Canadian Heritage financial statements for the year ended March 31, 2016

1. Authority and objectives

The Department of Canadian Heritage was established in 1995 under the Department of Canadian Heritage Act.

The Department of Canadian Heritage is responsible for formulating policies and delivering programs that help all Canadians participate in their shared cultural and civic life.

The Department of Canadian Heritage’s work is structured around the following three strategic outcomes:

• Canadian artistic expressions and cultural content are created and accessible at home and abroad;
• Canadians share, express and appreciate their Canadian identity; and
• Canadians participate and excel in sport.

The Department of Canadian Heritage is specifically responsible for formulating and implementing cultural policies related to copyright, foreign investment and broadcasting, as well as policies related to arts, heritage, official languages, sports, state ceremonial and protocol, and Canadian symbols.

The programs include:

• Arts: This program improves Canadians’ opportunities to engage with the arts, contributes to the resilience of the arts sector and deepens the connections between cultural organizations and their communities. This program encourages access and participation, resilience and excellence in the arts for all Canadians by supporting institutions that offer artists and performers training of the highest calibre in preparation for professional careers, the presentation of professional arts festivals or performing arts series, the improvement of arts and heritage infrastructure, the improvement of business practices of arts and heritage organizations, and the development of partnerships in the sector. Policy, legislative and regulatory measures targeting the Canadian arts sector also further this program’s objectives.
• Cultural Industries: This Program supports Canadian cultural industries in adapting to a changing and challenging global marketplace. This is achieved through the delivery of grants, contributions and tax credits as well as policy, regulatory and legislative measures. Fostering the competitiveness and creative output of these industries ensures that Canadian and international audiences access a range of Canadian content across a variety of formats and platforms and contributes to the Canadian economy.
• Heritage: The Heritage Program ensures that Canada's cultural heritage is preserved and accessible to Canadians today and in the future. It enables the heritage sector to improve professional knowledge, skills and practices, to preserve and present heritage collections and objects, and to create and circulate exhibitions and other forms of heritage content. This is accomplished by providing funding such as grants, contributions and tax incentives; information, expertise, training and other services; and regulatory and legislative measures. The primary goal of this Program is to promote the preservation and presentation of Canada’s cultural heritage.
• Attachment to Canada: This Program strengthens Canadian identities by promoting pride and sense of common purpose among Canadians. It celebrates and commemorates Canada and enhances understanding of shared values, cultural diversity and knowledge of Canada. Also, it promotes civic education and participation among Canadians, including youth, as well as provides them with the opportunity to learn about and understand Canada’s society, diversity, history and institutions. This is achieved by delivering programs and services through grants and contributions, as well as commemorations and celebrations of national significance. The core concept of this program is to promote knowledge and experiences of Canada among Canadians.
• Engagement and Community Participation: This Program aims to engage Canadians and provide them with opportunities to participate in the civil, social and cultural aspects of life in Canada and in their communities. This is accomplished through funding programs and initiatives that support the efforts of communities to build stronger citizen engagement, and to encourage social inclusion and collaboration through a variety of activities, including events marking the 150th anniversary of Confederation, and through local arts and heritage; contribute to increasing the respect for and awareness of human rights in Canada; and develop innovative and culturally appropriate initiatives to support the efforts of Indigenous communities in the revitalization and preservation of their languages and cultures. This Program has strong social benefits, as it contributes to the preservation of the history and identity of Canada’s diverse communities, while offering a way for traditions and identities to evolve over time. The Program supports the Department’s mandate to strengthen Canadian identity and values, and build attachment to Canada.
• Official Languages: Canadian Heritage plays an important role in the horizontal coordination of official languages within the federal government and especially with respect to coordination and support to federal institutions in the implementation of the government’s commitment towards the development of official-language minority communities and the promotion of linguistic duality, pursuant to section 42 of the Official Languages Act (OLA). Canadian Heritage is also responsible for the planning, implementation and management of the Official Languages Support Programs pertaining to the promotion of linguistic duality within Canada and the development of official-language minority communities, in accordance with section 43 of the OLA. These activities contribute to achieving the following Government Outcome: “A diverse society that promotes linguistic duality and social inclusion”.
• Sport: This Program promotes development and excellence in sport among Canadians and Canadian communities through initiatives that provide direct support to Canadian high-performance athletes; enhance Canada’s ability to host the Canada Games and international sport events in Canada; support the development of excellence in the Canadian sport system; and contribute to increasing participation in sport by Canadians of all ages and abilities. The core concept of this Program is to enhance and promote Canadian participation and excellence in sport, by providing funding, expertise and other services to Canadian athletes, sport organizations, stakeholders and event organizers.
• 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 Management Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization, and not to those provided specifically to a program.

