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ARCHIVED - Financial Statements For the Year Ended March 31, 2011

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Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2011, and all information contained in these statements rests with the management of the Canada Border Services Agency. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector.

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 agency's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Canada Border Services Agency's Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting 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 agency; and through conducting an annual assessment of the effectiveness of the system of internal control over financial reporting. An assessment for the year ended March 31, 2011 was completed in accordance with the Policy on Internal Control and the results and action plans are summarized in the annex.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments. 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 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 President of the Canada Border Services Agency.

The financial statements of the Canada Border Services Agency have not been audited.

Luc Portelance, President
Ottawa, Canada
August 3, 2011
Sylvain St-Laurent, Chief Financial Officer
Ottawa, Canada
August 3, 2011



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Statement of Financial Position (Unaudited) As at March 31

(in thousands of dollars)

  2011 2010
Restated (Note 14)
ASSETS    
     
Financial assets    
Due from Consolidated Revenue Fund 81,128 99,406
Accounts receivable and advances (Note 4) 11,395 12,779
Total financial assets 92,523 112,185
     
Non-financial assets    
Prepaid expenses 113 85
Inventory (Note 13) 13,971 7,386
Tangible capital assets (Note 5) 447,172 412,256
Total non-financial assets 461,256 419,727
     
Total 553,779 531,912
     
LIABILITIES AND EQUITY OF CANADA    
     
Liabilities    
Accounts payable and accrued liabilities (Note 6) 145,422 161,865
Deposit accounts (Note 7) 30,605 31,554
Employee future benefits (Note 8) 235,664 222,706
Total 411,691 416,125
     
Equity of Canada 142,088 115,787
     
Total 553,779 531,912

Contingent liabilities (Note 9)
Contractual obligations (Note 10)
The accompanying notes form an integral part of these financial statements.

Luc Portelance, President
Ottawa, Canada
August 3, 2011
Sylvain St-Laurent, Chief Financial Officer
Ottawa, Canada
August 3, 2011


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Statement of Operations (Unaudited) For the Year Ended March 31

(in thousands of dollars)

  2011 2010
Expenses    
Internal Services 680,061 700,315
Conventional Border 644,296 612,588
Enforcement 270,418 236,756
Risk Assessment 123,586 132,973
Trade 72,167 76,192
Facilitated Border 43,035 40,938
Recourse 10,444 8,856
Total Expenses 1,844,007 1,808,618
     
Revenues    
Conventional Border 9,140 17,437
Enforcement 5,636 4,185
Facilitated Border 3,322 3,882
Internal Services 1,426 390
Recourse 66 0
Risk Assessment 11 0
Trade 2 0
Total Revenues  19,603 25,894
     
Net Cost of Operations 1,824,404 1,782,724

Segmented Information (Note 12)
The accompanying notes form an integral part of these financial statements.


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Statement of Equity of Canada (Unaudited) For the Year Ended March 31

(in thousands of dollars)

  2011 2010
Restated (note 14)
Equity of Canada, beginning of year 115,787 104,317
Net cost of operations (1,824,404) (1,782,724)
Net cash provided by Government 1,711,593 1,720,984
Change in due from the Consolidated Revenue Fund (18,278) (82,232)
Services provided without charge by other government departments (Note 11) 157,377 155,442
Transfer of assets from other government department (Note 5) 13 0
Equity of Canada, end of year 142,088 115,787

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


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Statement of Cash Flow (Unaudited) For the Year Ended March 31

(in thousands of dollars)

  2011 2010
Operating activities    
Net cost of operations 1,824,404 1,782,724
     
Non-cash items:    
Services provided without charge by other government departments (157,377) (155,442)
Amortization of tangible capital assets (42,648) (47,129)
Gain on disposal and write-down of tangible capital assets 4,980 2,159
Other 1,099 (470)
     
Variations in Statement of Financial Position:    
(Decrease) increase in accounts receivable and advances (1,384) 1,609
Increase (decrease) in prepaid expenses 28 (56)
Increase in inventory 6,585 276
Decrease in accounts payable and accrued liabilities 16,443 78,318
Decrease in deposit accounts 949 753
(Increase) in employee future benefits (12,958) (15,508)
     
Cash used in operating activities 1,640,121 1,647,234
     
Capital investment activities    
Acquisitions of tangible capital assets 71,697 73,941
Proceeds from disposal of tangible capital assets (225) (191)
Cash used in capital investment activities 71,472 73,750
     
Net Cash provided by Government of Canada 1,711,593 1,720,984

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


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Notes to the Financial Statements (Unaudited) For the Year Ended March 31

1. Authority and Objectives

The Canada Border Services Agency (Agency Activities) is responsible for providing integrated border services that support national security and public safety priorities and facilitate the free flow of persons and goods. The Canada Border Services Agency Act received royal assent on November 3, 2005. The Agency is a departmental corporation named in Schedule II of the Financial Administration Act and reports to Parliament through the Minister of Public Safety. The Agency is funded through authorities from the Government of Canada.

For financial reporting purposes, the activities of the Agency have been divided into two sets of financial statements: Agency Activities and Administered Activities. The financial statements - Agency Activities include those operational revenues and expenses which are managed by the Agency and utilized in running the organization. The financial statements - Administered Activities include those net revenues that are administered for someone other than the Agency, such as the federal government, a province or territory, or another group or organization. The purpose of the distinction between Agency and Administered activities is to facilitate, among other things, the assessment of the administrative efficiency of the Agency in achieving its mandate.

The Agency is responsible for the administration and enforcement of the following acts or portions of these acts: the Customs Act, the Customs Tariff, the Excise Act, the Excise Tax Act, the Citizenship Act, the Immigration and Refugee Protection Act, as well as other acts on behalf of other federal departments and provinces.

In delivering efficient and effective border management that contributes to the security and prosperity of Canada, the Agency operates under the following program activities:

  1. The Risk Assessment program activity “pushes the border out” by seeking to identify high risk travelers and goods as early as possible before their arrival at Canada's borders.
  2. The Enforcement program activity ensures that appropriate enforcement actions are taken against travelers and goods which are non-compliant with border-related legislation and regulations.
  3. The Facilitated Border program activity facilitates border crossing for pre-approved low risk travelers, importers, carriers and goods in Canada and between Canada and the United States by providing a faster and more effective means of clearing the border.
  4. The Conventional Border program activity allows for the admissibility of legitimate travelers (e.g. visitors, students, workers, immigrants and refugees) and goods (both of whom are not participants in a facilitation program) into and out of Canada thereby contributing to a strong Canadian economy through the tourism and business sectors.
  5. The Trade program activity ensures that the Canadian economy and business community gains maximum benefits from the administration of international and regional trade agreements, and domestic legislation governing trade in commercial goods.
  6. The Recourse program activity provides the business community and individuals with an accessible redress process that ensures a fair and impartial review of decisions and actions taken in support of border services legislation.
  7. The Internal Services program activity is a group of related activities and resources that are administered to support the needs of programs and other corporate obligations.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies stated below, which are based with Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Agency is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Agency 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 Statement of Operations and the 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.

(b) Net Cash Provided by the Government of Canada

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

(c) Amounts due from / to the Consolidated Revenue Fund

The amounts due from or to the Consolidated Revenue Fund 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 Agency is entitled to draw from the CRF without further appropriations to discharge its liabilities.

(d) Non-tax revenues

Non-tax revenues reported in this statement include revenues collected on behalf of the Government of Canada under the Immigration and Refugee Protection Act, the Agriculture and Agri-Food Administrative Monetary Penalties Act and other similar legislation.

