Canadian Heritage Financial Statements March 31, 2012

Canadian Heritage

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, 2012, and all information contained in these statements rests with the management of Canadian Heritage. These financial statements have been prepared by management using the Government’s accounting policies, which are based on Canadian public sector accounting standards.

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 Canadian Heritage’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Canadian Heritage’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 (ICFR) 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 Canadian Heritage and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2012 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of Canadian Heritage’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of Canadian Heritage’s operations, and by the Departmental Audit Committee, which provides objective advice and recommendations to the Deputy Minister regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes (including accountability and auditing systems).

The financial statements of Canadian Heritage have not been audited.

Daniel Jean
Deputy Minister

Robert Hertzog
Chief Financial Officer

Gatineau, Canada

Date

Canadian Heritage Statement of Financial Position (Unaudited)

As at March 31

(in thousands of dollars)

	2012	2011
		Restated (note 14)
Liabilities
Accounts payable and accrued liabilities (note 4)	395,480	508,180
Vacation pay	6,630	7,337
Employee future benefits (note 5)	16,747	36,725
Other liabilities	620	602
Total net liabilities	419,477	552,844
Financial assets
Due from the Consolidated Revenue Fund	391,883	507,728
Accounts receivable and advances (note 6)	2,630	6,690
Total gross financial assets	394,513	514,418
Financial assets held on behalf of Government
Accounts receivable and advances (note 6 and note 14)	(17)	(51)
Total financial assets held on behalf of Government	(17)	(51)
Total net financial assets	394,496	514,367
Departmental net debt	24,981	38,477
Non-financial assets
Prepaid expenses	1,737	1,993
Inventory (note 7)	3,394	1,852
Tangible capital assets (note 8)	8,935	12,780
Total non-financial assets	14,066	16,625
Departmental net financial position	(10,915)	(21,852)

Contractual obligations (note 9)
Contingent liabilities (note 10)

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

Daniel Jean
Deputy Minister

Robert Hertzog
Chief Financial Officer

Gatineau, Canada

Date

Canadian Heritage Statement of Operations and Departmental Net Financial Position (Unaudited)

For the year ended March 31

(in thousands of dollars)

	2012	2012	2011
	Planned Results		Restated (note 14)
Expenses
Official Languages	352,364	357,058	351,250
Cultural Industries	206,975	314,268	306,316
Sport	219,005	212,151	210,397
Arts	121,013	110,075	114,964
Engagement and Community Participation	88,856	82,006	88,479
Promotion of and Attachment to Canada	72,499	77,610	87,673
Heritage	38,985	43,301	45,923
Internal Services	102,080	123,810	127,150
Total expenses	1,201,777	1,320,279	1,332,152
Revenues
Revenue from the 1979 Federal-provincial Lottery-agreement	67,544	68,255	66,205
Miscellaneous revenues	3,991	4,796	6,372
Sale of goods and services	289	2,162	464
Revenues earned on behalf of Government (note 14)	(67,602)	(68,512)	(66,588)
Total revenues	4,222	6,701	6,453
Net cost of operations before government funding and transfers	1,197,555	1,313,578	1,325,699
Government funding and transfers
Net cash provided by Government of Canada		1,409,550	1,343,820
Reduction in due from the Consolidated Revenue Fund		(115,845)	(45,920)
Services provided without charge by other government departments (note 11)		32,268	30,958
Transfer of assets and liabilities to other government departments (note 12)		(1,458)	-
Net cost of operations after government funding and transfers		(10,937)	(3,159)
Departmental net financial position – Beginning of year		(21,852)	(25,011)
Departmental net financial position – End of year		(10,915)	(21,852)

Segmented information (note 13)

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

Canadian Heritage Statement of Change in Departmental Net Debt (Unaudited)

For the year ended March 31

(in thousands of dollars)

	2012	2011
Net cost of operations after government funding and transfers	(10,937)	(3,159)
Change due to tangible capital assets
Acquisition of tangible capital assets	363	794
Amortization of tangible capital assets	(2,398)	(2,841)
Proceeds from disposal of tangible capital assets	-	(8)
Net gain (loss) on disposal of tangible capital assets including adjustments	120	(7)
Transfer to other government departments	(1,930)	-
Total change due to tangible capital assets	(3,845)	(2,062)
Change due to inventories	1,542	(659)
Change due to prepaid expenses	(256)	(1,418)
Net increase (decrease) in departmental net debt	(13,496)	(7,298)
Departmental net debt – Beginning of year	38,477	45,775
Departmental net debt – End of year	24,981	38,477

