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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, 2022, and all information contained in these statements rests with the management of the Department of National Defence (the department).  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 (PSAS), the  presentation and results using the stated accounting policies do not result in any significant differences from PSAS.

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 judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department’s Departmental Results Report, 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 department and through conducting an annual assessment of the effectiveness of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an on-going process to identify, 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, 2022 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are illustrated in the department's Annex to the Statement of Management Responsibility.

The effectiveness and adequacy of the department’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of the different areas of the department’s operations, and by the Departmental Audit Committee, which oversees management’s responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the financial statements to the Deputy Minister.

The financial statements of the department have not been audited.

// Signed by //

Bill Matthews
Deputy Minister
Ottawa, Canada

// Signed by //

Cheri Crosby, CPA, CMA
Chief Financial Officer

Date: 

Consolidated Statement of Financial Position (Unaudited) – As at March 31

(in thousands of dollars) 2022 2021
Liabilities
Accounts payable and accrued liabilities (note 4)
 4,280,150 4,668,328
Vacation pay and compensatory leave
 245,126 277,664
Environmental liabilities (note 5)
 729,598 676,027
Deposits and trust accounts (note 6)
 3,580                   4,201
Deferred revenue (note 7)
 3,913 6,627
Canadian Forces pension and insurance accounts (note 8)
 525,185 727,493
Lease obligations for tangible capital assets (note 9)
 67,609 40,416
Employee future benefits (note 10)
 771,306 807,549
Total liabilities 6,626,467 7,208,305
Financial assets
Due from Consolidated Revenue Fund
        2,767,164  3,251,538
Accounts receivable (note 11)
           394,240  374,354
Loans and advances (note 12)
 46,774  48,022
Total gross financial assets
 3,208,178   3,673,914
Financial assets held on behalf of government
Accounts receivable (note 11)
 (24,707) (9,386)
Total financial assets held on behalf of government
 (24,707) (9,386)
Total net financial assets          3,183,471   3,664,528
Departmental net debt          3,442,996 3,543,777
Non-financial assets
Prepaid expenses (note 13)
          1,518,641 1,272,123
Inventory (note 14)
 4,965,752 5,182,375
Tangible capital assets (note 15)
 39,150,245 36,887,876
Total non-financial assets 45,634,638 43,342,374
Departmental net financial position 42,191,642 39,798,597

Contingent liabilities (note 16)

Contractual obligations and contractual rights (note 17)

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

// Signed by //

Bill Matthews
Deputy Minister
Ottawa, Canada

// Signed by //

Cheri Crosby, CPA, CMA
Chief Financial Officer

Date: 

4,965,752 

Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited) – As at March 31

(in thousands of dollars) 2022 Planned ResultsFootnote * 2022 2021
Expenses
Operations
 701,728 951,409    1,055,422
Ready Forces
 10,167,858 10,312,503    11,801,141
Defence Team
 3,704,296 3,857,623    4,479,351
Future Force Design
        607,199 753,110    799,109
Procurement of Capabilities
 4,365,809     1,807,017 3,075,486
Sustainable Bases, Information Technology Systems and Infrastructure
 3,812,440 3,770,426  4,072,939
Internal services
  752,414 1,404,143    1,450,388
Total expenses 24,111,744 22,856,231    26,733,836
Revenues
Sale of goods and services
 384,385 338,801 338,984
Gains on disposals of assets
 19,919 21,044 10,738
Other
 20,242 26,465 11,454
Interest and gains on foreign exchange
 15,862  18,402 40,969
Revenues earned on behalf of government
 (19,544)       (36,201) (14,902)
Total revenues 420,864  368,511 387,243
Net cost of operations before government funding and transfers   23,690,880 22,487,720 26,346,593
Government funding and transfers
Net cash provided by government
   24,467,050 26,310,151
Change in due from Consolidated Revenue Fund
   (484,375) 393,629
Services provided without charge by other government departments (note 18)
   897,986 904,192
Transfer of Accounts receivable to Public Services and Procurement Canada
   (10) 0
Transfer of assets and liabilities from (to) other government departments (note 15)
   21 (11,137)
Transfer of salary overpayments (to) from other government departments
   93 0
Net cost of operations after government funding and transfers    (2,393,045) (1,250,242)
Departmental net financial position — beginning of year  39,798,597 38,548,355
Departmental net financial position — end of year 42,191,642 39,798,597

Segmented information (note 19)

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

Consolidated Statement of Change in Departmental Net Debt (Unaudited) – For the year ended March 31

(in thousands of dollars) 2022 2021
Net cost of operations after government funding and transfers (2,393,045) (1,250,242)
Change due to tangible capital assets
Acquisition of tangible capital assets (note 15)
 3,896,744 4,224,179
Amortization of tangible capital assets (note 15)
 (1,858,402) (2,571,400)
Proceeds from disposal of tangible capital assets
 (19,230) (8,906)
Loss on disposals of tangible capital assets
 (74,454) (1,887)
Adjustments of tangible capital assets
 317,690 (159,454)
Transfer (to) from other government departments (note 15)
 21 (11,137)
Total change due to tangible capital assets 2,262,369 1,471,395
Change due to inventory (216,623) 63,454
Change due to prepaid expenses 246,518 303,245
Net increase in departmental net debt (100,781) 587,852
Departmental net debt — beginning of year    3,543,777 2,955,925
Departmental net debt — end of year    3,442,996 3,543,777

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

Consolidated Statement of Cash Flow (Unaudited) – For the year ended March 31

(in thousands of dollars) 2022 2021
Operating activities
Net cost of operations before government funding and transfers  22,487,720 26,346,593
Non-cash items included in net cost of operations:
Amortization of tangible capital assets (note 15)
 (1,858,402) (2,571,400)
Loss on disposals of tangible capital assets
 (74,454) (1,887)
Adjustments of tangible capital assets
 317,690 (159,454)
Services provided without charge by other government departments (note 18)
 (897,986) (904,192)
Transition payments for implementing salary payments in arrears 10 0
Variations in Statement of Financial Position:
Decrease in accounts receivables
            4,566  9,902
(Decrease) in loans and advances
 (1,248) (2,736)
Decrease in prepaid expenses
 246,518  303,245
Increase (decrease) in inventory
 (216,623) 63,454
(Increase) decrease in accounts payable and accrued liabilities
 388,178 (658,091)
(Increase) decrease in vacation pay and compensatory leave
 32,538 (47,666)
(Increase) in environmental liabilities
 (53,571) (24,406)
(Increase) decrease in deposits and trust accounts
 621 (107)
(Decrease) in deferred revenue
 2,714  2,864
(Increase) decrease in Canadian Forces pension and insurance accounts
 202,308 (105,446)
(Increase) decrease in employee future benefits
 36,243 (167,417)
Transfer of salary overpayments to (from) other government departments
 (93) 0
Cash used by operating activities 20,616,729 22,083,256
Capital investing activities
Acquisitions of tangible capital assets (note 15)
 3,896,744 4,224,179
Proceeds from disposal of tangible capital assets
  (19,230) (8,906)
Cash used in capital investing activities    3,877,514 4,215,273
Financing activities
Lease payments for tangible capital assets
 (27,193) 11,622
Cash used by financing activities (27,193) 11,622
Net cash provided by Government of Canada 24,467,050 26,310,151

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

 Notes to the Consolidated Financial Statements (Unaudited) – For the year ended March 31

1. Authority and objectives

Authorities

The Department of National Defence (the department) was established by the National Defence Act (NDA). Under section 3 of the NDA, the Minister of National Defence presides over the department. Under section 4 of the NDA, the Minister has the management and direction of the Canadian Forces and of all matters relating to national defence and is responsible for the construction and maintenance of all defence establishments and works for the defence of Canada, and research relating to the defence of Canada and to the development of and improvements in materiel.

