Canadian Grain Commission Revolving Fund, Financial statements, March 31, 2016

To the Chief Commissioner, Commissioners and the Departmental Audit Committee of Canadian Grain Commission Revolving Fund

We have audited the accompanying financial statements of the Canadian Grain Commission Revolving Fund, which comprise the statement of financial position as at March 31, 2016 and the statements of operations and net assets, and cash flows for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. These financial statements have been prepared by management of the Fund to meet the requirements of Section 6.4 of the Treasury Board of Canada’s Special Revenue Spending Authorities.

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 controls 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 controls. 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, 2016 and the results of its operations and net assets and its cash flows for the year then ended in accordance with Section 6.4 of the Treasury Board of Canada’s Policy on Special Revenue Spending Authorities.

Basis of accounting and restriction on use

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 to assist the Canadian Grain Commission Revolving Fund to meet the requirements of Section 6.4 of the Treasury Board of Canada’s Policy on Special Revenue Spending Authorities. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the management of the Canadian Grain Commission Revolving Fund and the Treasury Board of Canada and should not be used by parties other than the Canadian Grain Commission Revolving Fund or the Treasury Board of Canada.

Chartered Professional Accountants, Licensed Public Accountants

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 CGC'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.

In order to effectively pursue its mandate, the CGC aims to achieve the following strategic outcome: Canada’s grain is safe, reliable and marketable and Canadian grain producers are properly compensated for grain deliveries to licensed grain companies.

The CGC’s Program Alignment Architecture has five programs: Quality Assurance Program, Quantity Assurance Program, Grain Quality Research Program, and Producer Protection Program. Each contributes to making progress to the sole strategic outcome. The Internal Services program supports all other programs within the CGC.

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, tangible capital acquisitions and temporary financing of accumulated operating deficits and drawdown authority of $2,000,000.

The CGC did not request to access its net authority provided from Treasury Board. The CGC received a total of $5,612,526 through the Appropriation Acts approved by Parliament for the fiscal year 2015-2016.

Amendments to the Canada Grain Act came into force on August 1, 2013. In response to both legislative changes and restructured user fees, the CGC adjusted its workforce (note 6), organizational design, and operations. A revised funding model also came into effect on August 1, 2013 that is based on full cost recovery through user fees and ongoing appropriations. Until the implementation of this model, the CGC was funded through its ongoing appropriations, fees collected and special appropriation.

In accordance with the Government’s policy on self-insurance, the CGC does not carry its own insurance. The CGC 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 liabilities for employee termination benefits and severance liability and are based on management’s best estimate rather than actuarial valuations; and
• The services received without charge from other government departments and agencies are not reported as expenses.

The significant accounting policies are as follows.

a. Use of estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expenses during the periods covered by the financial statements. The principal financial statement components, subject to measurement uncertainty, include salaries payable related to unsettled labour contracts, the estimated useful life of capital assets and the liabilities for employee vacation, severance benefits and employee termination benefits. Actual results could differ from those estimates. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

b. Revenue recognition

Revenue is recognized in the accounting period in which it is earned through the provision of goods or services, or when an event giving rise to a claim has taken place. The majority of service fees such as inspection and weighing activities are dependent on grain volumes handled. Revenues that have been received but not yet earned are presented as deferred revenue. Deferred revenue is primarily received for licensing fees which usually covers a 12-month period.

c. Expense recognition

Unless otherwise disclosed, expenses are recorded in the period they are incurred.

d. Cash in transit

Cash in transit includes cash and cheques received prior to March 31 but not deposited until the subsequent year.

e. Parliamentary and employee termination benefit appropriation

Operations are funded primarily from a permanent authority from Parliament (Revolving Fund) where the CGC is allowed to spend fees collected. Some of the operations of the Grain Quality Research Program and Internal Audit are funded by ongoing Parliamentary appropriation through their annual votes. Special appropriations were also received to cover affected employees’ termination benefits. These appropriations have been recorded as revenue of the Fund.

f. Accounts receivable

Accounts receivable are stated at amounts expected to be ultimately realized. Allowances are established for all accounts for which interest or principal payments are 180 days past due.

g. Tangible capital assets

Certain assets previously under the custody of the Department of Agriculture and Agri-Food Canada were assumed by the Revolving Fund on April 1, 1995. The assumed assets were considered to be contributed capital and recorded at the Crown's estimated net book value. Assets acquired subsequent to April 1, 1995 were recorded at cost. Proceeds from the disposal of capital assets are retained by the Revolving Fund.

All capital assets and leasehold improvements with a cost equal to or greater than $10,000 are capitalized at their acquisition cost.

Assets are amortized on a straight-line basis over their estimated useful lives, commencing in the month after they are put into service, as follows.

