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Financial Statements of the Canadian Food Inspection Agency (Unaudited)
Year ended March 31, 2018

Statement of Management Responsibility Including Internal Control Over Financial Reporting (Unaudited)

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2018 and all information contained in these financial statements rests with the management of the Canadian Food Inspection Agency. These financial statements have been prepared by management using the Government of Canada'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 financial statements. Some of the information in the financial statements is based on management's best estimates and judgement, 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 the Agency's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Agency's Departmental Results Reports is consistent with these 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 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 the Agency 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 on-going 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, 2018 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Agency's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Agency'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 President.

The financial statements of the Canadian Food Inspection Agency have not been audited.

Original signed by:

Paul Glover
President

Ottawa, Canada
August 24, 2018

Yves Bacon, CPA, CMA
Vice-President, Corporate Management Branch and Chief Financial Officer

Statement of Financial Position (Unaudited)

As at March 31
(in thousands of dollars)
2018 2017
Liabilities
Accounts payable and accrued liabilities (Note 4)
$132,649 $109,277
Vacation pay and compensatory leave
35,888 33,886
Deferred revenue (Note 5)
2,716 1,957
Employee future benefits (Note 6)
26,916 26,792
Total gross liabilities 198,169 171,912
Financial assets
Due from Consolidated Revenue Fund
78,381 78,694
Accounts receivable and advances (Note 7)
22,009 19,404
Total gross financial assets 100,390 98,098
Accounts receivable and advances held on behalf of Government (Note 7) (37) (47)
Total net financial assets 100,353 98,051
Agency - net debt 97,816 73,861
Non-financial assets
Prepaid expenses
491 2,397
Inventory (Note 8)
828 813
Tangible capital assets (Note 9)
199,260 185,857
Total non-financial assets 200,579 189,067
Agency - net financial position $102,763 $115,206

Contractual obligations and contractual rights (Note 10)
Contingent liabilities (Note 11)

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

Original signed by:

Paul Glover
President

Ottawa, Canada
August 24, 2018

Yves Bacon, CPA, CMA
Vice-President, Corporate Management Branch and Chief Financial Officer

Statement of Operations and Agency Net Financial Position (Unaudited)

For the year ended March 31
(in thousands of dollars)
2018
Planned Results
2018 2017
Expenses
Food Safety Program
$386,483 $406,699 $413,880
Animal Health and Zoonotics Program
145,683 154,652 192,975
Plant Ressources Program
92,934 88,164 89,201
International Collaboration and Technical Agreements
44,777 39,588 38,185
Internal Services
139,106 155,804 143,236
Total expenses 808,983 844,907 877,477
Revenues
Inspection fees
37,150 39,927 38,027
Registrations, permits, certificates
8,129 8,636 8,720
Miscellaneous fees and services
4,796 5,410 4,820
Establishment license fees
1,894 2,056 1,955
Administrative monetary penalties
925 663 1,108
Grading
112 95 99
Interest
32 9 15
Revenues earned on behalf of Government
(351) (347) (957)
Total revenues 52,687 56,449 53,787
Net cost of operations before government funding and transfers $756,296 788,458 823,690
Government funding and transfers
Net Cash provided by Government of Canada
680,462 719,104
Change in due from Consolidated Revenue Fund
(313) 11,172
Services provided without charge by other government departments (Note 12)
95,869 95,313
Assets funded by other government departments (OGD)
- 62
Transfer of the transition payments for implementing salary payments in arrears
(3) (1)
Net cost of operations after government funding and transfers
12,443 (1,960)
Agency – net financial position – Beginning of year 115,206 113,246
Agency – net financial position – End of year $102,763 $115,206

Segmented information (Note 13)
The accompanying notes form an integral part of these financial statements.