Non-tax revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenue takes place.

(e) Expenses

All expenses are recorded on an accrual basis:

  • 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, workers' compensation benefits, the employer's contribution to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

(f) Accounts receivable and advances

Accounts receivable and advances are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain based on the specific identification and on percentages of aging of receivables.

(g) Inventory

Inventory consists of forms, publications and uniforms held for future program delivery and not intended for resale. Inventory is valued at cost using the weighted average cost method. If there are no longer any service potential, inventory is valued at the lower of cost or net realizable value.

(h) 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. The Agency does not 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.

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

Asset class Amortization period
Buildings 30 years
Works and infrastructure 40 years
Machinery and equipment 10 years
Information technology equipment 5 years
In-house-developed software 7 years
Purchased software 3 years
Vehicles 5 years to 10 years
Leasehold improvements Lesser of the remaining term of lease or useful life of the improvement.

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.

(i) Employee future benefits

  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The Agency's contributions to the Plan are charged to expenses in the year incurred and represent the Agency's total obligation to the Plan. Current legislation does not require the Agency to make contributions for any actuarial deficiencies of the Plan.
  2. 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.

(j) 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.

(k) 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 the Agency becomes aware of the contamination and is obligated, or is likely to be obligated to incur remedial costs. If the likelihood of the Agency's obligation to incur these costs is either not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

(l) Measurement uncertainty

The preparation of these 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. 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, the allowances for doubtful accounts and the useful life of tangible capital assets. Actual results could significantly 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 Authorities

The Agency receives most of its funding through annual Parliamentary authorities. Items recognized in the Statement of Operations and the Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, the Agency 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

  2011 2010
  (in thousands of dollars)
Net cost of operations 1,824,404 1,782,724
     
Adjustments for items affecting net cost of operations but not affecting authorities:    
     
Services provided without charge by other government departments (157,377) (155,442)
Amortization of tangible capital assets (42,648) (47,129)
Increase in employee future benefits (12,958) (15,508)
Revenue not available for spending 7,003 4,749
Increase in vacation pay and compensatory leave (2,836) (4,692)
Gain on disposal and write-down of tangible capital assets 4,980 2,159
Increase in bad debt (3,270) (975)
Increase in environmental liabilities (1,994) 70
Adjustment to prior year's expenditures 975 886
Other  1,188 232
Total (206,937) (215,650)
     
Adjustments for items not affecting net cost of operations but affecting authorities:    
     
Acquisition of tangible capital assets 71,697 73,941
Proceeds from disposal of tangible capital assets (225) (191)
Increase in inventory 6,585 276
Increase in prepaid expenses 28 (56)
Total 78,085 73,970
     
Current year authorities used 1,695,552 1,641,044


(b) Authorities provided and used

  2011 2010
  (in thousands of dollars)
Authorities Provided:    
Vote 10 – Operating expenditures 1,515,563 1,538,564
Vote 15 – Capital expenditures 181,239 116,639
Statutory amounts 182,425 182,501
Total 1,879,227 1,837,704
     
Less:    
Authorities available for future years (178,688) (158,121)
Lapsed: - Operating (4,987) (38,539)
Total (183,675) (196,660)
     
Current year authorities used 1,695,552 1,641,044

4. Accounts Receivable and Advances

The following table presents details of the accounts receivable and advances:

  2011 2010
  (in thousands of dollars)
Receivables from other other government departments and agencies 7,321 8,028
Receivables from external parties 7,540 5,159
Employee advances and other receivables 1,554 1,602
Deposits in transit to the Receiver General 149 (76)
Total 16,564 14,713
Less: allowance for doubtful accounts on external receivables (5,169) (1,934)
Total 11,395 12,779


5. Tangible Capital Assets

(in thousands of dollars)

The following table presents details of the tangible capital assets:

  Cost Accumulated amortization 2011 2010
Capital asset class Opening
balance
Acquisi-
tions
Transfers, disposals, write-offs Closing
balance
Opening balance Amorti-zation Transfers, disposals,
write-offs
Closing
balance
Net book
value
Net book value
Land 4,525 55 0 4,580 0 0 0 0 4,580 4,525
Buildings 182,346 3,860 0 186,206 62,971 6,030 0 69,001 117,205 119,375
Leasehold Improvements 17,311 7,020 0 24,331 7,618 4,021 0 11,639 12,692 9,693
Works and
infrastructure
1,152 0 (21) 1,173 399 25 (1) 425 748 753
Machinery and
equipment
84,185 1,848 1,683 84,350 42,483 7,832 2,416 47,899 36,451 41,702
Information technology equipment,
in-house-developed
and purchased software
171,232 534 (5,360) 177,126 105,029 22,133 (510) 127,672 49,454 66,203
Vehicles 28,611 3,033 1,791 29,853 21,710 2,607 2,054 22,263 7,590 6,901
Assets under
construction
163,104 55,347 (1) 218,452 0 0 0 0 218,452 163,104
                     
Total 652,466 71,697 (1,908) 726,071 240,210 42,648 3,959 278,899 447,172 412,256

Disposals and transfers of assets under construction represent assets that were put into use in the year and have been transferred to the other capital asset classes as applicable.

Effective March 31, 2011, the Agency exchanged vehicles with a net book value increase of $ 13,000 to the Privy Council Office.

6. Accounts Payable and Accrued Liabilities

The following table presents details of accounts payable and accrued liabilities:

  2011 2010
  (in thousands of dollars)
Payables to external parties 44,143 47,889
Payables to other government departments and agencies 30,208 47,183
Accrued salary, vacation pay and compensatory leave 71,071 66,793
Total 145,422 161,865

7. Deposit Accounts

The deposit accounts were established to record cash and securities required to guarantee payment of customs duties and excise taxes on imported goods pursuant to the Customs Act and the Excise Tax Act and to guarantee the compliance of transporters and individuals with the provisions of the Immigration and Refugee Protection Act.

The following table presents details on the deposit accounts:

  Opening
Balance
Receipts Payments Closing
Balance
  (in thousands of dollars)
Guarantee deposit accounts 26,540 8,418 (9,553) 25,405
Other deposit accounts 5,014 278 (92) 5,200
Total deposit accounts 31,554 8,696 (9,645) $30,605

8. Employee Future Benefits

(a) Pension benefits

The Agency'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 two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec pension plan benefits and they are indexed to inflation.

Both the employees and the Agency contribute to the cost of the Plan. The 2010-2011 expense amounts to $127,763,000 ($131,477,000 in 2009-2010), which represents approximately 1.9 times (1.9 in 2009-10) the contributions by employees.

The Agency'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

The Agency 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 authorities. Information about the severance benefits, measured as at March 31, is as follows:

  2011 2010
  (in thousands of dollars)
Accrued benefit obligation, beginning of year 222,706 207,198
Expense for the year 27,250 29,135
Benefits paid during the year (14,292) (13,627)
Accrued benefit obligation, end of year 235,664 222,706

9. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

(a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the Agency is obligated or likely to be obligated to incur such costs. The Agency identified three sites in 2011 (three sites in 2009-2010) where such action is possible and for which a liability of $2,286,000 ($292,000 in 2009-2010) has been recorded in accrued liabilities. No additional costs are known or expected. The Agency'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 in the year in which they become likely and are reasonably estimable.