Objectives

Strong, Secure, Engaged is the defence policy that presents a vision and approach to defence by the Government of Canada. Strong, Secure, Engaged provides a bold vision to defence that will make Canada:

  • Strong at home, with a military ready and able to defend its sovereignty, and to assist in times of natural disaster, support search and rescue, or respond to other emergencies;
  • Secure in North America, active in a renewed defence partnership in the North American Aerospace Defense Command (NORAD) and with the United States to monitor and defend continental airspace and ocean areas;
  • Engaged in the world, with the Canadian Armed Forces doing its part in Canada's contributions to a more stable, peaceful world, including peace support operations and peacekeeping.

The Departmental Results Framework is structured by the following six core responsibilities and internal services:

(a) Operations

Detect, deter and defend against threats to or attacks on Canada. Assist civil authorities and law enforcement, including counter-terrorism, in support of national security, domestic disasters or major emergencies, and conduct search and rescue operations.

Detect, deter and defend against threats to or attacks on North America in partnership with the United States, including through NORAD.

Lead and/or contribute forces to NATO and coalition efforts to deter and defeat adversaries, including terrorists, to support global stability. Lead and/or contribute to international peace operations and stabilization missions with the United Nations, NATO and other multilateral partners. Engage in capacity building to support the security of other nations and their ability to contribute to security and the security of Canadians abroad. Assist civil authorities and non-governmental partners in responding to international and domestic disasters or major emergencies.

(b) Ready Forces

Field combat ready forces able to succeed in an unpredictable and complex security environment in the conduct of concurrent operations associated with all mandated missions.

(c) Defence Team

Recruit, develop and support an agile and diverse Defence Team, within a healthy workplace free from harmful behaviour; support military families; and meet the needs of all retiring military personnel, including the ill and injured. Strengthen Canadian communities by investing in youth.

(d) Future Force Design

Develop and design the future force through a deep understanding of the future operating environment and security risks to Canada and Canadian interests. Enhance Defence’s ability to identify, prevent, adapt and respond to a wide range of contingencies through collaborative innovation networks and advanced research.

(e) Procurement of Capabilities

Procure advanced capabilities to maintain an advantage over potential adversaries and to keep pace with allies, while fully leveraging defence innovation and technology. Streamlined and flexible procurement arrangements ensure Defence is equipped to conduct missions.

(f) Sustainable Bases, Information Technology Systems and Infrastructure

Develop and manage modern, operational and sustainable bases and infrastructure. Contribute to the achievement of federal environmental targets.

(g) 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. Internal Services refers to the activities and resources of the 10 distinct services that support Program delivery in the organization, regardless of the Internal Services delivery model in a department. 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 Service.

2. Summary of significant accounting policies

These Consolidated Departmental Financial Statements have been prepared using the government’s accounting policies stated below, which are based on Canadian public sector accounting standards (PSAS), the presentation and result using the stated accounting policies do not result in any significant differences from PSAS.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The department is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the department 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 Future-Oriented Condensed Statement of Operations included in the 2021–22 Departmental Plan.

Planned results are not presented in the “Government funding and transfers” section of the Consolidated Statements of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Debt because these amounts were not included in the 2021–22 Departmental Plan.

(b) Consolidation

These Consolidated Departmental Financial Statements include the accounts of the sub-entities for which the Deputy Minister (DM) is accountable. The accounts of these sub-entities have been consolidated with those of the department, and all inter-organizational balances and transactions have been eliminated. The department is comprised of the DND, the CAF and several related organizations and agencies in the Defence Portfolio, all of which carry out the Defence mission and are part of the Defence Services Program. Organizations and agencies that are part of these Consolidated Departmental Financial Statements include the following:

  • Advisory Panel on Systemic Racism, Discrimination with a focus on anti-Indigenous and anti-Black racism, LGBTQ2+ Prejudice, Gender Bias and White Supremacy
  • Canadian Cadet Program and the Junior Canadian Rangers
  • Canadian Forces Housing Agency
  • Defence Research and Development Canada
  • Independent Review Panel for Defence Acquisition
  • Office of the Chief Military Judge
  • Office of the Judge Advocate General
  • Office of the National Defence and the Canadian Forces Ombudsman

The Military Grievances External Review Committee, the Military Police Complaints Commission of Canada and the Communications Security Establishment are excluded from the consolidation because these organizations are not part of the Defence Services Program, although they fall under the responsibility of the Minister of National Defence.

(c) Net cash provided by Government

The department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the department is deposited to the CRF, and all cash disbursements made by the department are paid from the CRF. The net cash provided by the government is the difference between all cash receipts and 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 the department is entitled to draw from the CRF without further authorities to discharge its liabilities.

(e) Revenues

  • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
  • Deferred revenue consists of amounts received in advance from external parties for the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned. Also, funds received from external parties for a specified purpose are recorded upon receipt as deferred revenue.
  • Other revenues are recognized 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’s liabilities. While the DM is expected to maintain accounting control, they have 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 as a reduction of the department’s gross revenues.

(f) Expenses

Expenses are recorded on an accrual basis:

  • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility or the entitlements criteria (for grants) or the performance conditions (for contributions) established for the transfer payment program. In situations where transfer payments do not form part of an existing program, 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.
  • 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, worker’s compensation coverage and legal services are recorded as operating expenses at their estimated cost.

(g) Employee future benefits

(i) Pension benefits

Eligible civilian employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The department’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.

The department administers pension benefits for members of the CAF, both Regular and Reserve forces. The department contributes towards current and past service of members, and funds any actuarial shortfalls determined by the Chief Actuary of Canada. In addition to the regular contributions, the legislation also requires the department to make contributions for actuarial deficiencies in the pension plans. These contributions by the department are expensed in the year they are incurred. This accounting treatment corresponds to the funding provided to departments through Parliamentary authorities. All assets and liabilities related to the CAF pension plan are not reflected in the department’s Consolidated Financial Statements. As the Plan’s sponsor, the Government of Canada, recognises the plans assets and the actuarial estimate of the liabilities in the Consolidated financial statements of the Government of Canada (for details, see note 10(a)).

(ii) Severance benefits

The accumulation of severance benefits for voluntary departures ceased for applicable employee groups and CAF members. 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. The obligation related to the severance benefits earned by CAF members is calculated using information derived from the results of the actuarially determined liability for severance benefits for the CAF population (for details, see note 10(b)).

