,035 14,756,877
Contractual obligations (note 14)
Contingent liabilities (note 15)

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

___________________________________________

Alain P. Séguin, MBA, CPA, CGA
Chief Financial Officer
Employment and Social Development Canada

___________________________________________

Louise Levonian
Deputy Minister
Employment and Social Development Canada

Gatineau, Canada
September 1, 2016

Employment and Social Development Canada Consolidated statement of operations and departmental net financial position (Unaudited) for the year ended March 31

Financial Information 2016
Planned
Results
2016
Actual
2015
Actual
(in thousands of dollars)
Expenses
Income Security 46,831,293 46,302,293 44,812,750
Skills and Employment 20,859,328 22,162,481 20,672,562
Social Development 3,070,581 7,728,867 4,132,757
Learning 2,826,814 2,593,769 2,369,773
Internal Services 918,930 928,560 938,743
Delivery of Services for Other Government of Canada Programs 166,794 143,086 157,447
Labour 152,329 132,295 130,724
Service Network Supporting Government Departments 64,171 68,249 65,923
Expenses incurred on behalf of Government (86,420) (53,093) (63,552)
Total expenses 74,803,820 80,006,507 73,217,127
Revenues
Employment Insurance (note 12) 23,868,000 23,586,111 23,014,726
Interest on loans receivable 793,594 634,874 623,531
Recovery of CPP administration costs 324,845 316,230 323,742
Recovery of Passport service delivery costs 198,807 176,016 176,743
Other 100,816 66,594 57,036
Revenues earned on behalf of Government (938,845) (751,443) (734,000)
Total revenues 24,347,217  24,028,382 23,461,778
Net cost of operations before government funding and transfers 50,456,603 55,978,125 49,755,349
Government funding and transfers
Net cash provided by Government -   58,523,743 49,800,845
Change in due to the Consolidated Revenue Fund -   (517,224) 91,671
Services provided without charge
by other government departments (note 16)
-   53,291 50,003
Transfer of the transition payments for
 implementing salary payments in arrears (note 17)
-   (527) (51,505)
Transfer of assets and liabilities to other government departments -   -   (8,832)
Net revenue of operations after government funding and transfers -   2,081,158 126,833
Departmental net financial position - Beginning of year -   14,756,877 14,630,044
Departmental net financial position - End of year -   16,838,035 14,756,877
Segmented information (note 18)

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

Employment and Social Development Canada Consolidated statement of change in departmental net financial asset (Unaudited) for the year ended March 31

Financial Information 2016 2015
(in thousands of dollars)
Net revenue of operations after government funding and transfers 2,081,158 126,833
Change due to tangible capital assets
Acquisition of tangible capital assets (48,667) (68,479)
Amortization of tangible capital assets 74,723 63,776
Proceeds from disposal of tangible capital assets 70 263
Net loss on disposal of tangible capital assets including adjustments 5,631 835
Transfer from other government departments (216)
Total change due to tangible capital assets 31,757 (3,821)
Change due to prepaid expenses (5,478) 2,290
Net increase in departmental net financial asset 2,107,437 125,302
Departmental net financial asset - Beginning of year 14,452,676 14,327,374
Departmental net financial asset - End of year 16,560,113 14,452,676

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

Employment and Social Development Canada Consolidated statement of cash flow (Unaudited) for the year ended March 31

Financial Information 2016 2015
(in thousands of dollars)
Operating activities
Net cost of operations before government funding and transfers 55,978,125 49,755,349
Non-cash items:
Amortization of tangible capital assets (note 11) (74,723) (63,776)
Loss on disposal of tangible capital assets including adjustments (5,631) (835)
Services provided without charge by other government departments (note 16) (53,291) (50,003)
Transition payments for implementation salary payments in arrears (note 17) 527 51,505
Transfer of net financial assets and liabilities to or from other government departments 9,048
Variations in Statement of Financial Position
Increase in accounts receivable and advances 278,916 400,696
Increase in loans receivable 703,094 1,036,010
Increase (decrease) in prepaid expenses 5,478 (2,290)
Decrease (increase) in due to Canada Pension Plan 177,331 (71,610)
Decrease (increase) in accounts payable and accrued liabilities 1,230,784 (1,346,774)
Increase in vacation pay and compensatory leave (7,789) (1,653)
Decrease in the designated amount fund - Trust Account 219,827 17,680
Decrease in Government Annuities Account 15,778 16,540
Decrease (increase) in employee future benefits 6,720 (17,258)
Cash used in operating activities 58,475,146 49,732,629
Capital investing activities
Acquisitions of tangible capital assets (note 11) 48,667 68,479
Proceeds from disposal of tangible capital assets (70) (263)
Cash used in capital investing activities 48,597 68,216
Net cash provided by Government of Canada 58,523,743 49,800,845