(b) Claims and litigation

Claims have been made against the Agency in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified for a total $1,559,500,000 ($1,650,000,000 in 2009-2010) at March 31, 2011. Based on the Agency's assessment, legal proceedings for claims estimated at $ 1,945,000 at March 31, 2011 ($ 2,762,600 in 2009-2010).

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 and expense are recorded in the financial statements. As at March 31, 2011, the Agency has recorded an estimated liability of $290,000 ($290,000 in 2009-2010).

10. Contractual Obligations

The nature of the Agency's activities can result in some large multi-year contracts and obligations whereby the Agency will be obligated to make future payments in order to carry out its programs or when services and goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

  2012 2013 2014 2015 2016 and there-after Total
  (in thousands of dollars)
Operating contracts 61,270 11,150 6,583 2,269 82 81,354

11. Related Party Transactions

The Agency is related as a result of common ownership to all Government departments, agencies and Crown corporations of Canada. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Agency received common services which were obtained without charge from other Government departments as disclosed below:

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

During the year, the Agency received 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 without charge have been recorded in the Agency's Statement of Operations as follows:

  2011 2010
  (in thousands of dollars)
Accommodation 62,008 60,562
Employer's contribution to the health and dental insurance plans 83,381 80,368
Workers' compensation coverage 413 391
Legal services 11,575 14,121
Total 157,377 155,442

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 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 the Agency's Statement of Operations.

(b) Administration of programs on behalf of other government departments

Under a memorandum of understanding signed with Statistics Canada on March 21, 1984, the Agency provides statistical information relating to imports and exports. During the year, the department incurred expenses of $2,547,947 ($3,094,211 in 2009-2010) on behalf of Statistics Canada.

Under an administrative arrangement signed with Canadian International Development Agency on May 4, 2009, the Agency administers a program to help develop the borders in Haiti. During the year, the department incurred expenses of $385,337 ($113,893 in 2009-2010) on behalf of Canadian International Development Agency.

Under an administrative arrangement signed with Canadian International Development Agency on December 15, 2009, the Agency commences a project to strengthen the State Customs Services of the Ukraine laboratory system. During the year, the department incurred expenses of $262,292 (nil in 2009-2010) on behalf of Canadian International Development Agency.

Under a memorandum of understanding signed with Industry Canada on September 16, 2008, the Agency administers a study to identify the causes of border wait times at the port level. During the year, the department incurred expenses of $33,024 ($10,676 in 2009-2010) on behalf of Industry Canada.

Under a memorandum of understanding signed with Human Resources and Skills Development Canada on November 19, 2002, the Agency captures and releases customs information on travelers. During the year, the department incurred expenses of $31,952 ($42,897 in 2009-2010) on behalf of Human Resources and Skills Development Canada.

Under a memorandum of understanding signed with the Department of Foreign Affairs and International Trade on October 21, 2010, the Agency provides risk management training for counter-terrorism capacity building program. During the year, the department incurred expenses of $26,110 (nil in 2009-2010) on behalf of the Department of Foreign Affairs and International Trade.

The expenses noted above are reflected in the financial statements of the other government department and not recorded in these financial statements.

(c) Administration of programs on behalf of CBSA

The Agency has arrangements with the Canada Revenue Agency for the provision of information technology services to CBSA, which are paid for on a quarterly basis for a total of $139,808,000 ($126,153,000 in 2009-2010).

(d) Other transactions with related parties

  2011 2010
  (in thousands of dollars)
Accounts receivable from other government departments and agencies 7,321 8,028
Accounts payable to other government departments and agencies 30,208 47,183
Expenses - other government departments and agencies 410,354 381,519
Revenues - other government departments and agencies 480 156

12. Segmented Information

(in thousands of dollars)

Presentation by segment is based on the Agency's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred and the revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

  2011 2010
  Risk Assessment Enforcement Facilitated Border Conventional Border Trade Recourse Internal Services Total Total
Operating Expenses                  
Salaries and employee benefits 109,050 177,376 39,151 585,377 67,291 9,482 355,272 1,342,999 1,314,237
Professional and special services 3,209 40,918 78 10,008 276 341 214,190 269,020 254,932
Rental of land and buildings 5,038 8,300 1,808 27,032 3,107 438 19,751 65,474 63,499
Transportation and telecommunication 3,012 14,679 701 10,079 1,029 71 25,041 54,612 51,133
Amortization 1,142 6,051 314 2,284 19 0 32,838 42,648 47,129
Repair and maintenance 209 1,752 37 1,723 7 0 19,714 23,442 24,002
Other 170 16,826 60 1,438 167 11 2,233 20,905 10,576
Materials and supplies 1,004 2,242 281 3,514 219 41 9,260 16,561 22,818
Consumable machinery and equipment (parts) 750 1,334 51 1,316 52 49 1,524 5,076 19,317
Bad debts 2 940 554 1,525 0 11 238 3,270 975
Total Expenses 123,586 270,418 43,035 644,296 72,167 10,444 680,061 1,844,007 1,808,618
                   
Revenues                  
Sale of goods and services 0 1,459 3,322 9,081 2 0 992 14,856 23,408
Miscellaneous 0 2,890 0 0 0 66 (25) 2,931 563
Forfeitures of cash bonds 0 1,280 0 0 0 0 0 1,280 1,181
Gain on sale of assets 11 7 0 59 0 0 143 220 178
Interest, penalties and fines 0 0 0 0 0 0 206 206 119
Seized property 0 0 0 0 0 0 110 110 445
Total Revenues  11 5,636 3,322 9,140 2 66 1,426 19,603 25,894
                   
Net Cost of Operations 123,575 264,782 39,713 635,156 72,165 10,378 678,635 1,824,404 1,782,724

13. Inventory

The following table presents details of the inventory, measured at cost using the average cost method.

  2011 2010
  (in thousands of dollars)
Uniforms 13,491 6,895
Forms and publications 480 491
Total 13,971 7,386

The cost of consumed inventory recognized as an expense in the Statement of Operations is $ 5,158,900 ($ 11,595,500 in 2009-2010).

14. Adoption of new accounting policies

During the year, the Agency adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements which is effective for the Agency for the 2010-11 fiscal year. The major change in the accounting policies of the Agency required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on the comparatives for 2009-10:

  2010
As previously stated
Effect of change 2010
Restated
  ( in thousands of dollars)
Statement of Financial Position:      
Total assets 432,582 99,330 531,912
  Total 99,330  
       
Total liabilities 416,201 (76) 416,125
Equity of Canada 16,381 99,406 115,787
  Total 99,330 531,912

15. Comparative information

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


Statement of Administered Assets and Liabilities (Unaudited) At March 31

(in thousands of dollars)

  2011 2010
Restated (note 12)
ADMINISTERED ASSETS    
     
Cash 1,662,378 1,512,636
Amounts receivable from other Federal Government
departments and agencies (Note 5)
5,441 1,947,134
Taxes receivable (Note 6) 1,416,872 1,284,657
     
TOTAL 3,084,691 4,744,427
     
ADMINISTERED LIABILITIES    
     
Liabilities    
Amounts payable to other Federal Government
departments and agencies
192,445 56,035
Payable to provinces (Note 7) 8,347 15,481
Taxes payable 2,072 1,114
Deposit accounts (Note 8) 9,065 8,931
Total 211,929 81,561
     
Net amount due to the Consolidated Revenue Fund
on behalf of the Government of Canada (Note 9)
2,872,762 4,662,866
     
TOTAL 3,084,691 4,744,427

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

Statement of Administered Revenues (Unaudited) For the Year Ended March 31

(in thousands of dollars)