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

Canadian Heritage Statement of Cash Flow (Unaudited)

For the year ended March 31

(in thousands of dollars)

	2012	2011
		Restated (note 14)
Operating activities
Net cost of operations before government funding and transfers	1,313,578	1,325,699
Non-cash items:
Amortization of tangible capital assets	(2,398)	(2,841)
Loss on disposal of tangible capital assets	(8)	(27)
Services provided without charge by other government departments (note 11)	(32,268)	(30,958)
Adjustments to tangible capital assets	128	20
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances	(4,026)	953
Increase (decrease) in prepaid expenses	(256)	(1,418)
Increase (decrease) in inventory	1,542	(659)
Decrease (increase) in accounts payable and accrued liabilities	112,700	49,653
Decrease (increase) in vacation pay	707	724
Decrease (increase) in employee future benefits	19,978	1,876
Decrease (increase) in other liabilities	(18)	12
Transfer of liabilities to other government departments (note 12)	(472)	-
Cash used in operating activities	1,409,187	1,343,034
Capital investing activities
Acquisition of tangible capital assets	363	794
Proceeds from disposal of tangible capital assets	-	(8)
Cash used in capital investing activities	363	786
Net cash provided by Government of Canada	1,409,550	1,343,820

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

1. Authority and Objectives

The Department of Canadian Heritage was established in 1995 under the Department of Canadian Heritage Act.

Canadian Heritage is responsible for formulating policies and delivering programs that help all Canadians participate in their shared cultural and civic life.

Canadian Heritage’s work is structured around the following three strategic outcomes:

• Canadian artistic expressions and cultural content are created and accessible at home and abroad;
• Canadians share, express and appreciate their Canadian identity; and
• Canadians participate and excel in sport.

The Department of Canadian Heritage is specifically responsible for formulating and implementing cultural policies related to copyright, foreign investment and broadcasting, as well as policies related to arts, heritage, official languages, sports, state ceremonial and protocol, and Canadian symbols.

The program activities include:

• Arts: This program activity is necessary to improve Canadians’ access to varied artistic experiences and to contribute to the sustainability of the arts sector. This is accomplished through funding programs that support the presentation of professional arts festivals or performing arts series; the improvement of arts and heritage infrastructure; the improvement of business and management capacity of arts and heritage organizations; a greater integration of arts and heritage within municipal planning; as well as institutions that offer training of the highest calibre, in preparation for professional artistic careers. The core concept of this program is to encourage access, sustainability and excellence in the arts for all Canadians.
• Cultural Industries: This program activity supports the Canadian cultural sector to ensure that a range of Canadian cultural content is produced and is accessible to domestic and international audiences. It also creates conditions that foster sustainability of the Canadian cultural industries. This program activity aims to enable Canadian cultural creators and entrepreneurs to produce, market and export Canadian cultural content.  This is achieved through delivering programs and services in the form of grants, contributions, tax credits, and policy, regulatory and legislative measures. The core concept of this program activity is to encourage the creation of Canadian cultural content and its consumption both at home and abroad.
• Heritage: This program activity is necessary to ensure that Canada's cultural heritage is preserved and accessible to Canadians today and in the future. It enables the heritage sector to improve professional knowledge, skills and practices, to preserve and present heritage collections and objects, and to create and circulate exhibitions and other forms of heritage content. This is accomplished by providing funding such as grants, contributions and tax incentives; expert services, information, training and other services; and regulatory and legislative measures. The core concept of this program activity is to promote the preservation and presentation of Canada’s cultural heritage.
• Promotion of and Attachment to Canada: This program activity promotes Canadian identity through building trust, pride and a sense of national purpose in Canadians. It represents and celebrates Canada to Canadians and Canada to the world, showcasing ingenuity, achievements, innovations, excellence and leadership; and expresses shared values, cultural diversity and Canada’s place in the global community. It also promotes civic education and participation among young Canadians through exchanges, forums and community service, as well as provides them with the opportunity to learn about and understand Canada’s society, diversity, history and institutions. The core concept of this program activity is to promote Canadian values to Canadians and the world.
• Engagement and Community Participation: This program activity aims to ensure that Canadians are engaged and have the opportunity to participate in the civil, social and cultural aspects of life in Canada and in their communities. This is accomplished through funding programs and initiatives that support the efforts of communities to build stronger citizen engagement and social inclusion through the performing and visual arts; express, celebrate and preserve local heritage; and contribute to increasing the respect for and awareness of human rights in Canada and develop innovative and culturally appropriate solutions to the social, cultural, economic and other obstacles that impede Aboriginal peoples’ community and personal prospects. This program activity has strong social benefits, as it contributes to the preservation of the history and identity of Canada’s diverse communities, while offering a way for traditions and identities to evolve over time. The program activity supports the Department’s mandate to strengthen Canadian identity and values and build attachment to Canada.
• Official Languages: Canadian Heritage is responsible for the planning, implementation and management of the Official Languages Support Programs pertaining to the promotion of linguistic duality within Canada and the development of official language minority communities, in accordance with Canadian Heritage's mandate pursuant to article 43 of the Official Languages Act. It connects to the Government Outcome "A diverse society that promotes linguistic duality and social inclusion". Canadian Heritage plays a coordination and support role among federal institutions in the implementation of their commitment to the development of official language minority communities and to the promotion of linguistic duality, as conferred by article 42 of the Official Languages Act. Canadian Heritage is also responsible for the horizontal coordination of the Official Languages Program covering all activities of federal institutions subject to the Official Languages Act, including language of service or of work, support for linguistic duality within Canada and support for the development of official language minority communities.
• Sport: This program activity promotes development and excellence in sport among Canadians and Canadian communities, provides direct support to Canadian high-performance athletes, enhances Canada’s ability to host the Canada Games and international sport events in Canada, supports the development of excellence in the Canadian sport system and contributes to increasing participation in sport by Canadians of all ages and abilities. This program activity provides funding, expertise and other services to Canadian athletes, sport organizations and event organizers. The core concept of this program is to enhance and promote Canadian participation and excellence in sport, sport organizations and sporting events.
• Internal Services: Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization, and not to those provided specifically to a program.