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

Employment and Social Development Canada 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 of the core public administration. The name of the Department was changed from Human Resources and Skills Development Canada on December 12, 2013. 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 (ESD).

The legislative mandate of the Ministers responsible for ESD 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 which fall within the mandate of the Ministers of ESD include: Department of Employment and Social Development Act and Regulations, Old Age Security Act and Regulations, Employment Insurance Act and Regulations, Canada Pension Plan and Regulations, Canada Student Financial Assistance Act and Regulations, Canada Student Loans Act and Regulations, Universal Child Care Benefit Act, Canada Disability Savings Act and Regulations, Canada Education Savings Act and Regulations, Labour Adjustment Benefits Act, Government Annuities Act and Regulations, Government Annuities Improvement Act, Civil Service Insurance Act, Public Pensions Reporting Act, Apprentice Loans Act and Regulations and the Federal-Provincial Fiscal Arrangements Act.

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 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.

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 people with disabilities. It provides these groups with the knowledge, information and opportunities to move forward with their own solutions to social and economic challenges.

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 works with the provinces and territories, the voluntary sector, financial institutions, service providers and other key stakeholders to help Canadians pursue post-secondary education.

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; and Acquisition Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

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 Aboriginal 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 legislation. The program also manages Canada’s international and intergovernmental labour affairs, as well as Aboriginal 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 2015-2016 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 2015-2016 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 for. 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.

ESDC has made payments on behalf of the Government of Canada to the National Capital Commission (NCC). As per the Treasury Board Accounting Standards, these payments are not recorded in the ESDC's consolidated financial statements as the Deputy Minister is not accountable for the NCC and these funds do not relate to ESDC's activities. ESDC is simply acting as a flow-through mechanism for administrative purposes in order to enable the NCC to receive its Parliamentary authorities. As of November 4, 2015, the Deputy Minister is no longer responsible for issuing these payments to the NCC and they are no longer being made by ESDC.

(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:

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

(g)  Employee future benefits:

(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 EI Operating 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

Financial Information 2016 2015
(in thousands of dollars)
Net cost of operations before government funding and transfers 55,978,125 49,755,349
Adjustments for items affecting net cost of operations but not affecting authorities:
Bad debt expense (excluding EI bad debts) (133,000) (3,724)
Refund of programs and prior years' expenditures 71,087 78,427
Revenue not available for spending 109,020 111,303
Allowance expense for the Repayment Assistance Plan program of Canada Student Loans (231,010) (106,836)
Amortization of tangible capital assets (note 11) (74,723) (63,776)
Decrease (increase) in employee future benefits 6,720 (18,641)
Net EIO Account transactions (note 12) 2,393,223 3,255,437
Decrease (increase) in accounts payable and accrued liabilities not charged to authorities 1,265,073 (1,195,930)
Services provided without charge by other government departments (note 16) (53,291) (50,003)
Other adjustments (16,237) (6,897)
Total items affecting net cost of operations but not affecting authorities 3,336,862 1,999,360
Adjustments for items not affecting net cost of operations but affecting authorities:
Net Canada Student Loans disbursed 750,686 825,213
Net Canada Apprentice Loans disbursed 66,463 18,809
Canada Student Loans debt write-offs 172,045 287,431
Acquisition of tangible capital assets (note 11) 48,667 68,479
Canada Student Loans forgiveness 53,419 40,868
Transition payments for implementing salary payments in arrears (note 17) 527 51,505
Other adjustments 8,382 2,312
Total items not affecting net cost of operations but affecting authorities 1,100,189 1,294,617
Current year authorities used 60,415,176 53,049,326

