Archived: Unaudited Financial Statements for the period ending March 31, 2014, Environment Canada, chapter 6

Notes to the Financial Statements (Unaudited)

1. Authority and objectives
2. Summary of significant accounting policies
3. Parliamentary authorities
4. Accounts payable and accrued liabilities
5. Deferred revenue
6. Lease obligation for tangible capital assets
7. Employee future benefits
8. Accounts receivable and advances
9. Inventory
10. Tangible capital assets
11. Contractual obligations
12. Contingent liabilities
13. Related party transactions
14. Transfers to/from other government departments
15. Segmented information
16. Comparative information

1. Authority and objectives

Environment Canada was established under legislation by Environment Canada of the Environment Act. Under this Act, the powers, duties and functions of the Minister of the Environment extend to and include matters relating to:

• The preservation and enhancement of the quality of the natural environment (including water, air and soil quality);
• Renewable resources, including migratory birds and other non-domestic flora and fauna;
• Water;
• Meteorology;
• Enforcement of any rules or regulations made by the International Joint Commission relating to boundary waters; and
• Coordination of the policies and programs of the Government of Canada respecting the preservation and enhancement of the quality of the natural environment.

Environment Canada delivers its mandate by promoting the three (3) following Strategic Outcomes:

• Conservation of Canada's Natural Environment
  Canada's natural environment is conserved and restored for present and future generations.
• Weather Information
  Canadians are equipped to make informed decisions on changing weather, water and climate conditions.
• Threats from Pollution Minimized
  Threats to Canadians and their environment from pollution are minimized.

The Internal Services Program includes groups of related activities and resources that are administered to support the Department's Strategic Outcomes and Programs. It is the basis for a common government-wide approach to planning, designing, budgeting, reporting and communicating all Government of Canada internal services.  

In addition, Environment Canada has authority under numerous pieces of legislation which affect how Environment Canada operates. The most significant Acts are as follows: 

• Antarctic Environmental Protection Act
• Canada Water Act
• Canada Wildlife Act
• Canadian Environment Week Act
• Canadian Environmental Assessment Act, 2012
• Canadian Environmental Protection Act, 1999
• Department of the Environment Act
• Environmental Enforcement Act
• Environmental Violations Administrative Monetary Penalties Act
• Federal Sustainable Development Act
• Fisheries Act (Sections 36-42)
• International River Improvements Act
• Lac Seul Conservation Act, 1928
• Lake of the Woods Control Board Act, 1921
• Manganese-Based Fuel Additives Act
• Migratory Birds Convention Act, 1994
• National Wildlife Week Act
• Perfluorooctane Sulfonate Virtual Elimination Act
• Species at Risk Act
• Weather Modification Information Act
• Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act

2. Summary of significant accounting policies

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

Significant accounting policies are as follows:

(a) Parliamentary authorities
Environment Canada is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Environment Canada do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. Planned results in the Statement of Operations and Departmental Net Financial Position are those reported in the Future-Oriented Financial Statements included in the 2013-2014 Report on Plans and Priorities.

(b) Net Cash Provided by Government
Environment Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by Environment Canada is deposited to the CRF, and all cash disbursements made by Environment Canada 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.

(c) Amount Due from the Consolidated Revenue Fund (CRF)
Amount 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 Environment Canada is entitled to draw from the CRF without further authorities to discharge its liabilities.

(d) Revenues

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
• Funds that have been received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
• Other revenues are accounted for in the period in which the underlying transaction or event that takes place and gave rise to the revenue.
• Revenues that are non-respendable are not available to discharge Environment Canada's liabilities. While the Deputy Head is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the entity's gross revenues.

(e) Expenses
Expenses are recorded on the accrual basis:

• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
• Vacation pay 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 accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost.

(f) Employee future benefits

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

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

(h) Contingent liabilities
Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(i) Environmental liabilities
Environmental liabilities consist of estimated costs related to the remediation of environmentally contaminated sites as well as estimated costs related to obligations associated with future asset restoration.

• i. Remediation  liabilitiesare recorded as accrued liabilities to recognize the estimated costs related to the management and remediation of contaminated sites where Environment Canada is obligated, or likely to be obligated, to remediate the sites. If the responsibility to remediate is undeterminable, the amount is disclosed as a contingent liability. If the responsibility to remediate is undeterminable and a reasonable estimate cannot be made, the nature, source and extent of contamination is disclosed as a contingent liability.

(j) Inventory
Inventory held for future program delivery consists of spare parts, materials, supplies and test vehicles. It is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.

Inventory held for resale consists of publications which will be sold in the future. It is valued at the lower of cost or net realizable value.

(k) Tangible capital assets
All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Environment Canada 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 calculated on a straight-line basis over the estimated useful life of the asset as follows:

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

3. Parliamentary authorities

Environment Canada receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, Environment Canada 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:

(b) Authorities provided and used:

4. Accounts payable and accrued liabilities

The following table presents details of Environment Canada's accounts payable and accrued liabilities:

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013. As a result, the Department has recorded at March 31, 2014 an obligation for termination benefits for an estimated amount of $1,800,000 ($3,700,000 in 2012-2013) as part of accrued liabilities to reflect the estimated workforce adjustment costs. The actual cost may be different from the estimate.

