Employment and Social Development Canada Consolidated Financial Statements (Unaudited) for the year ended March 31, 2024

Social Development

To increase inclusion and opportunities for Canadians to participate in their communities.

Pensions and Benefits

Assist Canadians in maintaining income for retirement, and provide financial benefits to survivors, people with disabilities and their families.

Learning, Skills Development and Employment

Help Canadians access post secondary education and get the skills and training they need to participate in a changing labour market, as well as provide support to those who are temporarily unemployed.

Working Conditions and Workplace Relations

Promotes safe, healthy, fair and inclusive work conditions and cooperative workplace relations.

Information Delivery and Services for Other Departments

Provides information to the public on the programs of the Government of Canada, and provides services on behalf of government departments and other partners.

Internal Services

Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. These services are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Management Services; Materiel Management Services; and Acquisition Management Services.

(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 2023 to 2024 Departmental Plan. Planned results are not presented in the ''Government funding and transfers'' section of the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Financial Asset because these amounts were not included in the 2023 to 2024 Departmental Plan.

(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 (CPP) is excluded from ESDC's reporting entity because changes to the CPP require the agreement of two thirds of the provinces and therefore, the CPP is not controlled 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 from or to the CRF

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

(e) Revenues

Revenues are comprised of revenues earned from non-tax sources. They include exchange transactions where goods or services are provided for consideration where a performance obligation exists, and non-exchange transactions where no performance obligations exist to provide a good or service. These transactions can be recurring or non-recurring in nature. Recurring transactions are viewed as ongoing, routine activities that form part of the normal course of operations and can be used to indicate if they can be reasonably expected to be earned again in future years. Unless otherwise disclosed, ESDC's revenues are considered recurring. ESDC has the following major types of revenues:

• 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. EI premiums are considered non-exchange transactions.
• Recoveries of CPP administration costs and other government department service delivery costs are recognized as the performance obligations are satisfied.
• User fees and other revenues are recognized in the period the event giving rise to the revenues occurred. They consist of exchange and non-exchange transactions.
• Revenues that are non-respendable are not available to discharge ESDC's liabilities. While the Deputy Minister is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of ESDC's gross revenues. Revenues earned on behalf of Government consist of user fees, non-respendable revenues earned from agreements made under the Department of Employment and Social Development Act with other government departments, and gains on the sale of assets. These are recognized when earned.

(f) Expenses

Expenses are recorded on an accrual basis of accounting:

• 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 consolidated financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
• Services provided without charge by other government departments for employer contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their carrying value.
• 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: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(h) Financial instruments

A contract establishing a financial instrument creates, at its inception, rights and obligations to receive or deliver economic benefits. The financial assets and financial liabilities portray these rights and obligations in the consolidated financial statements. ESDC recognizes a financial instrument when it becomes a party to a financial instrument contract.

Financial instruments consist of accounts and loans receivable, and accounts payable and accrued liabilities.

All financial assets and liabilities are recorded at cost or amortized cost. Any associated transaction costs are added to the carrying value upon initial recognition. For financial instruments measured at amortized cost, the effective interest method is used to determine interest revenue or expense.

Accounts and loans receivable are initially recorded at cost and, where necessary, are discounted to reflect their concessionary terms. Unconditionally repayable contributions are recognized as loans receivable. When the terms of repayment for loans are considered concessionary, such as those loans are made on a long-term, low interest or interest-free basis or include forgiveness clauses, the loan is discounted to its estimated present value. The difference between the face value of the loan and the estimated present value at the time the loan is issued represents the concessionary portion, which is recognized as a transfer payment expense, while the resulting concessionary portion is amortized to revenue using the effective interest rate method over the term of the loan. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts and loans receivable to amounts that approximate their net recoverable value. Loans receivable are subsequently measured at amortized cost.

See Note 6 Risk Management for risks related to ESDC's financial instruments.

(i) 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.

(j) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes of the consolidated financial statements.

(k) Tangible capital assets

All tangible capital assets having an initial cost of $10,000 or more are recorded at their acquisition cost. ESDC does not capitalize intangibles, works of art, museum collections, and immovable assets located on reserves as defined in the Indian Act.