(b) Authorities provided and used

Financial Information 2016 2015
(in thousands of dollars)
Authorities provided:
Vote 1 - Operating expenditures 647,795 639,181
Vote 5 - Grants and contributions 1,717,778 1,755,398
Vote 7 - Debt write-offs 176,022 294,648
Statutory amounts 58,056,287 50,573,641
Less:
Authorities available for future years (1,310) (802)
Lapsed authorities:
Operating expenditures (19,084) (20,844)
Grants and contributions (158,100) (184,679)
Debt write-offs (3,915) (7,217)
Statutory amounts (297)
Current year authorities used 60,415,176 53,049,326

4. Accounts receivable and advances

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

Financial Information 2016 2015
(in thousands of dollars)
Receivables - Other government departments and agencies
EI premiums receivable from CRA 1,994,721 1,823,656
EI and OAS benefit repayments receivable from CRA 1,892,053 1,793,974
Other 55,462 78,602
3,942,236 3,696,232
Receivables and advances - External parties
EI and OAS overpayments and penalties to be recovered  1,014,875 973,033
Other 381,682 353,294
1,396,557 1,326,327
Subtotal accounts receivable and advances 5,338,793 5,022,559
Allowance for doubtful accounts on receivables from external parties (703,336) (666,018)
Net accounts receivable and advances 4,635,457 4,356,541

5. Loans receivable

Financial Information Canada Student Loans
Direct Loans Guaranteed Loans Risk-Shared Loans Apprentice Loans 2016
Total
 2015
Total
(in thousands of dollars)
Loans receivable
Gross loans - Beginning of year 17,340,771 170,098 96,701 18,809 17,626,379 16,854,411
New loans and repurchases 2,799,850 2,650 4,749 67,495  2,874,744 2,835,518
Reimbursements (1,839,651) (5,645) (3,168) (1,032) (1,849,496) (1,713,150)
Loan write-offs and forgiveness (209,513) (30,933) (29,928) (270,374) (350,400)
Gross loans - End of year 18,091,457 136,170 68,354 85,272 18,381,253 17,626,379
Unamortized discount - - (61,085) - (61,085) (88,389)
Allowance for bad debts (3,576,424) (115,081) (2,402) (10,800) (3,704,707) (3,616,828)
Net loans 14,515,033 21,089 4,867 74,472 14,615,461 13,921,162
Accrued interest
Gross accrued interest - Beginning of year 344,504 64,864 37,330 -  446,698 498,627
New interest 545,478 6,466 6,124 - 558,068 548,672
Reimbursements (341,247)
(4,898) (3,052) - (349,197) (344,535)
Interest write-offs and forgiveness (199,239) (18,865) (15,691) - (233,795) (256,066)
Gross accrued interest - End of year 349,496 47,567 24,711 -  421,774 446,698
Unamortized discount - - (23,336) - (23,336) (35,325)
Allowance for bad debts (204,493) (39,068) (546) - (244,107) (252,677)
Net accrued interest 145,003 8,499 829 - 154,331 158,696
Total net loans and net accrued interest 14,660,036 29,588 5,696 74,472 14,769,792 14,079,858
Loans and accrued interest held on behalf of Government (145,003) (29,588) (5,696) - (180,287)
(193,447)
Total Loans receivable 14,515,033 74,472 14,589,505 13,886,411

The breakdown of the gross Loans is as follows:

Financial Information Canada Student Loans
Direct Loans Guaranteed Loans Risk-Shared Loans Apprentice Loans 2016
Total
 2015
Total
(in thousands of dollars)
Loans in good standing 17,820,814 95,733 53,247 85,272 18,055,066 17,067,756
Impaired Loans 270,643 40,437 15,107 - 326,187 558,623
Gross Loans 18,091,457 136,170 68,354 85,272 18,381,253 17,626,379

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 Families, Children and Social Development 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, 2016, the bad debt and RAP allowance rates on Direct Loans were established as follow:

Status of the loans Allowance rate as at March 31, 2016 Allowance rate as at March 31, 2015
Bad debt allowance
  Loans in-study 8.5% 9.0%
  Loans in-repayment 5.1% 5.9%
  Loans in-default 78.9% 80.7%
RAP allowance
  Loans in-study 4.2% 3.5%
  Loans in-repayment 0.95% 0.9%
  Loans in RAP 17.9% 15.6%

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, 2016 amounted to $18,159.8 million ($17,437.5 million in 2015).