(h) Accounts and loans receivable

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

(i) Inventory

Inventories are valued at cost, using a weighted average formula. They are comprised of ammunition and inventory supplies held for future program delivery and are not primarily intended for resale. Inventory managed by contractors and not held in the Defence Resource Management Information System (DRMIS) is valued according to the cost method used by the contractors (first-in, first-out (FIFO), last-in, first-out (LIFO), historical cost or weighted moving average). Inventory identified for disposal or surplus are excluded from the value of inventory as no value is expected to be recovered (for details, see note 14).

(j) Tangible capital assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in note 15. All tangible capital assets and leasehold improvements having an initial cost of $30,000 or more are recorded at their acquisition cost.

Asset pooled items (API) are stand-alone assets, self-contained assets, equipment, and spare parts which meet the characteristics of a tangible capital asset, where items may be below the capitalization threshold individually but are typically purchased or held in large quantities so as to represent significant expenditures overall. These items are grouped in pools, valued at weighted moving average and are treated as capital assets from a financial perspective.

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

Asset Class Amortization Period
Buildings 10–60 years
Works and infrastructure 10–80 years
Machinery and equipment 3–30 years
Informatics hardware 3–10 years
Informatics software 2–10 years
Arms and weapons 3–30 years
Ships and boats 10–35 years
Aircraft 20–40 years
Non–military motor vehicles 2–35 years
Military vehicles 3–25 years
Leasehold improvements Lesser of useful life of the improvement or term of lease
Betterments Initial or extended useful life of the asset to which the improvements were made
Leased tangible capital assets Economic life or term of lease

API are amortized at the estimated useful life of the pool.

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 (for details, see note 15).

(k) Contingent liabilities

Contingent liabilities are potential liabilities, which 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 fails 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, the contingency is disclosed in the notes to the Consolidated Departmental Financial Statements (for details, see note 16).

(l) Environmental liabilities

An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the government’s best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used.

The discount rate used reflects the government’s cost of borrowing, associated with the estimated number of years to complete remediation.

A liability for unexploded explosive ordnance (UXO) affected legacy sites is recognized when there is an appropriate basis for measurement and a reasonable estimate can be made. These liabilities are present obligations arising from past transactions or events, the settlement of which is expected to result in the future sacrifice of economic benefits.

The recorded liabilities are adjusted each year, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred. If the likelihood of the government’s responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated statements.

(m) Transactions involving foreign currencies

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 March 31st. Gains resulting from foreign currency transactions are included as revenues in Interest and gains on foreign exchange, and losses from foreign currency transactions are included in other expenses in the Consolidated Statement of Operations and Departmental Net Financial Position.

(n) Measurement uncertainty

The preparation of these Consolidated Departmental 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 and accompanying notes at March 31st. 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, remediation liabilities, the liability for employee future benefits, allowance for doubtful accounts, allowances to estimate pricing anomalies and value of obsolete inventory and the useful life of tangible capital assets. Actual results could significantly differ from those estimates.

Since the outbreak of a novel coronavirus ("COVID-19"), the department has been adapting to the resurgence of COVID-19 and specific measures and protocols were put in place to mitigate ongoing risks. There is uncertainty with respect to the full pandemic's impact on management's estimates and assumptions used in the preparation of these Consolidated Departmental Financial Statements.

Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the Consolidated Departmental Financial Statements in the year they become known.

Environmental liabilities are subject to measurement uncertainty as discussed in note 5 due to the evolving technologies used in the estimation of the costs for remediation of contaminated sites, the use of discounted present value of future estimated costs, and the fact that not all sites have had a complete assessment of the extent and nature of remediation or retirement. Changes to underlying assumptions, the timing of the expenditures, the technology employed, or the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the environmental liabilities recorded.

(o) 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 are recorded on a gross basis and are measured at the carrying amount, except for the following:

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

(p) Future Changes in Accounting Standards

The Public Sector Accounting Board (PSAB) had issued four complementary standards, effective April 1, 2022. These are, PS 3450 – Financial Instruments, PS 2601 – Foreign Currency Translation and PS 1201 – Financial Statement Presentation. 
Management is currently assessing the impact of adopting these standards.

PS 3450 – Financial instruments
Provides comprehensive guidance on recognition, measurement, presentation and disclosure of financial instruments, including derivatives. It requires to classify and measure all financial instruments in 2 categories: 

  • Fair value – Required for derivatives or quoted equity instruments. Optional for financial instruments managed on a fair value basis.
  • Cost or amortized cost – used for all other financial instruments. Amortization of interest based on the effective interest rate method is a requirement.

PS 2601 – Foreign currency translation
Provides for the election to report exchange gains/losses directly in the Statement of Operations. Additional reporting on the carrying value of financial instruments denominated in a foreign currency may be required, including foreign accounts receivable and payable.

PS 1201 – Financial Statement Presentation
This standard introduces a new “Statement of Remeasurement Gains and Losses” to be added to the Government’s financial statements.  This new statement will report unrealized gains and losses due to the changes in fair value only.

PS 3280 - Asset Retirement Obligations
The standard provides comprehensive guidance on the accounting treatment of retirement activities associated with tangible capital assets and other asset type items that arise from legal or contractual obligations. The implementation of this standard is currently ongoing and management is assessing the full impact of the standard on the department.

3. Parliamentary authorities

The department receives most of its funding through annual parliamentary authorities. Items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the department 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) 2022 2021
Net cost of operations before government funding and transfers 22,487,720 26,346,593
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (note 15)
 (1,858,402) (2,571,400)
Services provided without charge by other government departments (note 18)
 (897,986) (904,192)
 Employee future benefits
 36,243 (167,417)
Refund of previous years' expenses
 96,608 78,260
 Vacation pay and compensatory leave
 32,538 (47,666)
Loss on disposals of capital assets
 (74,454) (1,887)
Adjustments of tangible capital assets
 317,690 (159,454)
Refund of program expenditures
 18,185 6,278
 Deferred revenue
 2,714 2,864
 Accrued liabilities not charged to authorities
 109,188 (326,117)
Bad debt expense
 (1,920) (348)
 Environmental liabilities (note 5)
 (53,571) (24,406)
Proceeds from sale of assets
 (19,230) (8,906)
Miscellaneous
 30,520 (26,856)
Total items affecting net cost of operations but not affecting authorities (2,261,877) (4,151,247)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets (note 15)
   3,896,744 4,224,179
Decrease in lease obligations for tangible capital assets
 (27,193) 11,622
Increase (decrease) in inventory purchases net of usage and adjustments
 (216,623) 63,454
Increase in prepaid expenses
 246,518 303,245
Transition payments for implementing salary payments in arrears
 10 0
Revenues collected from prior year receivables
 846 29,192
Total items not affecting net cost of operations but affecting authorities 3,900,302 4,631,692
Current year authorities used   24,126,145 26,827,038

(b) Authorities provided and used

(in thousands of dollars) 2022 2021
Vote 1 – Operating expenditures 18,315,760 17,188,161
Vote 5 – Capital expenditures 5,797,368 5,808,835
Vote 10 – Grants & contributions       344,013 279,591
Vote 15 – Long-term disability and life insurance plan for members of the Canadian Forces 532,282 423,389
Vote 20– Debt write-off
 0 17
Vote 25 – Debt forgiveness
 0 17
Statutory amounts 1,645,786 4,353,553
Less:
Authorities available for future years
 (2,282,184) (1,060,791)
Frozen allotments and other lapses
 (226,880) (165,734)
Current year authorities used 24,126,145 26,827,038

4. Accounts payable and accrued liabilities

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

(in thousands of dollars) 2022 2021
Accounts payable - other government departments and agencies 110,674  167,654
Accounts payable - external parties 2,541,551 2,927,908
Total accounts payable 2,652,225  3,095,562
Accrued liabilities 1,627,925  1,572,766
Total accounts payable and accrued liabilities 4,280,150 4,668,328

5. Environmental liabilities

Environmental liabilities include the following:

(in thousands of dollars) 2022 2021
Total liabilities for contaminated sites 589,636 581,295
Other environmental liabilities (UXO sites) 139,962 94,732
Total environmental liabilities 729,598 676,027

(a) Remediation of contaminated sites

The government’s “Federal Approach to Contaminated Sites”, sets out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried the contaminated sites on identified federal lands allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in the identification of the high risk sites in order to prioritize allocation of limited resources to those sites which pose the highest risk to the environment and human health.