  2011 2010
Restated (note 12)
Administered Revenues    
Tax revenues    
Excise taxes (Note 3) 18,265,301 16,300,351
Customs import duties
3,519,962 3,511,080
Excise duties 1,414,434 1,256,842
TOTAL 23,199,697 21,068,273
     
Non-tax revenues    
Interest, penalties and fines 5,946 24,284
Seized property 9,827 11,059
Sale of goods and services 1,055 989
Miscellaneous 147 722
Total 16,975 37,054
     
Total Revenue Administered on behalf of the Government of Canada 23,216,672 21,105,327
Less: Bad Debts (Note 4) (10,049) 27,146
     
Net Administered Revenues 23,226,721 21,078,181

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

Statement of Administered Cash Flows (Unaudited) For the Year Ended March 31

(in thousands of dollars)

  2011 2010
Restated (note 12)
     
Total Net Administered Revenues 23,226,721 21,078,181
Change in administered assets and liabilities:    
(Increase) in cash (149,742) (168,652)
Decrease (Increase) in accounts receivable 1,941,693 (1,659,831)
(Increase) in tax receivables (132,215) (24,797)
Increase in accounts payable 136,410 18,189
(Decrease) Increase in payable to provinces (7,134) 2,030
Increase (Decrease) in taxes payable 958 (417)
Increase in deposit accounts 134 1,909
     
Net cash Deposited in the Consolidated Revenue Fund
of the Government of Canada
25,016,825 19,246,612
     
Consisting of:    
Cash deposits to the Consolidated Revenue Fund 25,592,068 21,554,869
Cash payments/refunds from the Consolidated Revenue Fund (575,243) (2,308,257)
     
Net cash Deposited in the Consolidated Revenue Fund
of the Government of Canada
25,016,825 19,246,612

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

Notes to the March 31, 2011 Financial Statements (Unaudited)

1. Authority and Objectives

The Canada Border Services Agency (Agency) is responsible for providing integrated border services that support national security and public safety priorities and facilitate the free flow of persons and goods. The Canada Border Services Agency Act received royal assent on November 3, 2005. The Agency is a departmental corporation named in Schedule II of the Financial Administration Act and reports to Parliament through the Minister of Public Safety. The Agency is funded through appropriations from the Government of Canada.

The Agency is responsible for the administration and enforcement of the following acts or portions of these acts: the Customs Act, the Customs Tariff, the Excise Act, the Excise Tax Act, the Citizenship Act, the Immigration and Refugee Protection Act, as well as other acts on behalf of other federal departments and provinces.

2. Summary of Significant Accounting Policies

The purpose of these Administered Activities financial statements is to present information about tax-related revenues, expenses, assets and liabilities that the Agency administers on behalf of the federal government and provincial and territorial governments.  Additional financial statements for Agency Activities include those operational revenues and expenses, which are managed by the Agency and utilized in running the organization. 

The CBSA reports against accounting principles that are consistent with those applied in the preparation of the financial statements of the Government of Canada.  As such, the CBSA Administered Activities stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

A summary of significant accounting policies are as follows:

(a) Tax Revenues

Tax revenues reported in this statement include revenues assessed under the authority of the Customs Act, the Customs Tariff, the Excise Act and the Excise Tax Act. These taxes include:

  • Excise taxes: Consists of the goods and services tax (GST) and the harmonized sales tax (HST) assessed on imports, net of the GST remission order to the Canada Revenue Agency (CRA) and the transfer of HST to the Department of Finance Canada. Domestic HST and GST, as well as the input tax credits accorded for GST/HST paid on importations and domestic transactions, are not reflected in these statements as the CRA is responsible for their administration. Excise taxes are also assessed on gasoline and other miscellaneous imports.
  • Excise duties: Consists of tobacco, beer and liquor duties assessed on imports. These are shown net of refunds, rebates and drawbacks.
  • Customs import duties: Consists of import duties assessed on imports, net of any refunds, rebates and drawbacks.

The determination of the Agency’s tax revenues is based on the taxes and duties assessed that relate to goods authorized by the Agency to enter into Canada during the fiscal year that ended March 31. The Agency is not able to estimate the amount of unreported tax revenues. These revenues are recognized at the time the goods are released.

The Canadian customs and tax systems are predicated on self-assessment where importers are expected to understand the laws and comply with them. This has an impact on the completeness of duty and tax revenues when importers fail to comply with laws, for example, if they do not declare or incorrectly declare goods imported. The Agency has implemented systems and controls in order to detect and correct situations where importers are not complying with the various acts it administers. These systems and controls include performing audits of importer records where determined necessary by the Agency. Such procedures cannot be expected to identify all undeclared or incorrectly declared importations or other cases of non-compliance. The Agency does not estimate the amount of unreported duties and taxes. However, such amounts are included in revenues when assessed.

(b) Non-tax revenues

Non-tax revenues reported in this statement include revenues collected on behalf of the Government of Canada under the Immigration and Refugee Protection Act, the Agriculture and Agri-Food Administrative Monetary Penalties Act and other similar legislation.

Non-tax revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenue.

(c) Cash

Cash includes amounts received in Agency offices or by Agency agents as at March 31 but not yet deposited to the credit of the Consolidated Revenue Fund (CRF) of the Government of Canada.

(d) Accounts receivable

Accounts receivable are stated at amounts expected to be ultimately realized; a provision is made for doubtful accounts where recovery is considered uncertain. 

(e) Taxes receivable

Taxes receivable represent duties and taxes and other revenues assessed or estimated by the Agency but not yet collected. All receivables are stated at amounts ultimately expected to be realized. A provision is made for doubtful accounts where recovery is considered uncertain. This allowance for doubtful accounts reflects management's best estimate of the collectability of amounts assessed but not yet paid.

(f) Allowance for doubtful accounts

The allowance for doubtful accounts reflects management's best estimate of the collectability of amounts assessed, including the related interest and penalties, but not yet paid. The allowance for doubtful accounts is composed of two parts; which are reviewed on an annual basis.  A portion of the allowance is based on the age of the accounts and the other portion is calculated based on accounts in appeal.

The allowance for doubtful accounts is adjusted by an annual provision for doubtful accounts and is reduced by amounts written off as uncollectable during the year.  The annual provision is reported net of taxes receivable in the Statement of Administered Assets and Liabilities.

(g) Taxes payable

Taxes payable to importers represent refunds and related interest resulting from assessments completed after March 31 for excise duties, customs import duties and GST/HST for current or prior year imports.

(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) Measurement uncertainty

The preparation of these 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. 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 the allowance for doubtful accounts. Actual results could significantly 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. Excise Taxes

The economic recovery contributed to the increase in GST/HST assessed on imported goods.

The inception of HST in Ontario and British Columbia occurred in July 2010.  Actual Provincial HST amounts assessed by the Agency are transferred to the Canada Revenue Agency for inclusion in the payments made to the Department of Finance Canada.

The following table presents details of the excise tax revenues:

  2011 2010
Restated (note 12)
  (in thousands of dollars)
     
GST/HST 18,365,500 16,294,528
Tax remission order (42,146) (40,333)
Transfer of HST to Provinces (137,447) (14,432)
Total 18,185,907 16,239,763
     
Excise tax - gasoline 43,755 28,714
Other excise tax 35,639 31,874
Total 79,394 60,588
     
Total excise taxes 18,265,301 16,300,351

4. Bad Debt Expense

The allowance for doubtful accounts decreased significantly in 2011 as a result of fewer accounts in appeal and active uncollectable amounts.  Furthermore, most accounts receivable write-offs this year formed part of the opening balance of the allowance for doubtful accounts and did not directly impact the bad debt expense.  In addition, the allowance for doubtful accounts had been overestimated in previous years, resulting in a correction to the bad debt expense. 