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 Families, Children and Social Development is authorized to enter into a loan agreement directly with any eligible apprentice.

An allowance is recorded to provide for CAL bad debts. 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, 2016, the bad debt allowance rate was established at 12.67% for the loans in-training, resulting in an allowance of $10.8 million. No allowance was recorded at March 31, 2015 as the CAL begun in January 2015 and no borrowers were required to repay their loans in fiscal year 2014-2015.

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, 2016 amounted to $85.3 million ($18.8 million in 2015).

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, 2016, the total bad debt expense on loans receivable amounted to $120.1 million ($24.4 million in 2015).

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

The CPP began operations in 1966.  It is a compulsory and contributory social insurance program operating in all parts of Canada, except Québec, which operates the Régime de rentes du Québec, a comparable program.  The CPP’s objective is to provide a measure of protection to workers and their families against the loss of earnings due to retirement, disability or death.  The CPP is financed by contributions and investment returns.  Employers and employees pay contributions equally to the CPP.  Self-employed workers pay the full amount.

The Minister of Families, Children and Social Development is responsible for the administration of the CPP, under the legislation Canada Pension Plan; the Minister of National Revenue is responsible for collecting contributions.  The Minister of Finance and his provincial counterparts are responsible for setting CPP contribution rates, pension and benefit levels and funding policy.  The CPP Investment Board is responsible for managing the amounts that are being transferred under Section 108.1 of the Canada Pension Plan.  It acts in the best interests of the beneficiaries and contributors under the Act.

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.  The CPP Account also records the amounts transferred to or received from the CPP Investment Board.

The detailed revenues, expenses, assets and liabilities of the CPP financial activities are reported separately in the CPP consolidated financial statements.

Financial Information 2016 2015
(in thousands of dollars)
Due to Canada Pension Plan - Beginning of year 212,060 140,450
Receipts and other credits 74,740,072 71,398,249
Payments and other charges (74,917,403) (71,326,639)
Due to Canada Pension Plan - End of year 34,729 212,060

7. Accounts payable and accrued liabilities

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

Financial Information 2016 2015
(in thousands of dollars)
Accounts payable - Other government departments and agencies
Income taxes payable to CRA 231,303 30,187
Universal Child Care Benefits payable to CRA 126,464 1,281,636
Other 36,456 35,914
394,223 1,347,737
Accounts payable - External parties
EI benefits payable to individuals 676,547 536,613
OAS and Guaranteed Income Supplement benefits payable to individuals 83,668 439,156
Other 227,072 279,753
987,287 1,255,522
Accrued liabilities 119,562 109,634
Allowance for alternative payments for non-participating provinces to Canada Student and Apprentice Loans 204,426 223,389
Total accounts payable and accrued liabilities 1,705,498 2,936,282

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.

Financial Information 2016 2015
(in thousands of dollars)
Designated Amount Fund - Beginning of year 301,978 319,658
Interest credited to the Trust account 897 2,354
Payments and other charges (220,724) (20,034)
Designated Amount Fund - End of year 82,151 301,978

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.