2. Summary of Significant Accounting Policies

These financial statements have been prepared using the Government’s accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

• a) Parliamentary authorities

  The Department of Canadian Heritage is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Canadian Heritage 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 Departmental Net Financial Position and in 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. The planned results amounts in the Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2011-2012 Report on Plans and Priorities.

  The future-oriented financial statements for 2011-2012 have been restated to reflect the revenue net of non-respendable amounts. This restatement resulted in a $67,602K increase in the net cost of operations before government funding and transfers. In addition, the future-oriented financial statements have also been reclassified to conform to the current year presentation.

• b) Consolidation

  These consolidated financial statements include the accounts of the following sub-entities that the Deputy Minister is accountable for: Canadian Conservation Institute and Canadian Heritage Information Network.  The accounts of these sub-entities have been consolidated with those of Canadian Heritage, and all inter-organizational balances and transactions have been eliminated.

• c) Net Cash Provided by Government of Canada

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

• d) Amounts due from or to the Consolidated Revenue Fund

  Amounts due from or to the CRF 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 Canadian Heritage is entitled to draw from the CRF without further authorities to discharge its liabilities.

• e) Revenues

  Revenues from sale of goods and services are recognized in the accounts based on the goods and services provided in the year.

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

  Revenues that are non-respendable are not available to discharge Canadian Heritage’s liabilities. While the Deputy Minister is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of Canadian Heritage’s gross revenues.

• f) Expenses

  Expenses are recorded on the accrual basis:

  Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses 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. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.

  Vacation pay is accrued as the benefits are earned by employees under their respective terms of employment.

  Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers’ compensation are recorded as operating expenses at their estimated cost.

• g) Employee future benefits

• Pension benefits:  Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Department of Canadian Heritage’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Canadian Heritage’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.
• Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. 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. 

• h) Accounts receivable

  Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

• i) Inventory

  Inventory consists of parts, materials and supplies held for future program delivery and not intended for resale.  Inventory is valued at the actual cost.  If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.

• j) 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 Department 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 is done on a straight-line basis over the estimated useful life of the asset as follows:

Asset class	Amortization period
Machinery and equipment	5 and 10 years
Computer Hardware	5 years
Computer Software	3 and 5 years
Vehicles	7 and 10 years
Leasehold improvements	Lesser of the remaining term of lease or useful   life of the improvement

• k) Contingent liabilities

  Contingent liabilities are potential liabilities that 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 if an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

• l) Foreign currency transactions

  Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are respectively included in the miscellaneous revenues and other operating expenses in the Statement of Operations and Departmental Net Financial Position.