The combination of these factors contributed to a net credit balance in the bad debt expense.

5. Amounts Receivable from Other Federal Government Departments and Agencies

This value represents amounts due to the Agency from other Federal Government departments and agencies.  A change in the methodology relating to the accounting of HST transfers to the provinces was made in 2010.  Commencing in 2011, the CRA began remitting 100% of the estimate to the Department of Finance Canada; with the Agency transferring actual Provincial HST amounts collected to the CRA on an annual basis. 

The following table presents details of the amounts receivable:

  2011 2010
Restated (note 12)
  (in thousands of dollars)
     
HST receivable from Canada Revenue Agency 0 1,923,536
Receivables from other Federal Government
departments and agencies
5,441 23,598
Total 5,441 1,947,134

6. Taxes Receivable

Taxes receivable represent the customs duties, excise taxes, GST and HST due to the Receiver General for Canada as a result of importations into Canada.

The following table presents details of taxes receivable:

  2011 2010
Restated (note 12)
  (in thousands of dollars)
     
Taxes receivable 1,453,300 1,411,239
Less: allowance for doubtful accounts (36,428) (126,582)
Net taxes receivable 1,416,872 1,284,657

7. Payable to Provinces

The following table presents details on the memorandums of understanding (MOUs) that have been established between the provinces and the Agency, whereby the Agency collects provincial sales, alcohol and tobacco taxes on behalf of the provinces and remits these collections directly to the provinces. 

In 2011, Ontario and British Columbia became HST participating provinces; therefore, provincial sales tax was no longer remitted to these provinces.

  2011 2010
  (in thousands of dollars)
     
Payable to provinces, beginning of year 15,481 13,451
Receipts from taxpayers 60,800 107,180
Refunds to taxpayers (2,505) (4,081)
Payments to provinces (65,429) (101,069)
Payable to provinces, end of year 8,347 15,481

8. Deposit Accounts

The deposit accounts were established to record cash and securities required to guarantee payment of customs duties and excise taxes on imported goods pursuant to the Customs Act and the Excise Tax Act.

The following table presents details on the deposit accounts:

  Opening
Balance
Receipts Payments Closing
Balance
  (in thousands of dollars)
         
Guarantee deposit accounts 8,931 3,346 (3,212) 9,065

9. Net amount due to the Consolidated Revenue Fund

The net amount due to the CRF on behalf of the Government of Canada is the difference between administered assets and other administered liabilities payable by the Agency out of the CRF.

The change in the net amount due to the CRF during the fiscal year is presented in the table below:

  2011 2010
Restated (note 12)
  (in thousands of dollars)
     
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada at the beginning of the year, opening balance 4,662,866 2,497,370
Correction of previous years' unrecorded revenue   333,925
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada at the beginning of the year, restated opening balance   2,831,295
Total net administered revenues 23,226,721 21,078,181
Net cash deposited in the Consolidated Revenue Fund of the
Government of Canada
(25,016,825) (19,246,610)
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada at end of year 2,872,762 4,662,866

10. Contingent Liabilities

Claims have been made against the Agency in the normal course of operations. These claims include appeals for previously assessed customs duties, excise duties, GST and HST. Based on the Agency’s assessment, legal proceedings for claims estimated at $36,000,000 ($176,000,000 in 2009-2010) were pending at March 31, 2011. 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 recorded in the financial statements.

11. Related Party Transactions

The Agency is related in terms of common ownership to all Government of Canada departments, agencies and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms. The Agency also receives collection services to CBSA under Part V.I of the Customs Act.

12. Restatement of Comparative Information

This fiscal year two issues were noted which warranted a retroactive entry be entered in order to recognize revenues which were not recorded in previous fiscal years. A summary of the issues are as follows:

  1. Reconciliation of historic GST/HST data since fiscal year 2005 identified unreported accounts receivable and revenues of $244,000,000. A portion of this was adjusted in the 2010 Statement of Administered Revenues ($54,807,000), and the remainder was in prior years.
  2. Receivable of $144,000,000 from the Canada Revenue Agency comprised of excess HST transfers made by the CBSA during the 2009 fiscal year.

Consequently, the comparative financial statements for the year ended March 31, 2010, have been restated. The effect of these adjustments is presented in the table below.

  2010
As Previously Stated
Effect of Changes 2010 Restated
  (in thousands of dollars)
Statement of Administered Revenues      
Excise taxes (note 3) 16,266,855 33,496 16,300,351
Customs import duties 3,489,783 21,297 3,511,080
Total tax revenues 21,013,480 54,793 21,068,273
       
Interest, penalties and fines 24,270 14 24,284
Total non-tax revenues 37,040 14 37,054
       
Total Revenue Administered on behalf of the Government of Canada 21,050,520 54,807 21,105,327
       
Net Administered Revenues 21,023,374 54,807 21,078,181
       
Statement of Administered Assets and Liabilities      
Amounts receivable from other Federal Government departments and agencies (Note 5) 1,802,895 144,239 1,947,134
Taxes receivable (Note 6) 1,040,162 244,495 1,284,657
Total Administered Assets 4,355,693 388,734 4,744,427
       
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada (Note 9) 4,274,132 388,734 4,662,866
       
Total Administered Liabilities and net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada 4,355,693 388,734 4,744,427
       
Statement of Administered Cash Flows      
Total Net Administered Revenues 21,023,374 54,807 21,078,181
(Increase) in tax receivables 30,010 (54,807) (24,797)
       
Note 3: Excise Taxes      
GST/HST 16,261,032 33,496 16,294,528
Total 16,266,855 33,496 16,300,351
       
Note 5: Amounts Receivable from Other Federal Government Departments and Agencies      
HST receivable from Canada Revenue Agency 1,779,297 144,239 1,923,536
Total 1,802,895 144,239 1,947,134
       
Note 6: Taxes Receivable      
Taxes receivable 1,166,744 244,495 1,411,239
Net taxes receivable 1,040,162 244,495 1,284,657
       

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Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting Fiscal Year 2010-11

Note To The Reader

With the Treasury Board Policy on Internal Control that became effective April 1, 2009, departments are required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR).

As part of this policy, departments are expected to conduct annual assessments of their system of ICFR, to establish an action plan to address any necessary adjustments, and to attach to their Statements of Management Responsibility a summary of their assessment results and action plan.

Effective systems of ICFR aim to achieve reliable financial statements and to provide assurance that:

  • transactions are appropriately authorized;
  • financial records are properly maintained;
  • assets are safeguarded from risks such as waste, abuse, loss, fraud and mismanagement; and
  • applicable laws, regulations and policies are followed.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess the effectiveness of associated key controls, to adjust them as required, and to monitor the system in support of continuous improvement. As a result, the scope, pace and status of those departmental assessments of the effectiveness of their system of ICFR will vary from one organization to another ,based on risks and taking into account their unique circumstances.

It is important to note that the system of ICFR is not designed to eliminate all risks, but rather to mitigate risk to a reasonable level with controls that are balanced with and proportionate to the risks they aim to mitigate.