Statement of Change in Agency net Debt (Unaudited)

For the year ended March 31
(in thousands of dollars)
2018 2017
Net cost of operations after government funding and transfers $12,443 $(1,960)
Change in tangible capital assets
Acquisition of tangible capital assets
43,711 47,644
Amortization of tangible capital assets
(30,031) (37,421)
Proceeds from disposal of tangible capital assets
(271) (257)
Net (loss) or gain on disposal of tangible capital assets
(27) (746)
Post-capitalization of tangible capital assets
21 23
Tangible capital assets funded by other government departments (OGD)
- 62
Total change due to tangible capital assets 13,403 9,305
Change due to inventory 15 (44)
Change due to prepaid expenses (1,906) 1,583
Net increase in Agency net debt 23,955 8,884
Agency – net debt – Beginning of year 73,861 64,977
Agency – net debt – End of year $97,816 $73,861

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

Statement of Cash Flows (Unaudited)

For the year ended March 31
(in thousands of dollars)
2018 2017
Operating activities
Cash received from:
Fees, permits and certificates
$(57,353) $(56,063)
Cash paid for:
Salaries and employees benefits
555,126 551,131
Operating and maintenance
133,080 133,364
Transfer payments
5,812 42,292
Revenues collected on behalf of Government
357 993
Cash used in operating activities 637,022 671,717
Capital investment activities
Acquisition of tangible capital assets
43,711 47,644
Proceeds from disposal of tangible capital assets
(271) (257)
Cash used in capital investment activities 43,440 47,387
Net cash provided by Government of Canada $680,462 $719,104

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

Notes to the Financial Statements (Unaudited)

Years ended March 31

1. Authority and Objectives

The Canadian Food Inspection Agency (the "Agency") was established, effective April 1, 1997, under the Canadian Food Inspection Agency Act. The Act consolidates all federally mandated food and fish inspection services and federal animal and plant health activities into a single agency.

The Agency is a departmental corporation named in Schedule II to the Financial Administration Act and reports to Parliament through the Minister of Health.

The mandate of the Agency is to enhance the effectiveness and efficiency of federal inspection and related services for food, animals and plants. The objectives of the Agency are to contribute to a safe food supply and accurate product information; to contribute to the continuing health of animals and plants; and to facilitate trade in food, animals, plants, and related products.

In delivering its mandate, the Agency operates under the following 4 programs supported by internal services:

The Agency is responsible for administering and enforcing 14 federal statutes and 34 sets of regulations, for regulating the safety and quality of food sold in Canada, and for supporting a sustainable plant and animal resource base. It shares many of its core responsibilities with other federal departments and agencies, with provincial, territorial and municipal authorities, with private industry, and with other stakeholders.

Operating and capital expenditures are funded by the Government of Canada through parliamentary authorities. Compensation payments under the Health of Animals Act and the Plant Protection Act and employee benefits are authorized by separate statutory authorities. Revenues generated by its operations are deposited to the Consolidated Revenue Fund and are available for use by the Agency.

2. Summary of significant accounting policies

These financial statements are prepared using the Agency'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:

3. Parliamentary Authorities

The Agency receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Agency 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, the Agency has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

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

(in thousands of dollars) 2018 2017
Net cost of operations before government funding and transfers $788,458 $823,690
Adjustments for items affecting net cost of operations but not affecting authorities:
Add (less):
Services provided without charge by other government departments
(95,869) (95,313)
Amortization of tangible capital assets
(30,031) (37,421)
Revenues pursuant to Section 30 of the CFIA act
55,883 53,244
Refund of Prior year expenditures
3,421 1,203
Bad debt expense
(69) (95)
Change in Employee Severance Benefits
(124) 6,884
Change in Allowance for Expired Collective Agreements
(23,666) (18,517)
Other net changes in future funding requirements
(2,422) 5,572
Gain (loss) on disposal of tangible capital assets
(27) (746)
Post-capitalization of tangible capital assets
21 23
Total items affecting net cost of operations but not affecting authorities
(92,883) (85,166)
Adjustments for items not affecting net cost of operations but affecting authorities:
Add (less):
Acquisition of tangible capital assets
43,711 47,644
Proceeds from disposal of tangible capital assets
(271) (257)
Transition payments for implementing salary payments in arrears
3 1
Total items not affecting net cost of operations but affecting authorities
43,443 47,388
Current year authorities used $739,018 $785,912

(b) Authorities provided and used:

(in thousands of dollars) 2018 2017
Authorities provided:
Vote 1 – Operating expenditures
$611,124 $596,003
Vote 5 – Capital expenditures
63,656 102,169
Revenues pursuant to Section 30 of the CFIA act
69,831 61,256
Statutory compensation (transfer) payments
6,373 40,868
Statutory contributions to employee benefits plans and other statutory authorities
69,001 72,846
Less:
Authorities available for future years
(44,658) (13,465)
Lapsed Operating
(16,527) (19,544)
Lapsed Capital
(19,782) (54,221)
Current year authorities used $739,018 $785,912

4. Accounts Payable and Accrued Liabilities

The following table presents details of the Department's accounts payable and accrued liabilities.