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

The Department of Canadian Heritage is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department of Canadian Heritage 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. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the 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 Debt because these amounts were not included in the 2015-2016 Report on Plans and Priorities.

b. Consolidation

These consolidated financial statements include the accounts of the following sub-entities that the Deputy Minister is accountable for: Canadian Conservation Institute and Canadian Heritage Information Network.  The accounts of these sub-entities have been consolidated with those of the Department of Canadian Heritage, and all inter-organizational balances and transactions have been eliminated.

c. Net cash provided by government of Canada

The Department of Canadian Heritage operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada.  All cash received by the Department of Canadian Heritage is deposited to the CRF, and all cash disbursements made by the Department of Canadian Heritage 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 consolidated revenue fundM

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 the Department of Canadian Heritage is entitled to draw from the CRF without further authorities to discharge its liabilities.

e. Non-monetary transactions

In the normal course of business, the Department of Canadian Heritage regularly signs non-monetary agreements, which result in the exchange of non-monetary assets, goods or services for other non-monetary assets, goods or services with little or no monetary consideration involved.  When a non-monetary transaction has a commercial substance, the transaction is recorded at the fair value of the asset, good or service given up, unless the fair value of the asset, good or service received is more reliable. If the transaction lacks commercial substance, it is recorded at the carrying amount of the asset, good or service given up.

f. Revenues

Revenues from sale of goods and services are recognized in the accounts based on the goods and services provided in the year.

Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.

Revenues that are non-respendable are not available to discharge the Department of Canadian Heritage’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 the Department of Canadian Heritage’s gross revenues.

g. 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 is 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.

h. Employee future benefits

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

i. Accounts receivable

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

j. Inventory

Inventory consists of parts, materials and supplies held for future program delivery and not intended for resale.  Inventory is valued at the actual cost.  If there is no longer any service potential, inventory 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. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on First Nation 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:

l. 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.

m. Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are respectively included in the miscellaneous revenues and other operating expenses in the Statement of Operations and Departmental Net Financial Position.

n. 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, the liability for employee future benefits, the useful life of tangible capital assets, the allowance for doubtful accounts, and the fair value of non-monetary transactions.  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

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

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

(1) The lapse of $7,297K in Operating expenditures includes an amount of $4,555K which has been approved by Treasury Board to be carried over to 2016-2017, $1,626K of special purpose allotments which can only be spent on advertising initiatives for the 150th Anniversary of Confederation, and $888K of frozen allotments (funds withheld by Treasury Board which cannot be spent by Canadian Heritage).

(2) The lapse of $31,604K in Grants and Contributions is largely due to a decrease of $22,900K in transfer payments under the Sport Hosting Program, which are related to the 2015 Pan American and Parapan American Games that closed in August 2015.  An additional amount of $5,979K under the Attachment to Canada Program is related to Road to 2017 which was approved by Treasury Board to be reprofiled to 2016-2017, and another $740K consists of frozen allotments (funds withheld by Treasury Board which cannot be spent by Canadian Heritage).