(l) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount. Inter-entity transactions are transactions between commonly controlled entities. Inter entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:

• Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
• Certain services received on a without charge basis are recorded for departmental financial statement purposes at the carrying amount.

(m) Measurement uncertainty

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect management's best estimate of the related amount at the end of the reporting period. 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, 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.

Canada Student Loans

The Canada Student loans consist of 3 different types of loans, Direct Loans, Guaranteed Loans and Risk Shared 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 Official Languages 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, were fully guaranteed by ESDC but have since been repurchased from 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.

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 $34 billion. The total amount of direct loans and outstanding risk-shared loans as at March 31, 2024 amounted to $26.1 billion ($24.0 billion in 2023).

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 Official Languages 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 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.

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, 2024 amounted to $309.6 million ($290.6 million in 2023).

Interest and repayment terms

Under these 2 programs, no security is received from the borrowers. Borrowers are not required to make payments on their loans while they are still studying, enrolled in their apprentice program or during the 6-month grace period after completing their studies or apprentice program. In the Fall of 2022, the Government announced the permanent elimination of interest on Canada Student Loans and Canada Apprentice Loans. The accounting treatment of the permanent elimination of interest was thoroughly analyzed. Interest on these loans was temporarily paused from April 1, 2021, to March 31, 2023, and due to the temporary nature, the concessionary terms were assessed as not significant. Legislation to permanently eliminate interest on these loans passed on December 15, 2022, with an effective date of April 1, 2023. Due to the permanent nature, the concessionary terms were assessed as significant thereby triggering a restructuring of the loans. Notwithstanding the temporary pause in interest that was in effect at the time of the legislation, the effective date of April 1, 2023, was selected as the restructuring date resulting in a $3.3 billion concessionary transfer payment expense being recognized in the 2024 fiscal year. If the earlier date of legislation had been selected as the restructuring date, the impact on the year-over-year net financial position of the department was $57.1 million and is assessed as not significant.

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. 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.

(a) Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss.

ESDC's maximum exposure to credit risk at March 31, 2023 and March 31, 2024 is the carrying amount of its financial assets.

ESDC has determined that there is no significant concentration of credit risk related to accounts receivable and advances from external parties and loans receivable. An analysis of the age of the loans receivable and the associated valuation allowances used to reflect these accounts at their net recoverable value is disclosed in note 5.

(b) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of currency risk.

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates.

ESDC has determined that there is no significant concentration of currency risk related to foreign denominated financial instruments.

(c) Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities.

As the funding for ESDC's financial liabilities is drawn from the Consolidated Revenue Fund, its exposure to liquidity risk is fully mitigated.

(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% per year of pensionable service, times the average of the best 5 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 the Economic Action Plan 2012, employee contributors have been divided into 2 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 2024 expense amounts to $294.8 million ($276.2 million in 2023). For Group 1 members, the expense represents approximately 1.02 times (1.02 times in 2023) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2023) the employee contributions.

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

(b) Severance benefits

Severance benefits provided to ESDC'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, 2024, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

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

(a) Contractual obligations

The nature of ESDC's activities may 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 notes:

• Labour Market Development Agreements with 7 of the provinces and 1 territory require a 2 year notice for cancellation of the agreements, other provinces and territories require a 1 year notice. The obligations for 2026 cannot be reasonably estimated.

(b) Contractual rights

The activities of ESDC sometimes involve the negotiation of contracts or agreements with outside and related parties that result in the department having rights to both assets and revenues in the future. They principally involve the administration of services on behalf of other government departments and other organizations. Major contractual rights that will generate revenues in future years and that can reasonably be estimated are summarized as follows:

a) Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown.

Claims, litigations and grievances have been made against ESDC in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. ESDC records 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. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to $0.5 million ($5.2 million in 2023) on March 31, 2024.

On December 7, 2023, a proposed class action was filed with the Federal Court seeking damages of $600 million. The claimants, all current or former migrant agricultural workers in the Seasonal Agricultural Workers Program (SAWP) and the Temporary Foreign Worker Program (TFWP) from 2008 to present, allege they were improperly denied employment insurance benefits. The class action is not yet certified. The outcome of this claim is not determinable at this time.