(in thousands of dollars) 2018 2017
Accounts payable – Other government departments and agencies (OGD) $3,313 $3,724
Accounts payable – External parties 43,731 40,703
Total accounts payables 47,044 44,427
Accrued liabilities 85,605 64,850
Total accounts payable and accrued liabilities $132,649 $109,277

5. Deferred Revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from accounts received from external parties that are restricted in order to fund the expenditures related to specific research projects and stemming from amounts received for fees prior to services being performed. 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:

(in thousands of dollars) 2018 2017
Opening balance $1,957 $1,754
Amounts received 1,800 806
Revenue recognized (1,041) (603)
Gross closing balance 2,716 1,957
Deferred revenues held on behalf of Government - -
Net closing balance $2,716 $1,957

6. Employee Future Benefits

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

(in thousands of dollars) 2018 2017
Accrued benefit obligation, beginning of year $26,792 $33,676
Expense (recovery) for the year 2,356 (4,165)
Benefits paid during the year (2,232) (2,719)
Accrued benefit obligation - End of year $26,916 $26,792

7. Accounts Receivable and Advances

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

(in thousands of dollars) 2018 2017
Receivables - Other government departments and agencies (OGD) $9,082 $9,704
Receivables - External parties 5,683 4,831
Employee advances 7,537 5,602
Subtotal 22,302 20,137
Allowance for doubtful accounts (293) (733)
Gross accounts receivable 22,009 19,404
Accounts receivable held on behalf of Government (37) (47)
Net accounts receivable $21,972 $19,357

8. Inventory

(in thousands of dollars) 2018 2017
Materials and supplies $541 $556
Livestock 287 257
Total inventory $828 $813

9. Tangible Capital Assets

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

Asset class Amortization Period
Buildings 15-40 years
Machinery and equipment 5-20 years
Computer equipment and software 3-5 years
Vehicles 7-15 years
Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
Assets under construction Once in service, in accordance with asset class

Assets under construction are recorded in the applicable asset class in the year they are put into service and are not amortized until they are put into service.

(in thousands of dollars)
Cost Accumulated amortization Net Book Value
Capital asset class Opening balance Acquisitions Adjustments (1) Disposals and write-offs Closing balance Opening balance Amortization (2) Disposals and write-offs Closing balance 2018 2017
Land $3,330 $ - $ - $ - $3,330 $ - $ - $ - $ - $3,330 $3,330
Buildings 308,702 12,799 14,047 18 335,530 256,878 10,665 17 267,526 68,004 51,824
Machinery and equipment 93,439 2,586 334 2,066 94,293 57,463 5,056 1,478 61,041 33,252 35,976
Computer equipment and software 117,308 16,103 29,212 77 162,546 91,513 9,754 154 101,113 61,433 25,795
Vehicles 29,147 2,955 (43) 2,949 29,110 20,060 2,632 2,986 19,706 9,404 9,087
Assets under construction 51,246 9,156 (43,335) 17 17,050 - - - - 17,050 51,246
Leasehold improvements 53,118 112 - 22 53,208 44,519 1,924 22 46,421 6,787 8,599
Total $656,290 $43,711 $215 $5,149 $695,067 $470,433 $30,031 $4,657 $495,807 $199,260 $85,857

(1) Adjustments include assets under construction of $43,335 thousand that were transferred to the other categories upon completion of the assets.
(2) Amortization expense for the year ended March 31, 2018 is $30,031 thousand ($37,421 thousand in 2016-2017).

10. Contractual Obligations and Contractual Rights

(a) Contractual obligations

The nature of the Agency's activities may result in some large multi-year contracts and obligations whereby the Agency 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:

(in thousands of dollars) 2019 2020 2021 2022 2023 and thereafter Total
Operating contracts $22,140 $4,968 $440 $388 $395 $28,331
Capital projects 6,521 225 - - - 6,746
Operating leases 1,704 8 6 6 42 1,766
Transfer payments 68 20 - - - 88
Total $30,433 $5,221 $446 $394 $437 $36,931

(b) Contractual rights

The activities of the department sometimes involve the negotiation of contracts or agreements with outside parties that result in the Agency having rights to both assets and revenues in the future. They principally involve leases of property, royalties, and sales of goods and services. The Agency does not have major contractual rights that will generate revenues in future years and that can be reasonably estimated.

11. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. Claims relating to both legal claims and employee grievances have been made against the Agency 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.

Amounts have been accrued for contingent liabilities as at March 31, 2018 pertaining to legal claims. The amount of the contingent liabilities for legal claims recognized is based on management's best estimate. Other legal claims against the Agency and other defendants include a class action suit related to bovine spongiform encephalopathy (BSE) for which the likelihood of liability is not determinable.

No amounts have been accrued pertaining to employee grievances as at March 31, 2018.

12. Related Party Transactions

The Agency is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations.

The Agency enters into transactions with these entities in the normal course of business and on normal trade terms.

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

During the year, the Agency received services without charge from certain common service organizations, related to the employer's contribution to the health and dental insurance plans, accommodation, Shared Services Canada and legal services. These services provided without charge have been recorded at the carrying value in the Agency's Statement of Operations and Agency Net Financial Position as follows:

(in thousands of dollars) 2018 2017
Employer's contribution to the health and dental insurance plans $44,887 $44,870
Accommodation 28,135 28,890
Legal services 43 61
Shared Services Canada 22,804 21,492
Total $95,869 $95,313

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 and audit services provided by the Office of the Auditor General are not included in the Agency's Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with other government departments and agencies

(in thousands of dollars) 2018 2017
Accounts receivable $9,082 $9,704
Accounts payable 3,313 3,724
Expenses 105,208 109,465
Revenues 412 1,056

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

13. Segmented information

Presentation by segment is based on the Agency'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, by major object of expenses and by major type of revenues. The segmented results for the period are as follows:

(in thousands of dollars) 2018 2017
Food Safety Program Animal Health and Zoonotics Program Plant Resources Program International Collaboration and Technical Agreements Internal Services Total Total
Transfer Payments
Compensation payments $ - $6,281 $88 $ - $ - $6,369 $40,868
Other 294 185 299 11 - 789 1,244
Total transfer payments 294 6,466 387 11 - 7,158 42,112
Operating Expenses
Salaries and employee benefits 315,550 104,202 67,535 33,258 101,968 622,513 610,711
Professional and special services 28,146 11,766 4,783 1,025 26,140 71,860 69,086
Accommodation 16,227 10,167 3,484 1,694 5,192 36,764 37,529
Amortization 14,345 5,569 3,116 1,378 5,623 30,031 37,421
Communications 10,940 4,247 2,373 1,047 4,325 22,932 21,675
Utilities, materials and supplies 7,915 6,321 3,621 180 2,340 20,377 20,376
Travel and relocation 8,276 2,767 1,629 911 1,957 15,540 19,953
Furniture and equipment 2,149 1,562 476 18 1,566 5,771 7,690
Equipment rentals 222 324 148 5 4,877 5,576 2,384
Repairs 2,413 1,148 562 55 653 4,831 5,726
Information 159 47 27 3 1,127 1,363 1,600
Miscellaneous 50 61 20 2 31 164 468
Loss on disposal of assets 13 5 3 1 5 27 746
Total operating expenses 406,405 148,186 87,777 39,577 155,804 837,749 835,365
Total expenses 406,699 154,652 88,164 39,588 155,804 844,907 877,477
Revenues
Inspection fees 28,176 1,179 4,381 6,191 - 39,927 38,027
Registrations, permits, certificates 2,118 793 1,021 4,704 - 8,636 8,720
Miscellaneous fees and services 80 1,616 1,649 1,726 339 5,410 4,820
Establishment license fees 2,043 - 13 - - 2,056 1,955
Administrative monetary penalties 157 163 204 - 139 663 1,108
Grading 94 - - 1 - 95 99
Interest - - - - 9 9 15
Revenues earned on behalf of Government - - - - (347) (347) (957)
Total revenues 32,668 3,751 7,268 12,622 140 56,449 53,787
Net cost of operations $374,031 $150,901 $80,896 $26,966 $155,664 $788,458 $823,690

14. Comparative information

In 2017-2018, Shared Services Canada updated its calculation methodology related to the services it provides without charge to the Agency. The 2016-2017 comparative figures have been updated to reflect the change as shown in the table below, which does not impact the 2017-2018 opening balance.