Financial Information 2016 2015
(in thousands of dollars)
Government Annuities Account - Beginning of year 149,598 166,138
Receipts and other credits 9,850 10,989
Payments and other charges (25,628) (27,529)
Government Annuities Account - End of year 133,820 149,598

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 2015-2016 expense amounted to $160.1 million ($159.5 million in 2014-2015). For group 1 members, the expense represents approximately 1.25 times (1.41 times in 2014-2015) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2014-2015) 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: ESDC provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of 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 upon signing the new agreements. 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 on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

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

Financial Information 2016 2015
(in thousands of dollars)
Accrued benefit obligation - Beginning of year 100,883 83,625
Transferred from (to) another government department - (349)
Subtotal 100,883 83,276
Expense for the year 9,760 40,556
Benefits paid during the year (16,480) (22,949)
Accrued benefit obligation - End of year 94,163 100,883

11. Tangible capital assets

(in thousands of dollars)

Class Cost Accumulated amortization Net book value
Opening balance Acquisitions Adjustments (1) Disposals and write-offs Closing balance Opening balance Amortization Adjustments Disposals and write-offs Closing balance 2016 2015
Machinery and equipment 2,392 35 - (837) 1,590 2,211 79 - (822) 1,468 122 181
Computer hardware  30,198 9 11 (30,120) 98 28,627 1,046 - (29,592) 81 17 1,571
Computer software  423,110 1,181 65,306 (52,189) 437,408 267,508 53,244 - (51,497) 269,255 168,153 155,602
Other equipment and furniture 6,599 76 - (1,767) 4,908 4,816 636 - (1,765) 3,687 1,221 1,783
Vehicles  2,946 352 - (352) 2,946 2,212 351 - (352) 2,211 735 734
Assets under construction 43,785 47,014 (68,093) (194) 22,512 - - - - - 22,512 43,785
Leasehold improvements  364,247 - (2,348) (52,168) 309,731 265,670 19,367 (5,135) (47,887) 232,015 77,716 98,577
873,277 48,667 (5,124)  (137,627) 779,193 571,044 74,723 (5,135) (131,915) 508,717  270,476  302,233 

(1) Adjustments include assets under construction of $68,093 that were transferred to the other categories upon completion of the assets.

Transfers of tangible capital assets to other departments amounted to a net book value of $1.00 ($5,134,680.10 of cost less $5,134,679.10 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.

Financial Information 2016 2015
(in thousands of dollars)
EIO Account - Restricted
Balance - Beginning of year - Restricted 521,706 (2,733,731)
Revenues
EI premiums 23,491,100 22,962,274
Penalties and interest on EI receivables 95,011 52,452
23,586,111 23,014,726
Expenses
Benefits and support measures
Income benefits 17,632,921 16,235,790
Transfers to provinces and territories related to Labour Market Development Agreements 1,938,683 1,930,727
Support measures 111,660 116,096
Benefits repayments from higher income claimants (264,639) (230,430)
Administration costs 1,653,336 1,657,055
Bad debts 120,927 50,051
21,192,888 19,759,289
Net EIO Account transactions 2,393,223 3,255,437         
Balance - End of year - Restricted 2,914,929 521,706
Unrestricted 13,923,106 14,235,171
Departmental net financial position - End of year 16,838,035 14,756,877

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, 2016, these undetected overpayments and underpayments are estimated to be $863.7 million ($624.3 million as at March 31, 2015) and $232.4 million ($145.2 million as at March 31, 2015) respectively for EI claims and $591.4 million ($339.4 million as at March 31, 2015) and $40.3 million ($42.7 million as at March 31, 2015) 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:

Financial Information 2017 2018 2019 2020 2021 and thereafter Total
(in thousands of dollars)
Labour Market Development Agreements 2,266,745 - - 2,266,745
Other transfer payments 1,351,403 873,916 615,231 501,676 1,036 3,343,262
Operating and Maintenance 69,721 2,075 293 - - 72,089
Total 3,687,869 875,991 615,524 501,676 1,036 5,682,096

Labour Market Development Agreements with eight of the provinces and territories require a two year notice for cancellation of the agreements. The obligations for 2018 cannot be reasonably estimated.

Subsequent to March 31, 2016, ESDC entered into an agreement for the management services of the Canada Student Loans. The contract was signed for a period of ten years with fourteen options of six months. The contractual obligation cannot be reasonably estimated at this time.

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.

In 2012, a proposed class action was filed with the Federal Court seeking damages of $450 million plus interest. The representative plaintiff alleges that she was improperly denied sickness benefits for an illness, injury or disability suffered while on parental leave, despite an amendment in 2002 to the Employment Insurance Act. The proceeding has been certified as a class action. The outcome of this claim is not determinable at this time.