4. Accounts payable and accrued liabilities

The following table presents details of the Department of Canadian Heritage’s accounts payable and accrued liabilities (in thousands of dollars):

(1) 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 of Canadian Heritage has recorded at March 31, 2016 an obligation for termination benefits for an amount of $248K ($796K in 2014-2015) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

a. Pension benefits

The Department of Canadian Heritage’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. 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 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 EAP 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 amounts to $22,228K ($22,800K 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.

The Department of Canadian Heritage’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

The Department of Canadian Heritage 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 (in thousands of dollars):

6. Accounts receivable and advances

The following table presents details of the Department of Canadian Heritage’s accounts receivable and advances (in thousands of dollars):

7. Inventory

The following table presents details of the inventory, measured at cost using the actual cost method (in thousands of dollars):

The cost of consumed inventory recognized as an expense in the Statement of Operations and Departmental Net Financial Position is $1,391K in 2015-2016 ($1,407K in 2014-2015).

8. Tangible capital assets

9. Contractual obligations

10. Contingent liabilities

Claims have been made against the Department 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. The Department of Canadian Heritage would record 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. There are no claims for 2015-2016 ($0K in 2014-2015) and litigations for which the outcome is determinable and a reasonable estimate can be made by management at March 31, 2016.

Pursuant to s. 3(1) of the Canada Travelling Exhibition Indemnification Act (the "Act") the Minister of Canadian Heritage is authorized to enter into indemnification agreements with owners of objects or appurtenances on loan to travelling exhibitions in Canada.  Under the Act, maximum levels of liability are established including: no more than $600M in respect of each travelling exhibition and; no more than $3,000M at any given time in respect of all travelling exhibitions.  The Canada Travelling Exhibitions Indemnification Regulations set out specific requirements to be met when owners are seeking indemnification agreements with the Minister.  The Regulations also set limitations on the scope of indemnity, establish deductibles, define maximums for and period of coverage, set requirements for condition reporting, outline a claims procedure and provide  for dispute resolution, among other things. 

11. Non-monetary transactions

During the year, the Department of Canadian Heritage entered into sponsorship agreements through which it received various goods or services. In exchange, the sponsors received various benefits, including exclusive marketing rights and visibility. These non-monetary transactions with unrelated parties were recorded equally in revenues and cost of operations. The estimated value of these transactions is $1.5 million ($1.2 million in 2015), which represents the fair value of the goods and services received.

12. Related Party transactions

The Department of Canadian Heritage is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department of Canadian Heritage enters into transactions with these entities in the normal course of business and on normal trade terms.  In addition, the Department of Canadian Heritage has various agreements such as the one with Parks Canada for the provision of functional services related to the financial system.  During the year, the Department of Canadian Heritage 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, the Department of Canadian Heritage received services without charge from certain common service organizations, related to accommodation, legal services, the employer’s contribution to the health and dental insurance plans and workers’ compensation coverage. These services provided without charge have been recorded in the Department of Canadian Heritage’s Statement of Operations and Departmental Net Financial Position as follows:

13. 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. 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 the Department. However, it did result in the use of additional spending authorities by the Department. Prior to year-end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Works and Government Services Canada, who is responsible for the administration of the Government pay system.

14. Transfer to / from other government departments and agencies

On November 4th, 2015, the Department of Citizenship and Immigration transferred responsibility for the Multiculturalism program to the Department of Canadian Heritage in accordance with Order in Council (P.C. 2015-1247), including stewardship responsibility for the operations, assets and liabilities related to the program.  Accordingly, the Department of Citizenship and Immigration transferred assets and liabilities related to the Multiculturalism program to the Department of Canadian Heritage on March 31, 2016. 

Through the coming into force of the Administrative Tribunals Support Service of Canada Act on November 1st, 2014, the Government of Canada consolidated the provision of support services to eleven administrative tribunals, including the Canadian Cultural Property Export Review Board (CCPERB), into a single organization, the Administrative Tribunals Support Service of Canada (ATSSC). Accordingly, the Department transferred responsibility for the assets and liabilities related to the CCPERB to the ATSSC on November 1st, 2014.