• m) 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, the liability for employee future benefits, the useful life of tangible capital assets and 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. Parliamentary authorities

The Department of Canadian Heritage receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, Canadian Heritage 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

	2012		2011
	Restated (note 14) (in thousands of dollars)
Net cost of operations before government funding and transfers	1,313,578		1,325,699
Adjustments for items affecting net cost of operations
but not affecting authorities:
Amortization of tangible capital assets	(2,398)		(2,841)
Loss on disposal of tangible capital assets	(8)		(27)
Services provided without charge by other government departments	(32,268)		(30,958)
Decrease (increase) in vacation pay	634		724
Decrease (increase) in employee future benefits	19,579		1,876
Decrease (increase) in accrued liabilities not charged to authorities	(3,834)		-
Bad debt expense	(774)		(501)
Refund of prior years’ expenditures	12,053		18,461
Miscellaneous revenues	285		2,465
Outstanding respendable revenue	(4)		17
Total items affecting net cost of operations but not affecting authorities	(6,735)		(10,784)
Adjustments for items not affecting net cost of operations
but affecting authorities:
Acquisitions of tangible capital assets	363		794
Increase (decrease) in prepaid expenses	(256)		(1,418)
Increase (decrease) in inventory	1,542		(659)
Total items not affecting net cost of operations but affecting authorities	1,649		(1,283)
Current year authorities used	1,308,492		1,313,632

b) Authorities provided and used

	2012		2011
	(in thousands of dollars)
Authorities provided:
Vote 1 – Operating expenditures	223,280		236,521
Vote 5 – Grants and contributions	1,089,045		1,071,951
Statutory amounts	30,986		32,302
Less:
Authorities available for future years	(12)		(2,464)
Lapsed: Operating expenditures (1)	(17,610)		(15,526)
Lapsed: Grants and contributions (2)	(17,197)		(9,152)
Current year authorities used	1,308,492		1,313,632

• (1) The lapse of $17,610K in Operating expenditures includes an amount of $6,516K of frozen allotments (funds withheld by Treasury Board which can not be spent by Canadian Heritage) and an amount of $1,013K of special purpose allotments (funds which must only be spent for their intended purpose).
• (2) The lapse of $17,197K in Grants and contributions includes a total amount of $10,500K that has been approved to be carried over to 2012-2013 ($4,530K) and to 2013-2014 ($5,970K).

4. Accounts payable and accrued liabilities

The following table presents details of Canadian Heritage’s accounts payable and accrued liabilities:

	2012		2011
	(in thousands of dollars)
Accounts payable - External parties	381,305		501,771
Accounts payable - Other government departments and agencies	5,996		2,509
Accrued salaries, wages and employee benefits (1)	8,179		3,900
Total accounts payable and accrued liabilities	395,480		508,180

(1) In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013. As a result, the Department of Canadian Heritage has recorded at March 31, 2012 an obligation for termination benefits for an amount of $3,834K as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Employee future benefits

(a) Pension benefits

Canadian Heritage’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent 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 Canadian Heritage contribute to the cost of the Plan.  The 2011-2012 expense amounts to $25,811K ($27,381K in 2010-2011), which represents approximately 1.8 times (1.9 times in 2010-2011) the contributions by employees.

Canadian Heritage’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

Canadian Heritage provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

	2012		2011
	(in thousands of dollars)
Accrued benefit obligation - Beginning of year	36,725		38,601
Transferred to other government department, effective November 15, 2011 (note 12)	(399)		-
Subtotal	36,326		38,601
Expense for the year	1,255		1,387
Benefits paid during the year	(20,834)		(3,263)
Accrued benefit obligation - End of year	16,747		36,725

6. Accounts receivable and advances

The following table presents details of Canadian Heritage’s accounts receivable and advances:

	2012		2011
	Restated (note 14) (in thousands of dollars)
Receivables - External parties	3,676		4,256
Advances related to Expo 2010	-		2,677
Receivables - Other government departments and agencies	506		562
Employee advances	13		16
Subtotal	4,195		7,511
Allowance for doubtful accounts on receivables from external parties	(1,565)		(821)
Gross accounts receivable	2,630		6,690
Accounts receivable held on behalf of Government	(17)		(51)
Net accounts receivable	2,613		6,639

7. Inventory

The following table presents details of the inventory, measured at cost using the actual cost method:

	2012		2011
	(in thousands of dollars)
Promotional items	3,255		1,736
Gift Bank	139		116
Total inventory	3,394		1,852

The cost of consumed inventory recognized as an expense in the Statement of Operations and Departmental Net Financial Position is $1,245K in 2011-2012 ($1,352K in 2010-2011).

