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Unaudited Financial Statements for the period ending March 31, 2009

Notes to the Financial Statement (Unaudited)

  1. Authority and objectives
  2. Summary of significant accounting policies
  3. Parliamentary appropriations
  4. Expenses
  5. Revenues
  6. Accounts receivable and advances
  7. Tangible capital assets
  8. Deferred Revenue
  9. Lease obligation for tangible capital assets
  10. Employee Benefits
  11. Contingent liabilities
  12. Contractual Obligations
  13. Related party transactions
  14. Comparative information

Notes to the Financial Statements (Unaudited)

1. Authority and objectives

Environment Canada (EC) was established under legislation by the Department of the Environment Act. Under this Act, the powers, duties and functions of the Minister of the Environment extend to and include matters relating to:

  • The preservation and enhancement of the quality of the natural environment (including water, air and soil quality);
  • Renewable resources, including migratory birds and other non-domestic flora and fauna;
  • Water;
  • Meteorology;
  • Enforcement of any rules or regulations made by the International Joint Commission relating to boundary waters; and
  • Coordination of the policies and programs of the Government of Canada respecting the preservation and enhancement of the quality of the natural environment.

Environment Canada delivers its mandate through the following 10 programs:

  • Biodiversity is conserved and protected
  • Canadians are informed of, and respond appropriately to, current and predicted environmental conditions
  • Improved knowledge and information on weather and environmental conditions influences decision-making
  • Risks to Canadians, their health and their environment posed by toxic and other harmful substances are reduced
  • Water is clean, safe and secure
  • Risks to Canadians, their health and their environment from air pollutants and greenhouse gas emissions are reduced
  • Canadians adopt sustainable consumption and production approaches
  • Canadians adopt approaches that ensure the sustainable use and management of natural capital and working landscape
  • Revitalization of the Toronto Waterfront
  • Harbourfront Corporation

Through Orders in Council effective October 30th, 2008, the responsibility for matters relating to the activities of the federal government with respect to the Toronto Waterfront Revitalization Initiative (TWRI) and Harbourfront Centre (HC) was transferred from the Minister of the Environment to the Minister of Finance. Although powers and duties were assumed by the Department of Finance during part of the fiscal year, funding authority remained with Environment Canada for the entire exercise period. As such, Environment Canada is responsible to report TWRI and HC program spending within its 2008-2009 Financial Statements.

Conversely, also by Order in Council, the Mackenzie Gas Project was transferred to the Minister of the Environment from the Minister of Industry and will be reported under that Department this fiscal year.

In addition, Environment Canada has authority under numerous pieces of legislation which affect how the department operates. The most significant Acts are as follows:

  • Antarctic Environmental Protection Act
  • Canada Water Act
  • Canada Wildlife Act
  • Canadian Environment Week Act
  • Canadian Environmental Assessment Act
  • Canadian Environmental Protection Act, 1999
  • Department of the Environment Act
  • Fisheries Act (Sections 36-42)
  • International River Improvements Act
  • Migratory Birds Convention Act, 1994
  • National Wildlife Week Act
  • Species at Risk Act
  • Weather Modification Information Act
  • Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act
  • Kyoto Protocol Implementation Act (2007, c. 30)
  • Federal Sustainable Development Act (2008, c. 33)

2. Summary of significant accounting policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

(a) Parliamentary appropriations
Environment Canada is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to Environment Canada do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and the Statement of Financial Position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the basis of reporting.

(b) Net Cash Provided by Government
Environment Canada operates within the Consolidated Revenue Fund (CRF). The CRF is administered by the Receiver General for Canada. All cash received by Environment Canada is deposited to the CRF and all cash disbursements made by Environment Canada are paid from the CRF. Net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

(c) Change in net position in the Consolidated Revenue Fund
Change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non respendable revenue recorded by Environment Canada. It results from a timing difference between when a transaction affects appropriations and when it is processed through the CRF.

(d) Revenues
Revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues. Revenues that have been received but not yet earned are presented as deferred revenues (Note 8).

(e) Expenses
Expenses are recorded on the accrual basis:

  • Grants are recognized in the year in which payment is due or in which the recipient has met the eligibility criteria. In the case of grants which do not form part of an existing program, the expense is recognized 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;
  • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement;
  • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment;
  • Services provided without charge by other government departments for accommodation, the employer’s contribution to the health and dental insurance plans, and legal services, are recorded as operating expenses at their estimated cost. The providers of these services determine the estimated costs to be recorded by the departments.

(f) Employee future benefits

  • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer administered by the Government of Canada. Environment Canada’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require Environment Canada to make contributions for any actuarial deficiencies of the Plan.
  • Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(g) Accounts and loans receivables
Accounts and loans receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

(h) 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 fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(i) Environmental liabilities
Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management’s best estimates, a liability is accrued and an expense recorded when the contamination occurs or when Environment Canada becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of Environment Canada’s obligation to incur these costs is either not determinable or unlikely, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

(j) Inventory
Inventory consist of parts, material and supplies held for future program delivery and not intended for re-sale. They are valued at cost. If they no longer have service potential, they are valued at the lower of cost or net realizable value.