The department has identified a total of 861 sites (896 sites in 2020–21) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the department has identified 301 sites (309 sites in 2020–21) where action is possible and for which a liability of $561.7 million ($553.5 million in 2020–21) has been recorded. This liability estimate has been determined after the sites are assessed and is based on environmental experts reviewing the results of site assessments, and proposing possible remediation solutions.

In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there are 127 unassessed sites (135 in 2020–21) where a liability estimate of $27.9 million ($27.8 million in 2020–21) has been recorded using this model.

These two estimates combined totaling $589.6 million ($581.3 million in 2020–21), represent management’s best estimate of the costs required to remediate the sites to the current minimum standard for its use prior to contamination, based on the information available at the financial statement date.

For the remaining 433 sites (452 sites in 2020–21), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, the department does not expect to give up any future economic benefits (there is no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2022, and March 31, 2021. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast CPI rate of 2 percent (2 percent in 2020–21). Inflation is included in the undiscounted amount. The Government of Canada’s cost of borrowing by reference to the actual zero-coupon yield curve for Government of Canada bonds has been used to discount the estimated future expenditures. The March 2022 rates range from 1.88 percent (0.24 percent in March 2021) for a 1 year term to 2.35 percent (2.01 percent in March 2021) for a 30 or greater year term.

2022
Nature and source (in dollars) Number of sites Estimated liability Estimated undiscounted expenditure
Military and Former Military SitesFootnote (1) 360 420,144,748 468,436,022
Fuel Related PracticesFootnote (2) 249 40,479,033 44,629,201
Landfill / Waste SitesFootnote (3) 114 27,967,003 30,624,627
Engineering Assets / Air and Land TransportationFootnote (4) 8 454,276 478,495
Marine Facilities / Aquatic SitesFootnote (5) 16 1,576,761 1,690,014
Office / Commercial / Industrial OperationsFootnote (6) 48 12,009,018 13,137,960
OtherFootnote (7) 66 87,005,855 91,847,694
Totals 861 589,636,694 650,844,013
2021
Nature and source (in dollars) Number of sites Estimated liability Estimated undiscounted expenditure
Military and Former Military SitesFootnote (1) 375 392,563,090 418,594,214
Fuel Related PracticesFootnote (2) 264 43,557,238 44,938,895
Landfill / Waste SitesFootnote (3) 117 28,306,212 29,837,967
Engineering Assets / Air and Land TransportationFootnote (4) 7 536,360 547,933
Marine Facilities / Aquatic SitesFootnote (5) 16 1,412,239 1,442,024
Office / Commercial / Industrial OperationsFootnote (6) 60 13,180,440 13,678,690
OtherFootnote (7) 67 101,739,031 106,467,253
Totals 896 581,294,610 615,506,976

Also during the year 51 sites (64 sites in 2020–21) were closed as they were either remediated or assessed to confirm that they no longer meet all the criteria required to record a liability for contaminated sites.

(b) Other environmental liabilities

The department has identified approximately 528 UXO suspected sites (526 sites in 2020–21) for which clearance action may be necessary. Of these sites, 29 sites (38 sites in 2020–21) are confirmed UXO affected sites. Based on the department’s best estimates, a liability of $140.0 million ($94.7 million in 2020–21) has been recorded for clearance action on 5 sites (8 sites in 2020–21) of the confirmed UXO sites. The remediation has been completed for 11 sites in 2021–22 (3 sites in 2020–21). The remaining 512 suspected sites (515 sites in 2020–21) are currently in the assessment stage and a reasonable estimate cannot yet be determined. Of these sites, the obligation for clearance action is likely for 17 sites (21 sites in 2020–21), indeterminable for 37 sites (51 sites in 2020–21) and unlikely for 458 sites (443 sites in 2020–21).

The department’s ongoing efforts to assess contaminated sites and UXO affected sites may result in additional environmental liabilities.

6. Deposits and trust accounts

The following table presents details of the department’s deposits and trust accounts:

(in thousands of dollars) 2022 2021
Contractor security deposits
Deposits, beginning of year
 3,304 2,838
Deposits received
 3,535 4,474
Refunds
 (3,783) (4,008)
Contractor security deposits, end of year
 3,056 3,304
Trust account, estates — Armed ServicesFootnote *
Trust account, beginning of year
 897 1,256
Funds received
 2,014 1,427
Payments
 (2,387) (1,786)
Trust account, estates — Armed Services, end of year
 524 897
Closing balance 3,580 4,201

7. Deferred revenue

Deferred revenue consists of amount received in advance from external parties for the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned. Also, funds received from external parties for a specified purpose are recorded upon receipt as deferred revenue.

(in thousands of dollars) 2022 2021
Foreign governments
Beginning of year
 2,214 4,793
Funds received
 0 2,676
Revenue recognized
 (2,214) (5,255)
Foreign governments, end of year
 0 2,214
Other specified purposes
Beginning of year
 4,413 4,698
Funds received
 1,247 930
Revenue recognized
 (1,747) (1,215)
Other specified purposes, end of year
 3,913 4,413
Closing balance 3,913 6,627

8. Canadian Forces pension and insurance accounts

Established in 1901 under the Militia Pension Act, the present Canadian Forces pension plans (the “CF pension plans”) are administered in accordance with the provisions of the Canadian Forces Superannuation Act. The Canadian Forces pension plan (CFPP) covers all members of the Regular Force component of the CAF. Reserve Force members who have sufficient qualifying service and pensionable earnings are members of either the CFPP or the Reserve Force pension plan (RFPP), which came into force on March 1, 2007, depending on their employment status and earnings.

The department maintains accounts to record the transactions pertaining to the CF pension plans, which comprise the Canadian Forces Superannuation Account (the “Superannuation Account”), the Canadian Forces Pension Fund Account (CFPF), the Retirement Compensation Arrangement Account (RCA), and the Reserve Force Pension Fund Account (RFPF). These accounts record transactions such as contributions, benefit payments, interest credits, refundable taxes, actuarial funding adjustments resulting from triennial reviews, and transfers to the Public Sector Pension Investment Board (PSPIB).