On January 12, 2023, a proposed class action was filed with the Federal Court. The claimants, students with permanent disabilities who incurred debt between August 1, 1995 to present, allege that they took longer to finish post-secondary studies than other students as a result of their disability, and as a result incur more debt than students who are not permanently disabled. The class action is not yet certified. The outcome of this claim is not determinable at this time.

b) Contingent assets

Under the Social Finance Fund (SFF), there are currently 3 conditionally repayable contribution agreements with potential repayments due no later than March 31, 2039. As these are conditionally repayable contributions, the amounts that may become repayable cannot be currently estimated as contribution agreements are subject to specific program requirements. Thus, to forecast a specific amount repayable is not possible due to the varying factors facing each recipient as it relates to their economic and production performances.

(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 at the carrying value in ESDC's Consolidated Statement of Operations and Departmental Net Financial Position as follows:

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 $17.5 million in 2024 ($18.1 million in 2023).

(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 notes:

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

(a) Federal Anti-Racism Secretariat

Effective July 26, 2023, ESDC was transferred responsibility for the Federal Anti-Racism Secretariat from Heritage Canada, in accordance with Order in Council 2023-0783, including the stewardship responsibility for the assets and liabilities related to the program. While no assets or liabilities were received by ESDC, the results of the operations from the transfer date and onwards have been included in these consolidated financial statements.

(b) Canadian Digital Service

Effective July 26, 2023, ESDC was transferred the responsibility for the Canadian Digital Service from the Treasury Board of Canada Secretariat, in accordance with Order in Council 2023-0784, including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, ESDC received the following assets and liabilities related to the Canadian Digital Service from the Treasury Board of Canada Secretariat on July 26, 2023:

2.1 Internal Control Management

ESDC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Minister, is in place and comprises:

• Organizational accountability structures as they relate to internal control management to support sound financial management, including the roles and responsibilities of senior departmental managers for control management in their areas of responsibility;
• Values and ethics;
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
• Monitoring of, and regular updates on, internal control management, as well as the provision of related assessment results and action plans to the Deputy Minister and senior departmental management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee provides advice to the Deputy Minister on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2. Service arrangements relevant to financial statements

ESDC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

IT General Controls (ITGC)

The ongoing monitoring of ITGC is conducted as part of a 5 year cycle, which assess SAP and 14 feeder systems.

As a result of the 3-year ongoing monitoring assessment, some key recommendations are noted in 3 of the 4 main control pillars evaluated: access to programs and data, change management and computer operations.

Management responses and action plans (MRAPs) have been prepared by the process owners with a view to strengthen control and progress against these plans will be tracked during 2024 to 2025 as part of the year-four ongoing monitoring of ITGCs.

Pay Administration

The scope of the assessment was modified to take account the recent work that was conducted by Internal Audit for their Audit of Payroll Administration - Phase II. The key controls that were tested performed as intended, and no significant deficiencies were found.

Planning and Budgeting

The key controls that were tested performed as intended, with remediation required on applying a consistent approach in the level of supporting documentation of CFO Attestation Checklist.

The MRAP has been prepared by the process owner with a view to strengthen control. The progress against this plan will be tracked during the fiscal year 2024-2025.

Procure to Payment

The testing of the Procure to Payment process was conducted in the fall of 2023. Some key recommendations included but were not limited to:

• Ensuring contracts are signed by individuals with valid Contracting authority.
• Strengthening the controls surrounding the physical security and stock of blank cheques.
• Ensuring that acting appointees receive appropriate financial authority.
• Strengthening the process to ensure employees are notified when any financial authority approaches its' end date.

MRAPs have been prepared by the process owners with a view to strengthen control and progress against these plans will be tracked during 2024-2025.

The scoping and testing of the assessment were conducted in the fall of 2023 and the assessment did not look at specific procurement controls that have come to light following the recently publicized issues with government procurements.

ESDC participates in the Office of the Comptroller General (OCG) Internal Controls Community of Practice working group and will be looking at potentially broadening the scope of the work conducted on the process. Additional monitoring activities will be performed in 2024-2025.

In addition, ESDC is, one of 7 large line Departments, included in the Horizontal Internal Audit of Procurement Governance that is being conducted by the OCG that will be assessing these controls. Finally, ESDC is leading an initiative which aims at enhancing integrity, transparency, and accountability within the organization. We are meeting this objective through several procurement awareness sessions, training, communications, and other various activities.