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1. Introduction

This document is the second annual annex to the Canada Border Services Agency (CBSA) Statement of Management Responsibility Including Internal Control over Financial Reporting which prefaces the financial statements for the fiscal year 2010-11. As required by the new Treasury Board Policy on Internal Control, effective April 1, 2009, this annex provides summary information of the measures taken by the CBSA since the last fiscal year to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides information on the results and related action plans of the assessments conducted by the CBSA as of March 31, 2011, along with some financial highlights pertinent to understanding the control environment of the Agency.

1.1 Authority, mandate and program activities

Detailed information on the CBSA‘s authority, mandate and program activities can be found in the Departmental Performance Report [Estimates] and Section I of the Report on Plans and Priorities [Estimates].

The CBSA conducts a significant portion of its financial activities in offices located in the regions and in headquarters branches. These activities are monitored, reviewed and verified by the Comptrollership Branch under the Direction of the Chief Financial Officer.

1.2 Financial highlights

Agency activities (expenditures)

Financial statements (unaudited) of the Agency activities (expenditures) for fiscal-year 2010-11 can be found at [Corporate Documents]. Information can also be found in the Public Accounts of Canada [Receiver General for Canada].

The CBSA net cost of operations was $1.824 billion with salaries and employee benefits being the largest expense ($1.3 billion or 73 percent of total expenses). Other expenses included professional and special services ($269 million or 15 percent), rental of land buildings ($65 million or 4.0 percent and transportation and communication ($55 million or 3.0 percent).

For Agency activities, as of March 31, 2011, the CBSA reported total assets of $554 million which were mainly comprised of tangible capital assets ($447 million or 80 percent). The total reported liabilities for Agency activities were $412 million which were mainly comprised of employee severance benefits ($236 million or 57 percent) and accounts payable and accrued liabilities ($145 million or 35 percent).

Agency-administered activities (revenues)

Note: Agency-administered activities are summarized in section 6 of this annex.

Financial statements (unaudited) of the administered activities (revenues) for fiscal-year 2010-11 can be found at [Corporate Documents]. Information can also be found in the Public Accounts of Canada [Receiver General for Canada].

For fiscal-year 2010-11, the CBSA reported total tax revenues of $23.2 billion and total non-tax revenue of $17.0 million. For administered activities, as at March 31, 2011, the CBSA reported total assets of $3.0 billion; comprised of cash ($1.7 billion or 53.9 percent); accounts receivable from other federal government departments and agencies ($5.4 million or 0.2 percent); and taxes receivable ($1.4 billion or 45.9 percent). The total reported liabilities for administered activities were $211.9 million, with the majority due to other federal government departments ($192.4 million or 90.8 percent) and the provinces ($8.3 million or 3.9 percent). The low ratio of total liabilities, in comparison to total assets, is explained by the fact that the primary objective of reporting administered activities, separate from operating activities (Agency activities), is to report revenues which normally do not generate significant liabilities.

1.3 Service arrangements relevant to financial statements

The CBSA relies on other organizations for the processing of certain transactions that are recorded in its financial statements.

  • The CBSA has arrangements with the Canada Revenue Agency (CRA) for the provision of information technology services and for the collection of all outstanding debts including any duty, tax, fee, penalty, charge or other amount owing under the Customs Act, Customs Tariff, Excise Tax Act, Excise Act, Excise Act  2001, Special Import Measures Act, and/or related regulations.
  • Public Works and Government Services Canada (PWGSC) centrally administers the payments of salaries and some of the CBSA's procurement of goods and services. Treasury Board Secretariat provides the Department with information used to calculate various accruals and allowances, such as the accrued severance liability.
  • The Department of Justice provides legal services to the CBSA.

1.4 Material changes during fiscal year in 2010-11

With the exception of the revenue restatement identified in the Agency's Administered Activities Financial Statements, note 12, there are no significant changes that are relevant to the financial statements occurred at the CBSA during 2010-11.

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2. Control Environment of the CBSA Relative to ICFR

The CBSA recognizes the importance of setting the tone from the highest level of senior management to help ensure that staff at all levels understand their roles in maintaining effective systems of ICFR, and the Agency is well equipped to exercise these responsibilities effectively. The CBSA's focus is to ensure risks are managed well through a responsive and risk-based control environment that enables continuous improvement and innovation.

2.1 Key positions, roles and responsibilities

Below are the CBSA'S key positions and committees with responsibilities for maintaining and reviewing the effectiveness of its system of ICFR.

President – The President, as Accounting Officer, assumes overall responsibility and leadership for the measures taken to maintain an effective system of internal control. In this role, the President chairs the Departmental Audit Committee and the Executive Committee.

Executive Vice-President – The Executive Vice-President (EVP) reports directly to the President. In this role, the EVP is the primary support to the President in discharging his obligations as Accounting Officer and for ensuring that an effective system of ICFR is in place and functioning as intended. The VP also chairs the Operations Committee.

Chief Financial Officer (CFO) – The CFO reports directly to the President and provides leadership for the coordination, coherence and focus on the design and maintenance of an effective system of ICFR. The CFO chairs the Comptrollership Standing Committee (CSC), and, whose membership includes the Associate Vice-President of Operations, Vice Presidents of Programs and Science and Technology, the Chief Audit Executive and the Directors General from Operations and Programs.

Vice Presidents – The Vice Presidents are responsible for maintaining and reviewing the effectiveness of the system of ICFR within their respective areas of responsibility.

Chief Risk Officer – The Chief Risk Officer is responsible for providing objective advice to the President, Executive Vice-President and the Executive Committee on new and emerging risks, both internal and external, and on how the Agency is positioned to address them.

Chief Audit Executive (CAE) – The CAE reports directly to the President and provides assurance through periodic internal audits which are instrumental for the maintenance of an effective system of ICFR.

Departmental Audit Committee (DAC) - The DAC is an advisory committee that provides objective views on the Agency's risk management, control and governance frameworks. The DAC was established in 2007 and it is comprised of the President, the EVP and four external members. As such, the DAC reviews the CBSA's risk profile and its system of internal control, including the assessment and action plans related to the system of ICFR.

2.2 Key measures taken by the organization

The CBSA's control environment comprises a series of measures that provide employees with the knowledge, tools and resources required to identify and manage risk effectively. These measures include:

  • the CBSA Code of Conduct;
  • an Office of Senior Ethics official and the Senior Officer for Internal Disclosure;
  • a division dedicated to internal control for financial reporting under the direction of the Agency Comptroller;
  • implementation on April 1, 2010 of a new corporate governance structure (Executive Committee, Operations Committee, Programs Standing Committee, Technology Standing Committee, HR Standing Committee, Comptrollership Standing Committee);
  • annual performance agreements with clearly set out financial management responsibilities;
  • training and communications guidelines in core areas of financial management;
  • departmental policies tailored to the CBSA's control environment;
  • regularly updated delegated financial signing authorities matrix; and
  • a risk-based internal audit plan, with annual coverage of governance and risk management.
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3. Assessment Approach of  the Agency Activities (Expenditures) System of ICFR

3.1 Assessment approach

  • In support of the Policy on Internal Control, the Agency must be able to maintain an effective system of ICFR with the objective of providing reasonable assurance that:
  • transactions are appropriately authorized;
  • financial records are properly maintained;
  • assets are safeguarded; and
  • applicable laws, regulations and policies are followed.

Over time, this includes assessment of the design effectiveness and the operating effectiveness of the system of ICFR which leads to ensuring the ongoing monitoring and continuous improvement of the departmental system of ICFR.