The value of the liabilities reported in these Consolidated Departmental Financial Statements does not include the actuarial value of the liabilities determined by the Chief Actuary of the Office of the Superintendent of Financial Institutions nor the details of the investments that are held by PSPIB. Additional information on the CF pension plans, including audited financial statements, is published in the Annual Report of the Canadian Forces Pension Plans, which is available through the department. For further information on PSPIB, please visit www.pspib.ca.

The CFPF and the RFPF do not earn interest. The Pension Fund Accounts are merely flow through accounts. At year-end, the balances in the Pension Fund Accounts represent net contributions transferable to PSPIB.

The department also maintains the Regular Force Death Benefit Account, which provides life insurance to contributing members and former members of the CAF. This account records contribution, premiums, interest, and benefit payments.

The RCA records transactions for pension benefits that are provided in excess of those permitted under the Income Tax Act. The RCA is registered with Canada Revenue Agency (CRA) and a transfer is made annually between the RCA Account and CRA to either remit a 50 percent refundable tax in respect of the net contributions and interest credits or to be credited a reimbursement based on the net benefit payments. As at March 31, 2022, the total refundable tax transferred amounts to $493 million ($470 million as at March 31, 2021).

The following table provides details of the Canadian Forces pension and insurance accounts liability as presented in the Statement of Financial Position:

(in thousands of dollars) 2022 2021
Canadian Forces Pension Fund Account
Beginning of year
 202,664 126,049
Funds received and other credits
 1,523,051 1,611,546
Payments and other charges
 (1,284,534) (1,157,278)
Transfers to the Public Sector Pension Investment Board
 (485,464) (377,653)
Canadian Forces Pension Fund Account, end of year
 (44,283) 202,664
Reserve Force Pension Fund Account
Beginning of year
 (132,884) (136,663)
Funds received and other credits
 102,757 101,011
Payments and other charges
 (68,628) (97,232)
Reserve Force Pension Fund Account, end of year
 (98,755) (132,884)
Retirement Compensation Arrangements Account
Beginning of year
 486,815 460,438
Funds received and other credits
 50,111 52,943
Payments and other charges
 (38,314) (26,566)
Retirement Compensation Arrangements Account, end of year
 498,612 486,815
Regular Force Death Benefit Account
Beginning of year
 170,898 172,223
Funds received and other credits
 28,273 29,358
Payments and other charges
 (29,560) (30,683)
Regular Force Death Benefit Account, end of year
 169,611 170,898
Closing balance 525,185 727,493

8a. Canadian Forces Superannuation Account

The Superannuation Account was created in order to record notional transactions for service prior to April 01, 2000. The Superannuation Account does not hold any investment assets. The amount of interest credited on the account is as though net contributions were invested quarterly in 20-year Government of Canada bonds issued at prescribed rates and held to maturity.

The assets and liabilities related to the Superannuation Account are not reflected in the department’s Consolidated Financial Statements as the Superannuation Account is the responsibility of the Government of Canada.

Details of the Superannuation Account, including actuarial surpluses or deficiencies, can be found in the Annual Report of the Canadian Forces Pension Plans and in the Public Accounts of Canada.

The table below does not include the actuarial value of the liabilities determined by the Chief Actuary of the Office of the Superintendent of Financial Institutions, and is provided for information purposes only to disclose the transactions and account balance.

(in thousands of dollars) 2022 2021
Canadian Forces Superannuation Account
Beginning of year
 46,321,978 44,741,718
Funds received and other credits
 1,516,893  4,123,437
Payments and other charges
 (2,536,249) (2,543,177)
Canadian Forces Superannuation Account, end of year 45,302,622 46,321,978

9. Lease obligations for tangible capital assets

The department has entered into agreements to lease certain tangible capital assets under capital leases with a cost of $220 million and accumulated amortization of $166 million as at March 31, 2022 ($807 million and $781 million respectively as at March 31, 2021). The obligations for the upcoming years include the following:

(in thousands of dollars) Total future minimum lease payments Imputed interest (0.86% to 11.89%) Balance of obligations 2022 Balance of obligations 2021
Buildings 79,689 (12,080) 67,609 40,416
Total 79,689 (12,080) 67,609 40,416
Future minimum lease payments
(in thousands of dollars) 2022–23 2023–24 2024–25 2025–26 2026–27 2027–28 and thereafter Total
Buildings 11,340 11,359 11,548 11,306 7,814 26,322 79,689
Total 11,340 11,359 11,548 11,306 7,814 26,322 79,689

The department has also entered into agreements for buildings and aircraft under capital leases (refer to note 15). 

10. Employee future benefits

(a) Pension benefits

The department’s Public Service 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 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 Canada’s Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2021–22 expense amounts to $208 million ($219 million in 2020–21). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2020–21) the contributions by employees and, for Group 2 members, approximately 1.00 times (1.00 times in 2020-21) the contributions by employees.

The department’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.

The members of the Canadian Armed Forces Regular Force and eligible members of the Reserve Force participate in the Canadian Forces pension plan, which is sponsored by the Government of Canada and administered by the department. Pension benefits accrue up to a maximum 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 are indexed to inflation.

The members of the Canadian Armed Forces Reserve Force who are not eligible for participation in the Canadian Forces pension plan, may be eligible to participate in the Reserve Force pension plan, which is sponsored by the Government of Canada and administered by the department. Pension benefits accrue at a rate of 1.5 percent of pensionable earnings during the member’s service, plus an additional 0.5 percent times the average of the best five consecutive years of earnings for those members who are not yet eligible for Canada/Québec Pension Plan benefits. The benefits are integrated with Canada/Québec Pension Plan benefits and are indexed to inflation.

Both the members and the department contribute to the cost of the CAF pension plans for both current and prior service. The 2021–22 expense amounts to $1,032 million ($3,653 million in 2020–21) which represents approximately 1.7 times (5.7 times in 2020–21) the contributions by employees. During 2020-21, there was a one-time actuarial adjustment of $2,605M, which inflated the rate in prior year.

Public Services and Procurement Canada is responsible for providing program management and the day-to-day administration of the CAF pension plans. The actuarial liability and actuarial surpluses or deficiencies are recognized in the Consolidated financial statements of the Government of Canada, as the sponsor of the CAF pension plans.

As a result of the actuarial funding report by the Office of the Chief Actuary, the President of Treasury Board has approved:

  • Annual actuarial adjustments of $17 million ($17 million in 2020–21) to fund the deficit in the Reserve Force Pension Fund Account until the deficit is funded as per the triennial funding valuation.

For more information on these adjustments, please consult the actuarial reports, available at the Office of the Chief Actuary’s website (http://www.osfi-bsif.gc.ca).

(b) Severance benefits

Severance benefits provided to the department’s employees were previously based on 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. 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:

(in thousands of dollars) 2022 2021
Public Service Employees
Accrued benefit obligation, beginning of year
 76,068 87,353
Expenses for the year
 153 (3,225)
Benefits paid during the year
 (10,076) (8,060)
Accrued benefit obligation, end of year
 66,145 76,068
Canadian Armed Forces Members
Accrued benefit obligation, beginning of year
 731,481 552,779
Expenses for the year
 35,725 247,503
Benefits paid during the year
 (62,045) (68,801)
Accrued benefit obligation, end of year
 705,161 731,481
Total accrued benefit obligation, end of year 771,306 807,549

11. Accounts receivable

The following table presents details of accounts receivable:

(in thousands of dollars) 2022 2021
Receivables - External parties 276,213 253,280
Receivables - Other government departments and agencies 167,511 169,052
  443,724 422,332
Less: allowance for doubtful accounts on receivables from external parties 49,484 47,978
Gross accounts receivable 394,240 374,354
Accounts receivable held on behalf of government (24,707) (9,386)
Net Receivables 369,533 364,968

12. Loans and advances

The following table presents details of loans and advances:

(in thousands of dollars) 2022 2021
Imprest accounts, standing advances and authorized loans to CAF members 46,774 48,022
Total loans and advances 46,774 48,022

13. Prepaid expenses

The following table presents details of prepaid expenses:

(in thousands of dollars) 2022 2021
Foreign Military Purchases 725,197 549,160
Sea Sparrow Missiles 528,412 431,379
Mercury Global Military Wideband Satellite Communications Project 147,084 162,567
NATO Flying Training Canada (NFTC) 73,009 59,614
Building rentals 11,622 12,221
Other purchases 33,317 57,182
Total prepaid expenses 1,518,641 1,272,123

14. Inventory

The following table presents the details of inventory, measured at cost using the moving weighted average method except for inventory managed by contractors and not held in Defence Resource Management Information System (DRMIS), which is valued according to the cost method used by the contractors:

(in thousands of dollars) 2022 2021
Ammunition, bombs and missiles 2,649,704 2,713,964
Contractor held inventory 482,219 413,903
Uniforms and clothing 433,588 349,203
Ship spares 288,656 294,091
Communication, electrical parts/accessories and informatics equipment 206,695 202,326
Engineering, test and technical equipment and machine tools 199,407 200,029
Medical equipment and supplies 174,964 153,177
Metal 161,393 334,113
Land equipment spares 83,527 82,073
Training equipment and supplies 56,759 42,997
Fuel, petroleum and oil 52,625 62,223
Sonobuoys, parts and accessories 33,099 56,590
Lighting, distribution, control equipment and parts 21,826 19,316
Electric generators and air conditioning units 17,480 71,408
Packaging, preserving and storing material 15,266 75,831
Miscellaneous 88,544 111,131
Total inventories 4,965,752 5,182,375

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $783 million in 2021–22 ($354 million in 2020–21).

15. Tangible capital assets

The following table presents details of the cost of tangible capital assets:

(in thousands of dollars) Balance beginning of year AdjustmentsFootnote (1) Acquisitions Disposals and write-offs Balance end of year
Land, buildings and works
Land
 85,857 1,484 0 0 87,341
Buildings
 11,033,384 439,540 0 (19,401) 11,453,523
Works and infrastructure
 2,879,267  85,607 0 (84) 2,964,790
  13,998,508 526,631 0 (19,485) 14,505,654
Machinery and equipment
Machinery and equipment
 6,998,618  206,971 107,148 (120,989) 7,191,748
Informatics hardware
 5,996,130 (60,797) 83,222 (152,873) 5,865,682
Informatics software
 1,138,949 6,399 3,866 0 1,149,214
Arms and weapons
 7,089,922 (8,677) 59,724 (22,118) 7,118,851
Other equipment
 104,830 1,216 4,172 (1,519) 108,699
  21,328,449  145,112 258,132 (297,499) 21,434,194
Ships, aircraft and vehicles
Ships and boats
 13,373,138 667,210 11,292 (200) 14,051,440
Aircraft
 20,979,941 1,278,687 29,599 (132,224) 22,156,003
Non-military motor vehicles
 1,199,890  9,280 46,373 (38,179) 1,217,364
Military vehicles
 2,176,426 3,460 11,453 (33,908) 2,157,431
Other vehicles
 414,571 (1,352) 14,086 (1,996) 425,309
  38,143,966  1,957,285 112,803 (206,507) 40,007,547
Leasehold improvements
Leasehold improvements
 231,891 7,472 558 0 231,891
  231,891 7,472 558 0 231,891
Leased tangible capital assets
Buildings
 115,277 0 35,955 (21,495) 129,737
Other equipment
 48 0 0 0 48
Aircraft
 691,286 (601,057) 0 0 90,229
  806,611  (601,057) 35,955 (21,495) 220,014
Assets under construction
Buildings
 1,845,949 (348,049) 644,036 0 2,141,936
Engineering works
 458,507 (113,088) 180,936 0 526,355
Informatics software
 158,995 (2,454) 43,742 0 200,283
Equipment
 8,298,801 (1,460,623) 2,620,582 (2,761) 9,455,999
  10,762,252  (1,924,214) 3,489,296 (2,761) 12,324,573
Gross tangible capital assets 85,271,677  111,229 3,896,744 (547,747) 88,731,903

The following table presents details of the amortization of tangible capital assets and its net book value:

(in thousands of dollars) Balance beginning of year Adjustments Amortization Disposals and write-offs Balance end of year Net Book Value
  2022 2021
Land, buildings and works
Land
 0 0 0 0 0 87,341 85,857
Buildings
 5,494,405 6,285 281,170 (15,012) 5,766,848 5,686,675 5,538,979
Works and infrastructure
 1,801,823 2,018 79,263 (60) 1,883,044 1,081,746 1,077,444
  7,296,228 8,303 360,433 (15,072) 7,649,892 6,855,762 6,702,280
Machinery and equipment
Machinery and equipment
 5,120,727 36,358 198,042 (118,879) 55,236,248 1,955,500 1,877,891
Informatics hardware
 4,904,615 (128,086) 139,981 (150,117) 4,766,393 1,099,289 1,091,515
Informatics software
 801,144 635 32,973 0 834,752 314,462 337,805
Arms and weapons
 3,435,417 (63,685) 208,072 (19,598) 3,560,206 3,558,645 3,654,505
Other equipment
 78,107 64 4,019 (137) 82,053 26,646 26,723
  14,340,010 (154,714) 583,087 (288,731) 14,479,652 6,954,542 6,988,439
Ships, aircraft and vehicles
Ships and boats
 10,241,705 (30,397) 194,947 (148) 10,406,107 3,645,333 3,131,433
Aircraft
 13,231,071 607,264 532,571 (56,432) 14,314,474 7,841,529 7,748,870
Non-military motor vehicles
 781,044 (11,902) 77,796 (37,091) 809,847 407,517 418,846
Military vehicles
 1,369,237 (12,665) 72,046 (33,135) 1,395,483 761,948 807,189
Other vehicles
 274,204 (11,314) 15,514 (1,959) 276,445 148,864 140,367
  24,897,261 540,986 892,874 (128,765) 27,202,356 12,805,191 12,246,705
Leasehold improvements
Leasehold improvements
 68,818 0 14,730 0 83,548 156,373 163,073
  68,818 0 14,730 0 83,548 156,373 163,073
Leased tangible capital assets
Buildings
 90,150 0 7,278 (21,495) 75,933 53,804  25,127
Other equipment
 48 0 0 0 48 0 0
Aircraft
 691,286 (601,057) 0 0 90,229 0 0
  781,484 (601,057) 7,278 (21,495) 166,210 53,804 25,127
Assets under construction
Buildings
           2,141,936 1,845,949
Engineering works
           526,355 458,507
Informatics software
           200,283 158,995
Equipment
           9,455,999 8,298,801
            12,324,573 10,762,252
Total 48,383,801 (206,482) 1,858,402 (454,063) 49,581,658 39,150,245  36,887,876

During 2021–22, the department transferred in non-military motor vehicles (net book value of $21 thousand) from the Public Services and Procurement Canada. This transfer is included in the adjustments column.

