Canadian Grain Commission Revolving Fund, Financial statements, March 31, 2020

Our opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Canadian Grain Commission Revolving Fund (the CGC Revolving Fund) as at March 31, 2020 and its financial performance and its cash flows for the year then ended in accordance with Section 1 of the Receiver General for Canada Instructions for Volume III of the Public Accounts of Canada.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.

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

Independence

We are independent of the CGC Revolving Fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Emphasis of matter – basis of accounting and restriction on use

We draw attention to note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the CGC Revolving Fund to meet the requirements of Section 1 of the Receiver General for Canada Instructions for Volume III of the Public Accounts of Canada. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the management of the CGC Revolving Fund and should not be used by parties other than the CGC Revolving Fund and the Treasury Board of Canada. Our opinion is not modified in respect of this matter.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Section 1 of the Receiver General for Canada Instructions for Volume III of the Public Accounts of Canada 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.

In preparing the financial statements, management is responsible for assessing the CGC Revolving Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the CGC Revolving Fund or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the CGC Revolving Fund’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 CGC Revolving Fund’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the CGC Revolving Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the CGC Revolving Fund to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Chartered Professional Accountants, Licensed Public Accountants

Ottawa, Ontario
June 12, 2020

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 Canadian Grain Act is to, in the interest of grain producers, establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets.

To achieve its mandate effectively, the CGC implemented the Departmental Results Framework (“DRF”) and Program Inventory (“PI”), as required by the Treasury Board Policy on Results, effective April 1, 2018. The CGC’s core responsibility is Grain Regulation: to regulate grain handling in Canada and establish and maintain science-based standards for Canadian grain. Internal Services supports this core responsibility.

The CGC 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 access its net authority provided from the Treasury Board for the fiscal year ended March 31, 2020. The CGC received a total of $5,691,853 through the Appropriation Acts approved by Parliament for the fiscal year 2019-2020 ($5,811,187 in 2018-2019).

A revised funding model based on full cost recovery through fees and ongoing appropriations came into effect on August 1, 2013. This sustainable funding model eliminated the CGC’s dependence on annual ad hoc federal appropriations. Under the updated fee structure, the CGC accumulated surplus is mainly due to higher than expected grain volumes handled. In response, following the 2017 User Fees Consultation and Pre-Proposal Notification, the CGC reduced fees for official grain inspection and official grain weighing services by 24 % as at August 1, 2017. The remaining fees were updated as at April 1, 2018.

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 taxes.

2. Significant accounting policies

The financial statements have been prepared in accordance with the reporting requirements of the Receiver General for Canada for revolving funds. The basis of accounting used in these financial statements differs from Canadian generally accepted accounting principles for the public sector because:

• the net debt indicator and the statement of change in net debt are not presented in the financial statements;
• the liabilities for employee termination benefits and severance liability are based on management’s best estimate rather than actuarial valuations;
• the services received without charge from other government departments and agencies are not reported as expenses; and
• no liability is recorded for sick leave.

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 tangible capital assets and the liabilities for employee 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. Planned results

Planned results for the fiscal year ended March 31, 2020 disclosed in the statement of operations were based on revenues and expenses as per CGC’s 2019-20 Departmental Plan and include adjustments subsequent to its preparation.

c. 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.

d. Expense recognition

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

e. Cash in transit

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

f. Parliamentary 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 Research Program and Internal Audit are funded by ongoing Parliamentary appropriation through their annual votes. These appropriations have been recorded as revenue of the Fund.

g. 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 and deemed uncollectable.

h. 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.

i. Vacation, overtime and compensatory leave

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

j. 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.

k. Employee termination benefits

Employees affected by the amendments to the Canada Grain Act and other operational adjustments 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.

l. 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.

m. 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 on 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.

During the 2019-20 fiscal year, a tangible capital asset classified under operational equipment with a cost of $13,643 and accumulated amortization of $7,276 was transferred to another federal government department for no proceeds. The impact of this transaction is included in the respective Disposals and transfers columns.

5. Accounts payable and accrued liabilities

6. Salaries payable

Due to operational adjustments, 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.

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. The amounts reported are for employees who did not liquidate their severance and will be paid on their departure from the public service.

8. Parliamentary 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.

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

The CGC leases its premises primarily 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. The CGC has a total of 16 separate occupancy agreements (2019 – 17) with various term lengths up to 10 years. In addition, the CGC has a direct lease agreement with the University of Manitoba for the rental of laboratory and office space.

For the year ended March 31, 2020, the CGC incurred $5,036,532 in costs associated with its occupancy and lease obligations (2019 – $5,105,926). Expected future payouts by fiscal year are as follows.

11. Contingent liabilities

In the normal course of its operations, the CGC may become involved in various legal actions and grievances with financial implications. 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.

A claim has been filed against the CGC by grain producers who allege losses sustained in the failure of a former licensee. The claim alleges total losses asserted against the CGC at $1,723,637, plus interest and costs. The claim is at an early stage of pleadings, and a defence has been filed on behalf of the CGC. The outcome of the claim cannot be determined 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. 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, 2020, six large integrated organizations accounted for $4,900,148 or 78% of the CGC’s outside parties receivable balances (2019 – six organizations, $4,551,676 or 83%).

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 department’s authority, mandate, and core responsibilities can be found in the Departmental Results Report and the Departmental Plan.

2. Departmental System of Internal Control over Financial Reporting

3. Departmental assessment results for the 2019 to 2020 fiscal year

According to the previous fiscal year’s rotational ongoing monitoring plan, no reassessments occurred during the 2019 to 2020 fiscal year to allow the department to focus on the implementation of past remediation plans.

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