The costs for assets under construction are capitalized as incurred with amortization commencing in the month after they are put into service.

h. Vacation, overtime and compensatory leave

Vacation, overtime and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.

i. Employee severance benefits

Severance benefits accrue to employees over their years of service with the Government of Canada as stipulated in their collective agreements. The CGC provides for the severance entitlements earned by employees. The obligation relating to the benefits earned by employees is calculated using information derived from management's estimate of the liability.

j. Employee termination benefits

Employees affected by the amendments to the Canada Grain Act are entitled to termination benefits, calculated based on salary levels in effect at the time of termination as stipulated in their collective agreements. The obligation is calculated using information derived from management’s estimate of the liability.

k. Pension plan

Employees of the CGC are covered by the Public Service Superannuation Act and the Supplementary Retirement Benefits Act. The Government of Canada's portion of the pension cost is included in the employee benefit charge assessed against the Revolving Fund. The actual payment of the pension is made from the Public Service Superannuation and Supplementary Retirement Benefits Accounts. Current legislation does not require the CGC to make contributions for any actuarial deficiencies of the Public Service Superannuation account.

l. Sick leave

Employees are permitted to accumulate unused sick leave. However, such leave entitlements do not vest and may only be used in the event of illness. Unused sick leave upon employee termination is not payable to the employee. No amount has been accrued in these financial statements and payments of sick leave benefits are included in current operations as incurred.

3. Accounts receivable

4. Tangible capital assets

Assets under construction consist of leasehold improvements and in house software development.

5. Accounts payable and accrued liabilities

6. Salaries payable

With the legislative changes to the Canada Grain Act, a segment of the CGC work force became eligible for the provision of termination benefits. As a result, the CGC 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 CGC 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 CGC have been negotiated and severance benefits have ceased to accumulate. Employees were given the option to liquidate immediately or collect upon departure from the public service.

8. Parliamentary, special and employee termination benefits appropriation

The CGC is financed by the Government of Canada through a combination of an ongoing Parliamentary appropriation, authority to re-spend fees collected, accumulated surpluses from prior years and a revolving line of credit of $2,000,000.

The government funding basis is used to recognize transactions affecting Parliamentary appropriations. The statement of operations and net assets is based on accrual accounting. Consequently, items presented in the statement of operations and net assets are not necessarily the same as those provided through appropriations from Parliament. Items recognized in the statement of operations and net assets in one year may be funded through Parliamentary authorities in prior, current, or future years. Accordingly, the CGC has different appropriation authorities for the year on a government funding basis than on an accrual accounting basis. Details on appropriation authorities provided and used are shown in the following tables.

Appropriation authorities provided and used.

Total current year appropriation funds provided and used by type consists of:

9. Net assets

Contributed capital represents the value of capital assets financed from capital contributions at the inception of the Fund.

The accumulated surplus is the accumulation of each fiscal year’s surplus net of deficits since the inception of the Fund.

The accumulated net charge against the Fund's authority represents the cumulative receipts and disbursements over the life of the Fund.

10. Contractual obligations

CGC leases its premises under occupancy instruments. An occupancy instrument is a formal agreement between the CGC and Public Services and Procurement Canada, recording the terms and conditions that govern the provision and occupancy of the accommodation. CGC has a total of 15 separate occupancy agreements with various term lengths. Expected future payouts are as follows.

11. Contingent liabilities

In the normal course of its operations, CGC 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, 2016, one claim is outstanding against CGC, as noted below.

Grievances have been filed against the CGC with respect weekend premiums as stated in a collective agreement. The matters are still to be scheduled for adjudication and the outcome of these claim is not determinable at this time. No accrual for this contingency has been made in the financial statements.

12. Related party transactions

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

13. Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay process. This change to the pay system had no impact on the expenses of the Revolving Fund. However, it did result in the use of authorities by the Revolving Fund and impacted the accumulated net charge against the Fund’s authority (ANCAFA). Prior to year-end, transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.

14. 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 and employee termination benefits which are based on management's best estimate. 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 CGC to concentrations of credit risk consist primarily of trade accounts receivable. For the year ended March 31, 2016, six large integrated organizations accounted for $5,183,527 or 93% of the CGC's outside parties receivable balances (2015 - six organizations, $3,768,507 or 89%).

15. 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 (CGC) to maintain an effective system of internal control over financial reporting (ICFR) including information on internal control management, assessment results and related action plans.

Detailed information on the CGC’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 2015-2016

All ICFR activities were rescheduled to subsequent years to allow resources to be allocated to the implementation of a new departmental financial management system effective April 1, 2016 and other organizational priorities.

4. Departmental Action Plan