(k) Tangible capital assets
All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Environment Canada does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Capital assets are amortized on a straight-line basis over the estimated useful life of the asset as follows:

Asset classAmortization Period
Buildings25 to 40 years
Works and Infrastructure20 to 40 years
Machinery and Equipment2 to 15 years
Vehicles3 to 25 years
Leasehold ImprovementsLesser of useful life or lease term
Assets under constructionOnce in service, in accordance with asset type
Leased tangible capital assetsIn accordance with asset type

(l) Measurement uncertainty
The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary appropriations

Environment Canada receives most of its funding through annual Parliamentary appropriations. 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, Environment Canada has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences between net results of operations and appropriations are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year Parliamentary appropriations used:

(in thousands of dollars)20092008
Net cost of operations$1,156,516$970,050
Adjustments for items affecting net cost of operations but not affecting appropriations:  
Expenses not being charged to Appropriations at the same time46,10070,175
Revenues not available for spending13,78313,520
Adjustments for prior years PAYE2,2171,071
Refund of previous year's expenditures7821,257
Services received without charge(86,080)(76,661)
Amortization of tangible capital assets (Note 7)(33,432)(36,879)
Employee Severance Benefits(24,298)5,618
Project deposits(2,536)(2,977)
Vacation pay and compensatory leave(1,010)2,424
Expenses related to Environmental Liabilities(748)7,746
Environmental Damage Fund(595)(346)
Expenses for claims pending litigation(583)25
Bad debt expense(203)(1)
Prepaid expenses previously charged to appropriation(41)113
Foreign exchange losses--(20)
Adjustments for items not affecting net cost of operations but affecting appropriations:  
Acquisition of tangible capital assets (Note 7)50,76242,225
Capital lease payments459435
Current year Parliamentary appropriations used$1,120,367$997,031

(b) Appropriations provided and used:

(in thousands of dollars)20092008
Vote 1 – Operating expenditures$798,246$759,649
Vote 5 – Capital expenditures51,12940,612
Vote 10 – Grants & Contributions200,622293,178
Statutory amounts147,353154,070
Appropriations available for future years(162)(115)
Lapsed appropriations(76,821)(250,363)
Total appropriations used$1,120,367$997,031

(c) Reconciliation of net cash provided by Government of Canada to current year Parliamentary appropriations used:

(in thousands of dollars)20092008
Net cash provided by Government$1,094,078$978,789
Revenues not available for spending13,78313,520
Refund of previous year’s expenditures7821,257
Change in net position in the Consolidated Revenue Fund  
Variation in accounts receivable and advances(3,309)7,675
Variation in accounts payable and accrued liabilities(29,428)(70,117)
Variation in deferred revenue(186)(607)
Expenses not being charged to Appropriations at the same time46,10070,175
Other adjustments(1,453)(3,661)
Current year Parliamentary appropriations used$1,120,367$997,031

4. Expenses

(in thousands of dollars)20092008
Operations and administration  
Salaries and employee benefits$653,169$590,207
Professional and special services89,05878,358
Other contracted services45,70934,594
Machinery & equipment39,35732,305
Materials and supplies29,96321,937
Equipment repair and maintenance14,20813,422
Information services – communications3,6938,983
Environmental liabilities1,332(7,746)
Loss on disposal of capital assets6882,251
Sub-total Operations and administration1,051,487938,574
Transfer payments  
Non-profit organizations163,41287,800
Other countries and international organizations12,52313,115
Other levels of governments within Canada6,8267,302
Other to individuals3,2853,268
Sub-total transfer payments186,268111,548
Total Expenses$1,237,755$1,050,122

5. Revenues

(in thousands of dollars)20092008
Sales of goods and services  
Sales of goods and information products$44,991$43,570
Services of a non-regulatory nature24,23021,560
Services of a regulatory nature5,4485,141
Lease and use of public property2,7864,615
Rights and privileges447616
Sub-total sales77,90275,502
Joint projects and cost sharing agreements2,5552,987
Total revenues$81,239$80,071

6. Accounts receivable and advances

(in thousands of dollars)20092008
Receivables from external parties$4,401$3,337
Receivables from other Federal Government departments and agencies6,5654,221
Less: allowance for doubtful accounts on external receivables(503)(444)
Net accounts receivables10,4637,114
Employee advances151191

7. Tangible capital assets

(in thousands of dollars)
Opening BalanceAcqui-
Disposals and write-offs*Closing
Works and infrastructure3,845210--4,055
Machinery and equipment430,63420,2315,000445,865
Leasehold improvements34,992305--35,297
Assets under construction87,59922,417332109,684
Capital lease for office and laboratory space18,213--1418,199
Accumulated amortization
(in thousands of dollars)
Opening BalanceAmorti-
Disposals and write-offsClosing
Works and infrastructure1,966150--2,116
Machinery and equipment312,11622,8324,891330,057
Leasehold improvements20,4281,416--21,844
Capital lease for office and laboratory space4,37072945,095
Net book value
(in thousands of dollars)
Land25,244  25,244
Buildings67,068  62,418
Works and infrastructure1,879  1,939
Machinery and equipment118,518  115,808
Vehicles12,404  15,558
Leasehold improvements14,564  13,453
Assets under construction87,599  109,684
Capital lease for office and laboratory space13,843  13,104
Net Book Value$341,119  $357,208

Amortization expense for the year ended March 31, 2009 is $33,431,975 ($36,879,108 in 2008).