8. Tangible capital assets

(in thousands of dollars)

	Cost					Accumulated amortization					Net Book Value
Capital Asset Class	Opening Balance	Acquisi- tions	Adjustments	Disposals and Write-Offs	Closing balance	Opening balance	Amortization	Adjustments	Disposals and Write-offs	Closing balance	2012	2011
Machinery and equipment	5,573	184	(504)	21	5,232	3,436	465	(247)	21	3,633	1,599	2,137
Computer Hardware	4,513	150	(3,509)	387	767	2,578	437	(1,906)	379	730	37	1,935
Computer Software	4,823	15	(367)	11	4,460	4,560	231	(320)	11	4,460	-	263
Vehicles	248	14	-	14	248	160	20	-	14	166	82	88
Leasehold improvements	13,284	-	105	-	13,389	4,927	1,245	-	-	6,172	7,217	8,357
Total	28,441	363	(4,275)	433	24,096	15,661	2,398	(2,473)	425	15,161	8,935	12,780

Effective November 15, 2011, the Department of Canadian Heritage transferred machinery and equipment, computer hardware and computer software with a total net book value of $1,930K to Shared Services Canada. This transfer is included in the adjustment columns (refer to note 12 for further details on the transfer).

9. Contractual Obligations

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

(in thousands of dollars)	2013	2014	2015	2016	2017 and thereafter	Total
Transfer payments	286,977	12,565	16,447	-	-	315,989

10. Contingent liabilities

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. Canadian Heritage has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $400K ($400K in 2010-2011) at March 31, 2012.

11. Related Party Transactions

Canadian Heritage is related as a result of common ownership to all government departments, agencies, and Crown corporations. Canadian Heritage enters into transactions with these entities in the normal course of business and on normal trade terms.  In addition, Canadian Heritage has an agreement with Parks Canada for the provision of functional services related to the financial system.  During the year, Canadian Heritage 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, Canadian Heritage received services 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 provided without charge have been recorded in Canadian Heritage’s Statement of Operations and Departmental Net Financial Position as follows:

	2012		2011
	(in thousands of dollars)
Employer’s contribution to the health and dental insurance plans	14,481		13,858
Accommodation	16,531		15,993
Legal services	1,237		1,085
Workers’ compensation	19		22
Total	32,268		30,958

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 the payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included in Canadian Heritage’s Statement of Operations and Departmental Net Financial Position.

b) Other transactions with related parties

	2012		2011
	(in thousands of dollars)
Expenses – Other government departments and agencies	37,798		38,275
Revenues – Other government departments and agencies	2,221		181

 12. Transfer to other government department

Effective November 15, 2011, the Department of Canadian Heritage transferred responsibility for the control and supervision of the Email, Data Centre and Network Services Unit and Support Unit to Shared Services Canada in accordance with Order in Council (P.C. 2011-1297), including the stewardship responsibility for the assets and liabilities related to the program.

Accordingly, Canadian Heritage transferred the following assets and liabilities related to the Email, Data Centre and Network Services Unit and Support Unit to Shared Services Canada on November 15, 2011:

(in thousands of dollars)

Assets: Tangible capital assets (net book value) (note 8)	1,930
Total assets transferred	1,930
Liabilities:
Vacation pay	73
Employee future benefits (note 5)	399
Total liabilities transferred	472
Adjustment to the departmental net financial position	1,458

In addition, the 2011 comparative figures, the 2012 comparative figures (for the period of April 1, 2011 to November 14, 2011) and the 2012 planned results comparative figures (for the period of April 1, 2011 to November 14, 2011) have not been reclassified on the Statement of Operations and Departmental Net Financial Position since the comparative information was not determinable at a reasonable effort.

During the transition period, Canadian Heritage continued to administer the transferred activities on behalf of Shared Services Canada. The administered expenses amounted to $4,228K for the year. These expenses are not recorded in these financial statements.