Statement of Operations and Departmental Net Financial Position
(in thousands of dollars) 2017
Previous figures
2017
Comparative figures
Total expenses $868,543 $877,477
Net cost of operations before government funding and transfer 814,756 823,690
Services provided without charge by other government departments (Note 12) 86,379 95,313

Summary of the assessment of effectiveness of the systems of internal control over financial reporting and the action plan of the Canadian Food Inspection Agency for fiscal year 2017-18 (Unaudited)

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting

1. Introduction

This document provides summary information on the measures taken by the Canadian Food Inspection Agency (CFIA or the Agency) to maintain an effective system of internal control over financial reporting (ICFR), including information on internal control management and assessment results and related action plans.

Detailed information on the CFIA's authority, mandate and program activities can be found in the Agency's Departmental Results Report and Departmental Plan.

2. Agency system of internal control over financial reporting

2.1 Internal control management

The CFIA has a well-established governance and accountability structure to support Agency assessment efforts and oversight of its system of internal control. An Agency internal control management framework, approved by the President, is in place and includes:

The Agency Audit Committee provides advice to the President on the adequacy and functioning of the Agency's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

The Agency relies on other organizations for the processing of certain transactions that are recorded in its financial statements:

Common arrangements

Specific arrangements

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of internal control over financial reporting related to these specific services.

3. Agency assessment results during fiscal year 2017-18

The key findings and significant adjustments required from the current year's assessment activities are summarized below.

New or significantly amended key controls: In the current year, there were no significantly amended key controls in existing processes which required a reassessment. Design and operating effectiveness testing was conducted on any new key controls identified. Significant adjustments were not required for the new key controls.

Ongoing monitoring program: As part of its rotational ongoing monitoring plan, the Agency completed its reassessment of entity-level controls within Control Environment; Information Technology controls within PeopleSoft, and the financial controls within the business processes of Pay, Non-Pay, Statutory Compensation Payments and Financial Close & Reporting. For the most part, the key controls that were tested performed as intended, with remediation to support continuous improvement identified as follows:

4. Agency Action Plan

4.1 Progress during fiscal year 2017–18

The CFIA continued to conduct its ongoing monitoring according to the previous fiscal year's rotational plan as shown in the following table:

Previous year's rotational ongoing monitoring plan for current year Status
Complete on-going operating effectiveness testing for Non-Pay and Control Environment. Completed as planned; no remedial actions required.
Complete on-going operating effectiveness testing for Pay, Statutory Compensation Payments, Financial Close and Reporting and PeopleSoft. Completed as planned; remedial actions in progress.
Complete on-going operating effectiveness testing for Risk Management. Deferred until 2018-19 to allow for the implementation of the recommendations on the Management of Fraud Risk from the CFIA internal review and the Office of the Auditor General's Audit.
Continue to follow up on outstanding improvement opportunities identified in previous years.

Improvement opportunities are in progress for Pay, Capital Assets and Revenue.

Other improvement opportunities identified in previous years have been fully implemented.

4.2 Action Plan for the next fiscal year and subsequent years

The CFIA's rotational ongoing monitoring plan over the next three years, based on an annual validation of risks and controls and related adjustments as required, is shown in the following table:

Key Control Areas Table Note 1 2018-19 2019-20 2020-21
Entity level controls
Control Environment
No No Yes
Risk Management
Yes No Yes
Control Activities
No Yes No
Information and Communication
Yes No No
Monitoring Activities
No Yes No
Information technology general controls under Agency management
SAP
Yes No Yes
PeopleSoft
No Yes No
Electronic Invoicing
No Yes No
Business Process Controls
Pay
Yes Yes Yes
Non-Pay (Operating and Maintenance)
No No Yes
Revenue
No Yes No
Capital Assets
Yes No Yes
Statutory Compensation Payments
No No Yes
Financial Close and Reporting
Yes Yes Yes
Forecasting and Budgeting
No Yes No

Table Notes

Table Note 1

CFIA redefined specific control areas using the COSO (2013) Framework.

Return to table note 1  referrer

In addition to the risk-based on-going monitoring plan, the Agency plans to continue to address outstanding remediation.

Date modified: