Canadian Grain Commission Revolving Fund, Financial statements, March 31, 2014

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Section 6.4 of the Treasury Board of Canada’s Policy on Special Revenue Spending Authorities, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Canadian Grain Commission Revolving Fund as at March 31, 2014 and the results of its operations and its cash flow for the year then ended in accordance with Section 6.4 of the Treasury Board of Canada’s Policy on Special Revenue Spending Authorities.

Emphasis of matter

Without modifying our opinion, we draw attention to note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared solely for the information and use of the Canadian Grain Commission and the Treasury Board of Canada for reporting on the use of the Fund’s authority. The financial statements are not intended to be and should not be used by anyone other than the specified users or for any other purpose.

Other matter

The financial statements of the Canadian Grain Commission Revolving Fund for the year ended March 31, 2013 were audited by another auditor whose report, dated May 21, 2013, expressed an unmodified opinion on those statements.

PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Approved by:

Elwin Hermanson
Chief Commissioner

Cheryl Blahey
Chief Financial Officer

1. Authority and purpose

The Canadian Grain Commission Revolving Fund ["CGC", the "Revolving Fund" or the "Fund"] derives its authority from the Canada Grain Act. The Canadian Grain Commission's mandate as set out in the Act is to, in the interest of grain producers, establish and maintain standards of quality for Canadian grain, regulate grain handling in Canada and to ensure a dependable commodity for domestic and export markets.

The Canadian Grain Commission Revolving Fund was established under Appropriation Act No. 6, 1994-1995. The Fund has a continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits, the total of which cannot exceed $2,000,000 at any time.

In the fall of 2012, two initiatives were announced that have impacted the services and organizational structure of the Canadian Grain Commission. Firstly, Bill C-45, containing proposed amendments to the Canada Grain Act, was introduced in Parliament. Secondly, on November 1, 2012, the Canadian Grain Commission launched consultations on Canadian Grain Commission user fees that reflected an updated Canada Grain Act and streamlined Canadian Grain Commission operations. Bill C-45 received Royal Assent on December 14, 2012. The amendments to the Canada Grain Act came into force on August 1, 2013. Updated user fees took effect August 1, 2013 concurrent with changes to the Canada Grain Act. In response to both the legislative changes and restructured user fees, the Canadian Grain Commission has adjusted its workforce [Note 6], organizational design, and operations.

Fiscal year 2013-14 is a transition year for the Canadian Grain Commission. The revised funding model which came into effect on August 1, 2013 is based on full cost recovery through user fees and ongoing appropriations. Until the implementation of this model, the Canadian Grain Commission was funded through its ongoing appropriations, fees collected and special appropriation.

In accordance with the Government’s policy on self-insurance, the Canadian Grain Commission does not carry its own insurance. The Canadian Grain Commission is not subject to income tax.

2. Significant accounting policies

The financial statements have been prepared in accordance with accounting standards issued by the Treasury Board of Canada Secretariat and the reporting requirements of the Receiver General for Canada. The basis of accounting used in these financial statements differs from Canadian generally accepted accounting principles because.

The significant accounting policies are as follows.

3. Accounts receivable

4. Capital assets

5. Accounts payable and accrued liabilities

6. Salaries payable

With the legislative changes to the Canada Grain Act, a segment of the Canadian Grain Commission work force became eligible for the provision of termination benefits. As a result, the Canadian Grain Commission has recorded an obligation for termination benefits as part of salaries payable to reflect the estimated workforce adjustment costs. As the changes were implemented, employees received their termination benefits and there is a portion of these benefits payable in future years.

7. Employee severance benefits liability

The Canadian Grain Commission provides severance benefits to its employees based on eligibility, years of service and final salary. These benefits are currently calculated based on the actual severance owed to each employee.

With Budget 2011, the Government of Canada announced its intention to eliminate the ongoing accumulation of severance benefits. All collective agreements for the Canadian Grain Commission have been negotiated and severance benefits have ceased to accumulate. Employees are being given the option to liquidate immediately or collect upon departure from the public service.

8. Parliamentary, special and employee termination benefits appropriation

Items recognized in the statement of operations and the statement of financial position in one year may be funded through parliamentary appropriations in prior, current or future years. Accordingly, the Canadian Grain Commission has different appropriation authorities for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables

9. Accumulated net charge against the Fund's authority

10. Contractual obligations

Canadian Grain Commission leases its premises under occupancy instruments. An occupancy instrument is a formal agreement between the Canadian Grain Commission and Public Works and Government Services Canada recording the terms and conditions that govern the provision and occupancy of the accommodation. Expected future payouts are as follows:

11. Contingent liabilities

In the normal course of its operations, Canadian Grain Commission may become involved in various legal actions. Some of these potential liabilities 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 is recorded in the financial statements. As at March 31, 2014, one claim is outstanding against Canadian Grain Commission, as noted below.

Canadian Grain Commission is named as a defendant in a claim alleging damages and costs. The matter is still pending and the outcome of this claim is not determinable at this time. The potential financial impact of this case cannot be estimated. No accrual for this contingency has been made in the financial statements.

12. Related party transactions

The Canadian Grain Commission is related in terms of common ownership to all Government of Canada departments, agencies and Crown corporations. The Canadian Grain Commission enters into transactions with these entities at arm’s length in the normal course of business and on normal trade terms.

13. Financial instruments

The Revolving Fund's financial instruments consist of cash in transit, accounts receivable, accounts payable and accrued liabilities, salaries payable, vacation, overtime and compensatory leave payable, and employee severance benefits. The carrying values of these financial instruments approximate their fair value because of their short terms to maturity, except for employee severance benefits which are based on management's best estimate and which approximates fair value. Unless otherwise noted, it is management's opinion that the Revolving Fund is not exposed to significant interest, currency or credit risk arising from these financial instruments.

Financial instruments that potentially subject the Canadian Grain Commission to concentrations of credit risk consist primarily of trade accounts receivable. The Canadian Grain Commission performs services to various organizations. For the year ended March 31, 2014, eight large integrated organizations accounted for 89% of the Canadian Grain Commission's receivable balances [2013 - five organizations, 81%].

14. Comparative information

Certain comparative figures have been reclassified to conform to the current year's presentation.

1. Introduction

This document provides unaudited summary information on the measures taken by the Canadian Grain Commission to maintain an effective system of internal control over financial reporting including assessment results and related action plans.

Detailed information on the Canadian Grain Commission’s authority, mandate, and program activities can be found in the Departmental Performance Report and the Report on Plans and Priorities

2. Departmental system of internal control over financial reporting

3. Departmental assessment results during fiscal year 2013-14

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

New or significantly amended key controls:

Of the existing processes tested in the current year, new or significantly amended key controls which required reassessment were as follows:

• Elimination of key revenue controls and sub-processes relating to inward inspection and weighing as a result of changes to the Canada Grain Act and the Canada Grain Regulations.
• Changes to key revenue controls relating to outward weighing and inspection as a result of Canadian Grain Commission’s transition to its new role under the Weighing Oversight and Certification Program; and
• New key revenue controls related to the transition to a new system for the recording of grain volumes and subsequent terminal invoicing.
• Changes to key financial reporting controls relating to the preparation and monitoring of financial statements to enhance evidence of documentation and review.

Design and operating effectiveness testing was conducted on key controls relating to Optional Revenue and Recoverable Overtime as these processes became in-scope as a result of changes to Canadian Grain Commission’s user fees effective August 1, 2013.

Ongoing monitoring program:

As part of its rotational ongoing monitoring plan, the Canadian Grain Commission completed its reassessment of IT general controls and the financial controls within the Financial Reporting business process. Due to changes in the Canadian Grain Commission’s role resulting from significant amendments to the Canada Grain Act and the Canada Grain Regulations, the decision was made to test design and operating effectiveness of financial controls within the Revenue business process rather than the Purchase to Pay business process as originally identified in the 2012-13 monitoring plan. This decision was made to mitigate the potential risks impacting revenue as a result of the changes described above.

In most cases, the key process controls that were tested were in place and being performed as intended; however, adherence to certain policies and procedures, documented evidence of reviews and reconciliations, consistency amongst the regions, and timeliness of performing the controls could be improved. Controls were also found to be primarily manual. The control environment could be enhanced by implementing more preventative automated controls.

Testing of IT general controls identified the need to document a System Development Life Cycle, update the Departmental Disaster Recovery Plan, enhance infrastructure change management procedures and testing strategies, as well as tighten system access controls and back-up procedures.

Overall, no significant weaknesses were found. On-going follow-up has confirmed that required remediation plans for process controls and IT general controls relating to the current and previous testing periods have been implemented or are in the process of being developed. Remediation strategies to address control deficiencies relating to Entity Level Controls also continue to be at varying stages of completion.

4. Departmental Action Plan