13. Segmented information

Presentation by segment is based on Canadian Heritage’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 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

(in thousands of dollars)		Official Languages	Cultural Industries	Sport	Arts	Engagement and Community Participation	Promotion of and Attachment to Canada	Heritage	Internal Services	Unallocated	2012	2011 Restated (note 14)
Transfer payments
Non-profit organizations		68,683	159,788	169,958	93,387	68,473	52,898	13,975	-	-	627,162	625,540
Other levels of government within Canada		272,833	1,898	-	5,399	69	1,151	178	-	-	281,528	271,731
Industry		-	111,820	-	-	-	31	-	-	-	111,851	111,024
Individuals		-	8	26,611	-	-	1,947	-	-	-	28,566	27,419
Other countries and international organizations		124	12,426	201	-	-	-	-	-	-	12,751	13,628
Total transfer payments		341,640	285,940	196,770	98,786	68,542	56,027	14,153	-	-	1,061,858	1,049,342
Operating expenses
Salaries and employee benefits		12,732	24,133	12,379	9,805	11,781	13,963	17,774	92,383	-	194,950	202,014
Professional services		739	1,377	1,018	343	473	2,712	2,491	13,015	-	22,168	27,959
Accommodation		974	1,833	950	716	671	1,417	1,941	8,029	-	16,531	15,993
Information		48	45	44	51	16	2,999	2,676	3,505	-	9,384	10,209
Travel and relocation		285	240	485	210	256	480	358	1,169	-	3,483	5,424
Utilities, materials and supplies		115	134	114	32	41	(522)	1,165	1,396	-	2,475	7,879
Amortization		9	8	11	2	18	8	1,439	903	-	2,398	2,841
Freight and communications		119	241	106	29	62	116	121	1,351	-	2,145	4,179
Repairs and maintenance		48	41	43	11	11	19	373	1,343	-	1,889	2,518
Rentals		55	54	76	14	70	285	689	415	-	1,658	2,460
Loss on disposal of capital assets		-	-	-	-	-	-	-	8	-	8	27
Other operating expenses		294	222	155	76	65	106	121	293	-	1,332	1,307
Total operating expenses		15,418	28,328	15,381	11,289	13,464	21,583	29,148	123,810	-	258,421	282,810
Total expenses		357,058	314,268	212,151	110,075	82,006	77,610	43,301	123,810	-	1,320,279	1,332,152
Revenues
Revenue from the 1979 Federal-provincial Lottery agreement		-	-	-	-	-	-	-	-	68,255	68,255	66,205
Miscellaneous revenues		4	4,266	-	-	-	507	-	19	-	4,796	6,372
Sale of goods and services		-	10	-	-	-	-	403	1,749	-	2,162	464
Revenues earned on behalf of Government		(4)	(12)	-	-	-	(234)	-	(7)	(68,255)	(68,512)	(66,588)
Total revenues		-	4,264	-	-	-	273	403	1,761	-	6,701	6,453
Net cost of operations before government funding and transfers		357,058	310,004	212,151	110,075	82,006	77,337	42,898	122,049	-	1,313,578	1,325,699

 

14. Accounting changes

During 2011, amendments were made to Treasury Board Accounting Standard 1.2 - Departmental and Agency Financial Statements to improve financial reporting by government departments and agencies. The amendments are effective for financial reporting of fiscal years ending March 31, 2012, and later. The significant changes to Canadian Heritage's financial statements are described below. These changes have been applied retroactively, and comparative information for 2010-2011 has been restated.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position.  Accompanying this change, Canadian Heritage now presents a Statement of Change in Net Debt and no longer presents a Statement of Equity.

Revenues and related accounts receivable are now presented net of non-respendable amounts in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position. The effect of this change was to increase the net cost of operations before government funding and transfers by $68,512K for 2012 ($66,588K in 2011) and decrease the accounts receivable and advances by $17K for 2012 ($51K for 2011). Canadian Heritage non-respendable amounts include, among others, the revenue from the 1979 Federal-provincial Lottery-agreement and miscellaneous revenues like gains on foreign currency, interests on overdue accounts receivable and interests on bank deposits.

Government funding and transfers, as well as the credit related to services provided without charge by other government departments, are now recognized in the Statement of Operations and Departmental Net Financial Position below "Net cost of operations before government funding and transfers". In previous years, Canadian Heritage recognized these transactions directly in the Statement of Equity of Canada. The effect of this change was to decrease the net cost of operations after government funding and transfers by $1,324,515K for 2012 ($1,328,858K for 2011).

	2011 As previously stated	Effect of change	2011 Restated
	(in thousands of dollars)
Statement of Financial Position:
Financial assets held on behalf of Government	-	(51)	(51)
Departmental net financial position	(21,801)	(51)	(21,852)
Statement of Operations and Departmental Net Financial Position:
Revenues	73,041	(66,588)	6,453
Government funding and transfers
Net cash provided by Government of Canada	-	1,343,820	1,343,820
Change in due from the Consolidated Revenue Fund	-	(45,920)	(45,920)
Services provided without charge by other government departments	-	30,958	30,958

15. Comparative information

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