The department has $81 million ($11 million in 2020–21) in net book value of capital assets with an original acquisition cost of $1,239 million ($963 million in 2020–21) that have been declared surplus. These assets have been written down to their net realizable value in the Consolidated Statement of Financial Position.

16. Contingent liabilities

Contingent liabilities arise in the normal course of the operations of the department and their ultimate disposition is unknown. The department is involved in contingent liabilities on claims and litigations.

Claims and litigations

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 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 $1.1 million ($0.4 million in 2020–21) at March 31, 2022.

17. Contractual obligations and contractual rights

(a) Contractual obligations

The nature of the department’s activities can result in some large multi-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received. Contractual obligations over $10 million that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2022–23 2023–24 2024–25 2025–26 2026–27 and thereafter Total
Tangible Capital Assets 3,994,700  1,222,232  1,331,973  1,407,252  1,766,981  9,723,138
Purchases 4,013,921  3,223,820  2,134,228  1,535,217  7,075,005  17,982,191
Total 8,008,621 4,446,052 3,466,201 2,942,469  8,841,986  27,705,329 
(b) Contractual rights

The activities of the department sometimes involve the negotiation of contracts or agreements with outside parties that result in the department having rights to both assets and revenues in the future. They principally involve leases of property, royalties and sales of goods and services. Major contractual rights that will generate revenue in the future years and that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2022–23 2023–24 2024–25 2025–26 2026–27 2027–28 and thereafter TotalFootnote 1
Support services 0 0 0 0 0 31,053 31,053
Total 0 0 0 0 0 31,053 31,053

18. Related party transactions

The department is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnelFootnote 1 or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

The department enters into transactions with these entities in the normal course of business and on normal trade terms. The department did not identify any material transactions that occurred at a value different from which would have been arrived at if the parties were unrelated.

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

During the year, the department 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’s Consolidated Statement of Operations and Departmental Net Financial Position as follows:

(in thousands of dollars) 2022 2021
Employer's contributions to the health and dental plans paid by Treasury Board of Canada Secretariat 819,575 827,552
Accommodation provided by Public Services and Procurement Canada 69,746 68,047
Worker's compensation coverage provided by Employment and Social Development Canada 5,226 5,178
Legal services provided by Department of Justice Canada 3,439 3,415
Total 897,986  904,192

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 department’s Consolidated Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties
(in thousands of dollars) 2022 2021
Expenses - other government departments and agencies 1,430,927 1,518,798
Revenues - other government departments and agencies 12,110 10,610

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

19. Segmented information

The presentation by segment is based on the Departmental Results Framework (DRF) as stated in note 1 and is based on the accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for the main result framework, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars) Operation Ready Forces Defence Team Future Force Design
Operating expenses
Salary and employee benefits
 370,487  5,819,600 2,740,000 276,112
Amortization
 822 4,825 2,234 25,568
Professional and special services
 48,486 1,184,261 334,384 187,724
Repair and maintenance
 8,358 1,466,568 16,776 9,427
Expenses related to tangible assets
 61,747 558,801 17,886 66,635
Materials and supplies
 48,617 533,125 86,924 10,209
Transportation and communications
 51,195 151,243 340,620 5,081
Other services
 20,001 214,240 234,138 145,947
Accommodation
 26,832 60,807 54,456 2,092
Equipment and other rentals
 43,422 172,355 1,093 756
Utilities
 817 1,661 380 38
Loss on disposals and write-offs and write-downs of assets
 74,454 0 0 0
Bad debts
 0 0 0 0
Interest on capital lease payments
 0 0 117 0
Advertising, printing and related services
 1,489 9,024 11,776 1,357
Other expenses
 (63,984) 135,763 13,859 1,354
Total operating expenses 692,743  10,312,273  3,854,643 732,300 
Transfer payments
Transfers to other countries and international organizations
 255,566 77      0  8,783
Transfers to other levels of government
 0 30 0 0
Transfers to non-profit organizations
 3,100 6 2,209 12,002
Transfers to individuals
 0 117 771 25
Total transfer payments 258,666  230 2,980 20,810 
Total expenses 951,409  10,312,503  3,857,623  753,110 
Revenues
Sale of goods and services
 289 97,528 55,875 1,271
Gains on disposals of assets
 56 3,913 10 6,368
Interest and gains on foreign exchange
 380 5,460 151 3,664
Revenues earned on behalf of government
 0 (11,980) (1,048) (3,575)
Other
 0 12,034 1,055 0
Total revenues 725 106,955  56,043  7,728 
Net cost from continuing operations 950,684  10,205,548  3,801,580  745,382 
(in thousands of dollars) Procurement of Capabilities Sustainable Bases,
Information Technology
Systems and Infrastructure		 Internal services 2022 2021
Operating expenses
Salary and employee benefits
 222,343 1,767,674 468,608 11,664,824 15,196,954
Amortization
 1,448,620 375,514 819 1,858,402 2,571,400
Professional and special services
 170,711 623,267 120,469 2,669,302 2,579,258
Repair and maintenance
 44,902 224,131 85,496 1,855,658 1,742,641
Expenses related to tangible assets
 (161,449) 106,034 4,831 654,485 983,415
Materials and supplies
 4,232 15,756 (2,041) 696,822 593,811
Transportation and communications
 37,036 23,660 (4,314)      604,521 453,517
Other services
 15,086 84,753 37,764 751,929 684,928
Accommodation
 10,081 33,480 80,498 268,246 268,809
Equipment and other rentals
 382 25,592 (491) 243,109 197,010
Utilities
 17 189,264 (281) 191,896 174,047
Loss on disposals and write-offs and write-downs of assets
 0 0 0 74,454 1,887
Bad debts
 0 0 1,920 1,920 348
Interest on capital lease payments
 0 2,700 0 2,817 2,826
Advertising, printing and related services
 11 732 1,534 25,923 24,638
Other expenses
 15,045 266,499 609,331 977,867 994,211
Total operating expenses    1,807,017 3,739,056  1,404,143 22,542,175  26,469,700
Transfer payments
Transfers to other countries and international organizations
 0 0 0 264,426 212,766
Transfers to other levels of government
 0 31,370 0 31,400 35,462
Transfers to non-profit organizations
 0 0 0 17,317 14,822
Transfers to individuals
 0 0 0 913 1,086
Total transfer payments 0 31,370  0 314,056 264,136
Total expenses 1,807,017  3,770,426  1,404,143 22,856,231 26,733,836
Revenues
Sale of goods and services
 0 163,562 20,276 338,801 338,984
Gains on disposals of assets
 1,286 12,667 (3,256) 21,044 10,738
Interest and gains on foreign exchange
 3,128 247 5,372 18,402 40,969
Revenues earned on behalf of government
 0 (1,986) (17,612) (36,201) (14,902)
Other
 0 3,226     10,150 26,465 11,454
Total revenues 4,414  177,716  14,930  368,511 387,243
Net cost from continuing operations 1,802,603  3,592,710  1,389,213  22,487,720 26,346,593

Annex to the Statement of Management Responsibility including – Internal Control over Financial Reporting (ICFR) Assessment of ICFR and the Action Plan for the Fiscal Year Ending March 31, 2022

1. Introduction

This document provides summary information on the measures taken by the department to maintain an effective system of Internal Control over Financial Reporting (ICFR), including information on internal control management, assessment of results and related action plans. 