Beginning in January 2013, nine 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:

Financial Information 2016 2015
(in thousands of dollars)
Employers' contribution to the health and dental insurance plans 49,915 46,726
Legal services 3,376 3,277
Total 53,291 50,003

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 $26.6 million in 2016 ($28.7 million in 2015).

(c) Other transactions with related parties

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

Financial Information 2016 2015
(in thousands of dollars)
Accounts receivable - Crown corporations 548 136
Accounts payable - Crown corporations 4,052 2,618
Accounts receivable - Other government departments and agencies 3,942,236 3,696,232
Accounts payable - Other government departments and agencies 394,223 1,347,737
Expenses - Other government departments, agencies and Crown corporations 664,707 656,142
Revenues - Other government departments, agencies and Crown corporations 184,863 184,072

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

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

The Government of Canada implemented salary payments in arrears in 2014-2015. As a result, a one-time payment was issued to employees and will be recovered from them in the future. Employees that were on leave without pay when the initial one-time transition payments were issued will receive the transition payment shortly after their return to work from their leave without pay. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of ESDC. However, it did result in the use of additional spending authorities by ESDC. Prior to year end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.

18. Segmented information

(in thousands of dollars)

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:

Details Income Security Skills and Employment Social Development Learning Internal Services Delivery of Services for Other Government of Canada Programs Labour Service Network Supporting Government Departments 2016
Total
2015
Total
Benefits and transfer payments
Individuals 45,894,281 100,882 7,515,803 2,068,555 (303) - 55,579,218 50,333,740
EI benefits and support measures - 19,418,625 - - - - - 19,418,625 18,052,183
Other - 1,263,889 167,758 267,968 - - 1,722 - 1,701,337 1,785,129
45,894,281 20,783,396 7,683,561 2,336,523 - - 1,419 - 76,699,180 70,171,052 
Operating expenses
Salaries and benefits 339,134 745,683 27,984 31,397 392,314 137,566 87,542 32,205 1,793,825 1,772,498
Professional and special services 16,133 245,486 5,628 104,921 235,324 3,454 11,020 22,475 644,441 627,062
Bad debts 26,044 120,927 10,174 120,076 1,452 - 28,410 - 307,083 117,327
EI administration costs charged by CRA - 218,630 - - - - - 218,630 212,268
Accommodation and rentals 133 1,382 60 66 209,854 247 295 519 212,556 220,719
Amortization 7,002 13,249 - 100 43,303 20 17 11,032 74,723 63,776
Transportation 14,464 26,579 1,252 561 8,585 723 2,240 1,305 55,709 53,197
Other 5,102 7,149 208 125 37,728 1,076 1,352 713 53,453 42,780
Expenses incurred on behalf of Government - - - (53,093) - - - - (53,093) (63,552)
408,012 1,379,085 45,306 204,153 928,560 143,086 130,876 68,249 3,307,327 3,046,075
46,302,293 22,162,481 7,728,867 2,540,676 928,560 143,086 132,295 68,249 80,006,507 73,217,127
Revenues
Employment Insurance (note 12) - 23,586,111 - - - - - 23,586,111 23,014,726
Interest on loans receivable - - - 634,874 - - - - 634,874 623,531
Recovery of CPP administration costs 206,131 - - 110,099 - - - 316,230 323,742
Recovery of Passport service delivery costs - - - 29,940 146,076 - - 176,016 176,743
Other 38 54,074 12 2,074 1,831 862 3,097 4,606 66,594 57,036
Revenues earned on behalf of Government (25,525) (48,258) (12) (636,948) (7,093) (30,941) (2,600) (66) (751,443) (734,000)
180,644 23,591,927 - 134,777 115,997 497 4,540 24,028,382 23,461,778
Net cost (revenue) of operations 46,121,649 (1,429,446) 7,728,867 2,540,676  793,783 27,089 131,798 63,709 55,978,125 49,755,349

19. Comparative information

Certain comparative figures have been reclassified to conform to the current year's presentation.

 

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