  • Design effectiveness means ensuring that key control points are identified, documented and in place. It also means that they are aligned with the risks they aim to mitigate and that any remediation is addressed. This includes the mapping of key processes and IT systems to the main accounts by location, as applicable.
  • Operating effectiveness means that the application of key controls has been tested over a defined period and that any required remediation is addressed.
  • Ongoing monitoring means that a systematic, integrated approach to monitoring is in place, including periodic risk-based assessments and timely remediation.

3.2 Scope of the CBSA assessment during fiscal year 2010-11 – Agency activities (expenditures)

Note: Administered activities (revenues) are summarized in section 6 of this annex.

Foundational elements

Entity-level controls (ELCs)[ 1 ]

The CBSA has completed the documentation and design effectiveness testing related to its entity-level controls and identified risk areas, in association with all responsible divisions, to compile the list of narrative and documentary evidence to support the identified controls.

Information technology general controls (ITGCs)

The CBSA has arrangements with the CRA for the provision of information technology services in relation to its Corporate Administration System (CAS). The CBSA has negotiated arrangements with the CRA to ensure that when the CRA conducts its ICFR reviews for the IT general controls related to CAS, this includes review of all applicable CBSA key controls.

Business process elements (directly related to CBSA's ICFR)

The CBSA performed a risk assessment using the financial statements at March 31, 2009 to determine its main accounts. Significance was assessed relative to qualitative and quantitative measures of materiality specified by departmental management. Once the main accounts were identified, they were then linked to the related financial processes (see listing below). The results of this assessment confirmed the key priority areas of CBSA's system of ICFR that need to be addressed in the implementation of the Policy on Internal Control.

CBSA financial statements main accounts & related key business process
Main Accounts Key Business processes
  System Configured Controls Asset Safe-guarding Compensation / payroll Payment requisitioning Procure-
ment
Assets management Hospitality & Travel Acquisition by credit card Year end procedures
Salaries & employees benefits checkmark   checkmark           checkmark
Professional services checkmark     checkmark checkmark       checkmark
Transportation & Communication checkmark     checkmark     checkmark checkmark checkmark
Capital Assets checkmark checkmark   checkmark checkmark checkmark     checkmark
Material & Supplies checkmark     checkmark   checkmark   checkmark checkmark
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4. CBSA Assessment Results - Agency Activities (Expenditures) During Fiscal Year 2010-11

4.1 Design effectiveness of key controls

Entity-level controls (ELCs)

During 2010-11, the CBSA assessed the design effectiveness of entity-level controls by measuring it up with CBSA Management Accountability Framework (MAF) round VIII area of management requirements and related results. Based upon this assessment, minor gaps in the design of entity-level controls were identified which will be addressed by the CBSA in the 2011-12 fiscal year. Also, due to the redesign of the CBSA governance structure, a validation process with the Agency's key senior managers was initiated in the 2010-11 fiscal year, with the expectation that it will be completed during the 2011-12 fiscal year.

Information technology general controls (ITGCs)

The CBSA has negotiated arrangements with the CRA to ensure that when the CRA conducts its ICFR reviews for the IT general controls related to the Corporate Administration System (CAS), this includes a review of all applicable CBSA key controls.

During the 2010-11 fiscal year, the CRA assessed the ITGCs for CAS to ensure the key general computer controls that relate to the system's operations (including backup and recovery), security (information and physical), and implementation and maintenance processes (including change management and network/software support) are properly designed and implemented. For the results of this assessment, refer to CRA's Annex to the Statement of Management Responsibility, including Internal Controls Over Financial Reporting.

Business process controls

For each significant account, the CBSA completed the following steps:

  • gathered information pertaining to processes and locations, risks and controls relevant to ICFR, including appropriate policies and procedures; and
  • mapped out key processes (e.g., financial control frameworks) with the identification and documentation of key risk and control points.

Finally, these controls, if effectively applied on an ongoing basis, provide assurance that the financial information is complete, reliable, relevant and timely. In addition, there is assurance that all authorities and regulations are respected, in particular, Sections 33 and 34 of the Financial Administration Act (FAA).

During the 2010-11 fiscal year, a final validation and sign-off process of the Agency's key financial control frameworks by the Agency's key process senior managers has been initiated, with the expectation that this will be completed during the 2011-12 fiscal year.

The CBSA has also started to gather information on activities related to safeguarding assets and related key controls.

4.2 Operating effectiveness of key controls

The CBSA has finalized Agency-wide testing of the operating effectiveness of its procurement and contracting financial control framework. The review was able to provide reasonable assurance that the CBSA Contracting Control Framework is operating efficiently and effectively. However, some deficiencies, such as inconsistencies in control process application and level of documentation requirements between various Agency regional offices, were noted. The CBSA intends to implement corrective actions during the 2011-12 fiscal year.

Other Policy on Internal Control implementation activities related to CBSA business were initiated in 2010-11 for the following processes:

  • payroll material sub-processes; new hires, severance, overtime, retroactive pay, cash out payment and secondments;
  • capital assets; and
  • travel & hospitality:
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5. CBSA Action Plan - Agency Activities (Expenditures)

5.1 Progress during fiscal year 2010-11

Progress during fiscal year 2010-11
Commitments from previous year's Annex Status Comments
Complete a sign-off process pertaining to the design and implementation of CBSA financial controls frameworks Substantially advanced Final certification anticipated by July 2011
Complete design effectiveness testing for procurement activities Completed/ Exceeded Operational effectiveness testing completed - the CBSA was able to advance one year sooner
Complete design effectiveness testing for asset safeguarding Substantially advanced Inventory existing asset security documentation and controls initiated
Initiate discussion to obtain some form of a Chief Financial  Officer certification in relation to the ITGC controls of the external service provider (CRA) for CAS services Completed Design and implementation testing activities performed and completed - CRA Annex B clearly states CBSA-related controls tested
Complete the formalization of an ongoing risk-based monitoring plan Substantially advanced The CBSA revised account verification strategy  to serve as the Policy on Internal Control ongoing risk-based monitoring plan requirements for future fiscal years

5.2 Action plan for the next fiscal year and subsequent years

By end of 2011-12, the CBSA plans to:

  • ELC: Address the identified key design gaps.
  • ITGC: Continue the remediation of the operational effectiveness results by a follow-up of management action plan items.
  • Business process: Complete sign-off of the Agency financial control frameworks by senior managers.
  • Procurement: Continue the remediation of the operational effectiveness results by a follow-up of management action plan items.
  • Payroll: Complete operational effectiveness testing.
  • Payment requisitioning: Complete operational effectiveness testing.
  • Year-end procedures (including financial close and reporting): Document the scoped-in year-end procedures (flowcharts, process narratives, risk control matrix).
  • Capital assets: Complete the operational effectiveness testing.
  • Asset safeguarding: Document the scoped-in asset security procedures (flowcharts, process narratives, risk control matrix).
  • Hospitality/Travel: Complete the operational effectiveness testing, including gap identification, recommendations and management action plan for remediation.