Detailed information on the department's authority, mandate and core responsibilities can be found in the Departmental Plan for the 2022-23 fiscal year and the Departmental Results Report for the 2021-22 fiscal year. 

2. Departmental system of internal control over financial reporting

2.1 Internal control management

The department has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental Framework for  Internal Control over Financial Management (ICFM), approved by the Deputy Minister (DM), is in place and includes: 

  • Organizational accountability structures as they relate to internal control management to support sound financial management, including the roles and responsibilities of senior managers in their areas of responsibility;
  • A directorate under the Chief Financial Officer (CFO) responsible for monitoring the effectiveness of ICFR and ICFM across the department, including reporting on deficiencies and making recommendations for those deficiencies;

Governance and accountability structure that support the system of internal control: 

  • An internal financial attestation process in support of certification by the DM and CFO, whereby senior departmental executives who report to the DM attest that they have maintained an effective system of ICFR in their area of responsibility;
  • A Defence Ethics Program which is a comprehensive values-based program put in place to meet the needs of the department and the Canadian Armed Forces (CAF), at both the individual and the organizational levels;
  • A Fraud Risk Management program that is designed to protect the department’s resources from fraud, waste and abuse through a prevention and detection framework;
  • Regular monitoring of financial management practices by Internal Audit as well as the provision of related assessments of results and action plans to the DM, the Departmental Audit Committee (DAC) and departmental senior management; and
  • A DAC that has oversight on the adequacy and functioning of the department’s risk management, control and governance framework and processes.

2.2 Service arrangements relevant to financial statements

The department relies on other organizations for the processing of certain transactions that are recorded in its Consolidated Departmental Financial Statements as follows:

(i) Common Arrangements:
  • Public Services and Procurement Canada (PSPC) centrally administers the payments of civilian salaries, pension services to both civilian and military members, and the procurement of goods and services as per the delegation of authority of other government organizations. PSPC also administers the Receiver General Central Systems used to issue cheques on behalf of the department;
  • The Treasury Board of Canada Secretariat provides information used to calculate various accruals and allowances, such as the accrued severance liability;
  • Shared Services Canada provides information technology infrastructure services and support to the department, such as but not limited to, email, data centres and network services; and
  • The Department of Justice provides legal services to the department.

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of ICFR related to these specific services.

(ii) Specific Arrangements:

An external service provider, under contract with the Government of Canada, administers certain activities, on behalf of the department. The external service provider has the authority and responsibility to ensure that specific transactions and information are made in accordance with the terms and conditions set out by the department’s program and properly recorded in the financial statements. As a result, the control procedures of the external service provider are relied upon. The external service providers are as follows:  

  • Defence Construction Canada provides contracting, construction contract management and payment processing services as well as infrastructure support to the department in accordance with the Memorandum of Understanding between the two organizations and as per the department’s Delegation of Authorities instrument; and
  • The Office of the Superintendent of Financial Institutions provides the department with the accrued severance liability amount for the CAF.

3. Departmental assessment results for 2021–22 fiscal year

The department is one of the largest and most complex organizations in the Government of Canada and is managed in a highly decentralized operating and financial environment. There are three separate payroll systems, two of which are currently undergoing major transformations, which annually expend more than $10 billion in salaries and benefits to more than 100,000 Regular and Reserve Force military members as well as civilian employees. Furthermore, there are two major Enterprise Resource Planning systems, the Defence Resource Management Information System (DRMIS) and the Human Resource Management System (HRMS), which support the business and extend to every operational area of the department. ICFR ongoing monitoring assessments involve the review and testing of previously identified key controls within business processes to confirm that the design of these controls continue to address key financial risks and that these controls continue to operate effectively.

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.

Progress during fiscal year 2021–22

Previous year’s rotational ongoing monitoring plan for current year Status
IT General Controls (ITGCs) Operating effectiveness assessment completed; eight remediation action plans under development
Entity Level Controls (ELCs) Operating effectiveness assessment completed; one remediation action plan under development
Military Payroll – Regular and Reserve Forces Completed as planned; eleven remediation action plans under development
Procure to Payment & Post Payment Verification (PVV) Program Completed as planned; five remediation action plans under development
Real Property Completed as planned; four remediation action plans under development

This year’s assessment results support that the department’s internal controls continue to operate effectively. The key findings from the current year’s assessment activities are summarized below: 

3.1 New or significant amended key controls

The ongoing challenges presented by the government pay system, Phoenix, continue to require changes to internal pay processes and controls; as a result, the implementation of these controls and associated quality assurance programs continue. A full assessment of the civilian payroll process was conducted in fiscal year 2020–21 as per the department’s rotational ongoing monitoring plan. Remediation action plans are currently being developed.

3.2 Ongoing monitoring program

Ongoing monitoring assessments are comprised of two components: confirming controls continue to mitigate the intended risks (design effectiveness) and confirming that the controls are operating as intended (operating effectiveness).

As part of the ITGC work, the department finalized its operating effectiveness  testing of the Central Computerized Pay System (CCPS) and Guardian, the payroll and resource management systems for military members and the Human Resources Management system (HRMS) for civilians. Most of the IT general controls for change management and computer operations of those systems have been found to be operating effectively as management action plans are being developed to address the control gaps identified. 

The ELCs operating effectiveness assessment was also finalized. It encompassed a review of the department’s controls that support the accuracy and completeness of the departmental financial statements. ELCs include controls that permeate across the department and set the tone from the top, which sets an organization’s culture, guiding values and ethical climate. The assessment concluded that most of the controls are operating effectively and the department is in the process of finalizing an integrated Fraud Risk Management Framework.  A management action plan is being developed to address this one observation.

The department completed its assessments of military payroll for both regular and reserve forces, procure to payment and the post payment verification program, and real property. No new control gaps were identified as a result of the monitoring. However, two common themes emerged: (a) automated controls were found to be more effective than manual controls, and, (b) lack of consistent documentation being available and retained to demonstrate the performance of the controls. Manage-ment action plans are being developed to address the control gaps identified. 

4. Departmental action plan for the next fiscal year and subsequent years

The department’s rotational ongoing monitoring plan for the next three fiscal years, based on an annual ICFM scoping and risk assessment, is shown in the following table.

Rotational Ongoing Monitoring Plan

Key Control Areas 2022–23 2023–24 2024–25
Entity Level Controls No No No
IT General Controls Yes Yes Yes
Financial Reporting and Close No Yes No
Procure to Payment No Yes No
Inventory Yes No Yes
Capital Assets Yes No Yes
Real Property No No Yes
Civilian Payroll Yes No No
Military Regular Force Payroll No No Yes
Military Reserve Force Payroll No No No

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