* Assets under construction include: buildings, engineering works, softwares and other construction. Disposals include those Assets under construction that have been placed in service.  Assets that are still under construction are not treated as a depreciable asset.

8. Deferred Revenue

Deferred revenue represents the balance at year-end of unearned revenue stemming mainly from special purpose accounts,funds for joint projects with other parties and donations which are restricticted to specific purposes. The presentation has been modified to include special purpose accounts and joint projects which were previously reported under other liabilities. Revenue is recognized each year in the amount of the total cost incurred. Details of the transactions related to this account are as follow:

(in thousands of dollars)20092008
Opening balance$5,333$5,940
Donations received11200
Project deposits2,3592,306
Revenue recognized(2,556)(3,113)
Closing balance$5,147$5,333

9. Lease obligation for tangible capital assets

On October 13, 2000, Environment Canada entered into an agreement to rent office and laboratory space from Carleton University, for the National Wildlife Research Centre (NWRC), under capital lease which expires in 2028. Current cost is of $18,212,685 and accumulated amortization of $5,094,933 as at March 31, 2009 ($18,212,685 and $4,369,842 respectively as at March 31, 2008).

The obligation for the upcoming years includes the following:

(in thousands of dollars)20092008
Maturing year  
2014 and thereafter18,20019,500
Total future minimum lease payments23,40024,700
Less: imputed interest (5.63%)8,9259,766
Balance of obligation under leased tangible capital assets$14,475$14,934

10. Employee Benefits

(a) Pension benefits
Environment Canada’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

Both the employees and Environment Canada contribute to the cost of the Plan. The 2008-2009 expense amounts to $58,601,522 ($59,113,373 in 2007-2008) which represents approximately 2.0 times the contributions by employees (2.1 times in 2007-2008).

Environment Canada's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

(b) Severance benefits
Environment Canada provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)20092008
Employee severance benefits, beginning of year$105,184$110,801
Expense for the year recorded as employee benefits32,7822,738
Benefits paid during the year(8,941)(8,355)
Employee severance benefits, end of year$129,025$105,184

Notes to the Financial Statements (Unaudited)

11. Contingent liabilities

(a) Contaminated sites
Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where Environment Canada is obligated to incur or likely to be obligated to incur such costs. Environment Canada does an annual review of all contaminated sites and as such Environment Canada has identified 10 projects (15 in 2007-2008) where such action is possible and for which a liability of $56,268,622 ($55,520,174 in 2007-2008) has been recorded. Environment Canada has estimated a contingent liability of $60,710,707 ($45,486,719 in 2007-2008) where it is unclear whether the department is obligated to incur such costs or to potentially incur any additional costs. Environment Canada's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by Environment Canada in the year in which they become known.

(b) Claims and litigation
Environment Canada records an allowance for claims and pending or threatened litigation where cases are expected to be lost and where the cost can be reasonably estimated. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements. At March 31, 2009, Environment Canada had contingent liabilities identified as likely for claims and for pending and threatened litigation which were recorded as expenses for an amount of $495,000 which is included under other liabilities along with contractors holdback ($1,200,000).

12. Contractual Obligations

The nature of Environment Canada's activities can result in some large multi-year contracts and obligations whereby Environment Canada will be obligated to make future payments when the services/goods are received. The costs identified for the supercomputer are estimates based on current expenditures. The current lease expires in February 2012. Future obligations regarding the Super Computer are unknown at this time. A new contract will be required to ensure continuity of this function. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)Operating

13. Related party transactions

Environment Canada is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included as an expense in Environment Canada’s Statement of Operations. There are other types of services received without charge, such as accommodation, certain employee benefits, workers’ compensation cost and legal services which are attributed to Environment Canada and are disclosed in Environment Canada’s Statement of Operations in the following amounts:

(a) Services received without charge:

(in thousands of dollars)20092008
Employer's contribution to the health and dental insurance plans$40,588$32,813
Legal services3,4763,735
Workers’ compensation cost1,6521,329

(b) Payables and receivables outstanding at year-end with related parties:

(in thousands of dollars)20092008
Accounts receivable from other government departments and agencies$6,565$4,221
Accounts payable to other government departments and agencies10,81415,602

14. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation. This includes the reclassification of Tangible Capital Assets from seven accounts into four accounts and reflecting Special Purposes accounts as Deferred Revenues instead of Other

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