CBSA's assessment plan[ 2 ] for subsequent years
Business process Document Design effectiveness Operating effectiveness Start ongoing monitoring activities
Entity-level controls (ELCs) Complete 2011-12 TBD TBD
Information technology general controls (ITGCs) Complete Complete 2011-12 2012-13
Payroll Complete Complete 2011-12 2012-13
Payment requisitioning Complete Complete 2011-12 2012-13
Capital asset s Complete Complete 2011-12 2012-13
Year- end procedures/Financial reporting 2011-12 2012-13 2012-13 2013-14
System configured controls 2012-13 2013-14 2013-14 TBD
Cost recovery 2012-13 2012-13 2013-14 TBD
Inventory 2013-14 2013-14 2014-15 TBD
Procurement process Complete Complete Complete 2012-13
Acquisition cards Complete Complete 2012-13 2013-14
Asset safeguarding 2011-12 2012-13 2013-14 TBD
Hospitality/Travel Complete Complete 2011-12 2013-14
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6. Assessment Approach – Agency-Administered Activities (Revenues) System of ICFR

6.1 Business process elements (directly related to the CBSA's ICFR)

The CBSA's administered activities reports on tax and non-tax revenues, assets and liabilities administered on behalf of the Government of Canada, province or territory. The Office of the Auditor General (OAG) does not provide audit assurance on CBSA's Administered Revenues; however they are audited as part of the year -end Public Accounts audit. 

By examining those main areas and accounts which are reported, significance was assessed relative to qualitative and quantitative measures of materiality. Once the main accounts were identified, they were then linked to the related financial processes. The results of this assessment confirmed the key priority areas of CBSA's system of ICFR that need to be addressed in the implementation of the Policy on Internal Control.

For each significant account, processes and controls were identified that are in place relevant to ICFR, including policies and procedures. Given the magnitude of the current revenue system upgrading, key processes, with identification and documentation of key risks and control points, have yet to be established for most main accounts. Instead, the focus has been on the documentation of those key Agency expenditure areas. However, with the analysis and design of the Accounts Receivable Sub-ledger (ARL) and the CBSA Assessment and Revenue Management (CARM) systems, many business processes are being reviewed and documented.

Below is a listing of those key areas and accounts which are accounted for and reported within the administered activity program.

  • Tax revenue
  • Non-tax revenue
  • Accounts receivable
  • Allowance for doubtful accounts/bad debt
  • Payments to the provinces
  • Refunds to clients

Key business processes in place, or currently being undertaken in order to improve internal controls over financial reporting, are noted below.

  • Cash management reviews
  • Standard operating procedures for key activities, including year-end functions
  • Reconciliation of current and historical revenue data
  • Reporting of revenue data to the Department of Finance
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7. CBSA Assessment Results - Administered Activities (Revenues)

7.1 Design effectiveness of key controls

Information technology general controls (ITGCs)

The CBSA will be modernizing and making significant improvements to the systems and processes that support the administration of revenues. These improvements will also facilitate the Agency's capacity to meet the requirements under the Policy on Internal Control for ICFR. The CARM and the ARL systems are the principal initiatives which will enable these improvements. The ARL system is the first stage of system modernization and is expected to be completed in April 2013.

With the implementation of these systems, and the expected impact on business processes and related controls, the various phases (i.e., design and operating effectiveness and ongoing monitoring) to support ICFR will be developed as these systems are conceived and implemented.

Business process elements

Most key accounts and financial functions have not been documented through key financial control frameworks with identification of key process owners, risks and control points. With the development and implementation of ARL and CARM, key processes related to ICFR will be documented, including the mapping of key processes to the main accounts. Assessments of controls within the administered revenue function are conducted through internal audits.

7.2 Operating effectiveness of key controls

At year end 2010-11, some measures and audits have been completed to improve and/or verify the effectiveness of certain internal controls in the Agency-administered activities (revenues). These measures and audits include the following:

Internal Audit of Cash Cut-Off Procedures

The audit opinion from the 2009-10 audit and preliminary findings of the 2010-11 audit found that year-end cash cut-off procedures were appropriate and in place to record cash in transit.

Cash Management Review

In 2010-11, cash management reviews were conducted within all CBSA regions. Monitoring has shown some improvement in regional compliance; however some control weaknesses still exist in such areas as:

  • revenue receipts and deposits;
  • security and control of public funds; and
  • reviewing cash receipts registers.

A framework for establishing and maintaining an effective cash management review function within the Agency was also developed this fiscal year. Its purpose was to clarify the roles and responsibilities of the various parties involved. Furthermore, monthly conference calls with regional offices have been put into place in order to communicate and address identified issues in a timely manner.

Internal Audit of the Payment Process for Importer/Broker Account Statements

The audit found that some deficiencies exist in the effectiveness and reliability of the payment process. Areas noted include accountability for the payment process at both regional and headquarters offices; updating policies and procedures; and ongoing monitoring of the K84 account statement payment process. The recommendations made as a result of this audit are to be implemented beginning fall 2011. Progress has been made on the action plans in the following areas:

  • clarification of roles and responsibilities;
  • update of policies and procedures related to CBSA revenue accounting and reporting;
  • inclusion of added controls to the Cash Management Framework; and
  • development of a cashier's tool to be used by regional port of entry staff when processing payments.
Independent Review of Revenue Reconciliation Process

In fiscal year 2010-11, an external audit firm was contracted to provide an independent review of the CBSA's revenue reconciliation process. The objective of this audit was to provide assurance to CBSA management with respect to the adequacy of the processes and control activities related to the reconciliation of existing variances surrounding tax revenue data. The evaluation examined:

  • the adequacy of management controls and processes; and,
  • the accuracy of financial records in support of the reconciliation.

Recommendations were made for improvements in the process. CBSA will be implementing these recommendations in fiscal year 2011-12. However, some of the recommendations require systems changes and will be designed and implemented with the implementation of ARL and CARM.

Accounts Receivable Sub-ledger (ARL)

An ARL project team has been established and significant progress has been made on documenting business process flows that will form part of the new system. Consultations have been done with internal stakeholders and implementation is expected in April 2013.

Internal Audit of Accounts Receivable

This audit allowed for the assessment of current accounts receivable processes and controls, as well as an examination of the extent to which the new ARL system will address any significant deficiencies that may exist in the current accounts receivable system. The recommendations and related action plans from this audit will allow for improved timeliness and accuracy of cash receipts and invoices and improve current monitoring practices. The audit noted that key deficiencies in the current accounts receivable process will be addressed with the implementation of ARL.

Program Assessment

A comprehensive program assessment for revenue management was conducted in order to identify areas where effectiveness and efficiency could be improved. From this assessment, employee levels were examined as well as performance indicators and controls. The assessment allowed for an examination of the magnitude and extent of the revenue management function across the Agency, particularly within the ports of entries across Canada, where revenues are reported and cash is received and deposited.

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8.0 CBSA Action Plan – Agency-Administered Activities (Revenues)

Over the course of the next three fiscal years, the CBSA Action Plan includes the elements below.

Revenue Accounting and Reporting

Continue to make progress in documenting controls and processes related to the following areas:

  • policies and guidelines;
  • governance/roles and responsibilities;
  • systems;
  • controls;
  • processes; and
  • performance.

Action plans to address any identified gaps/weaknesses will be developed, as required.

Systems Improvements

During 2010-11, further advancement was made in the implementation of the Accounts Receivable ledger (ARL) project .Work will begin to implement the CBSA Assessment and Revenue Management (CARM) project and there will be continued focus on implementation of the Accounts Receivable Sub-ledger (ARL) initiative. The primary goal of these initiatives is to provide a viable solution to obtain accurate, timely, complete and reliable financial information and manage and account for tax revenues efficiently and effectively.




Notes

  1. Entity level controls were documented by the Agency using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) based questionnaire and Management Accountability Framework (MAF) assessments during the 2008-09 fiscal year. [Return to text]
  2. This plan is based on current resources and prepared in the context of the government's current priorities environment and the Agency's current control environment. Major changes to departmental structure could impact timelines and scope. The plan will be updated on an annual basis.  [Return to text]