5. Deferred revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from external parties that are restricted in order to fund the expenditures related to specific projects. Revenue is recognized in the period in which these expenditures are incurred or in which the service is performed. Details of the transactions related to this account are as follows:

6. Lease obligation for tangible capital assets

Environment Canada has entered into agreements to lease certain equipment under capital leases with a cost of $18,198,560 and accumulated amortization of $8,734,872 as at March 31, 2014 ($18,198,560 of cost and $8,006,896 in accumulated amortization respectively as at March 31, 2013) as reflected in note 10. The obligations related to the upcoming years include Carleton University for which, on October 13, 2000, Environment Canada entered into an agreement to rent office laboratory space for the National Wildlife Research Centre (NWRC), at an annual cost of $1,300,000 under a capital lease which expires in 2028.

7. Employee future benefits

(a) Pension benefits
Environment Canada'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 Plan benefits and they are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into two groups - Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2013-2014 expense amounts to $65,844,996 ($63,897,813 in 2012-2013). For Group 1 members, the expense represents approximately 1.6 times (1.7 times in 2012-2013) the employee contributions and, for Group 2 members, approximately 1.5 times (1.6 times in 2012-2013) the employee contributions.

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

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

8. Accounts receivable and advances

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

9. Inventory

The following table presents details of the inventory.

Inventory of spare parts and test vehicles is valued at cost using the average cost method and publications are valued at the lower of cost or net realizable value.

10. Tangible capital assets

11. Contractual obligations

The nature of Environment Canada's activities can result in large multi-year contracts and obligations that have yet to be recorded as liabilities in the Accounts of Canada but for which Environment Canada is obligated to make future payments in order to meet its legal contractual requirements. Significant contractual obligations that can be reasonably estimated are summarized as follows:

12. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories (if applicable) as follows:

(a) Environmental Liabilities
Environment Canada has identified approximately 22 sites (26 sites in 2012-2013) where the department is obligated, or likely to be obligated, to remediate for which a remediation liability of $110,916,041 ($120,803,919 in 2012-2013) has been recorded in accrued liabilities.

In addition, Environment Canada has disclosed a contingent liability in the amount of $96,893 for one site ($270,603 in 2012-2013 for 2 sites) where the department has determined that it is not directly responsible, nor does it accept responsibility, however, there is uncertainty as to whether the department may be responsible. Environment Canada's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments of existing sites. These liabilities will be accrued by Environment Canada in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation
Claims have been made against Environment Canada 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. Environment Canada 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. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $8,550,000 at March 31, 2014 ($8,604,000 in 2012 2013).

13. Related party transactions

Environment Canada is related as a result of common ownership to all Government departments, agencies, and Crown corporations. Environment Canada enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, Environment Canada received common services which were obtained without charge from other Government departments as disclosed below.

(a) Common services provided without charge by other government departments :
During the year, Environment Canada received services without charge from certain common service organizations, related to accommodation, the employer’s contribution to the health and dental insurance plans, legal services and workers' compensation coverage. These services provided without charge have been recorded in Environment Canada’s 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 Works and Government Services Canada, the informatic services provided by Shared Services Canada and the audit services provided by the Office of the Auditor General are not included in Environment Canada's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties :

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

14. Transfers to/from other government departments

As part of Budget 2012, the Government of Canada announced its intention to dissolve the National Round Table on the Environment and the Economy (NRTEE) by April 1, 2013. This intention was approved through adoption (Royal Assent) of the Jobs, Growth and Long-term Prosperity Act (Bill C-38) on June 29, 2012.

The NRTEE has prepared their 2012-2013 financial statements on the liquidation basis of accounting given the discontinuance of all NRTEE operations at March 31, 2013. Any assets and liabilities that remain unsatisfied upon liquidation of the NRTEE became the liabilities of Her Majesty in right of Canada. These assets and liabilities have been transferred to Environment Canada on April 1, 2013 with a net book value of $1,181,512.

During the year, Environment Canada transferred tangible capital assets with Other Government Departments with a net effect of $20,329 (46,209 in 2012-2013) on the departmental net financial position.

In addition, on April 3, 2013, Shared Services Canada (SSC) was given the mandate to provide services related to the acquisition and provision of hardware and software, including security software for workplace technology devices (WTD) (formerly known as end user devices). Accordingly, the 2013 comparative figures have been reclassified on the Statement of Operations and Departmental Net Financial Position to present the expenses of the transferred operations. In 2013, the expenses of the transferred operations have been estimated to $1,115,710.

15. Segmented information

Presentation by segment is based on Environment Canada'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 strategic outcomes, by major object of expense and by major type of revenue. The segment results for the period are as follows:

16. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation. This includes amounts reported against program activities in the Statement of Operations and Departmental Net Financial Position which needed to be restated to comply with the Guidance from the Office of the Comptroller General (OCG) for Shared Services Canada (SSC) disclosure in the departmental financial statements.