How We Manage Our Money

AUDITOR'S REPORT

To the Canadian Food Inspection Agency
and the Minister of Agriculture and Agri-Food

I have audited the statement of operations of the Canadian Food Inspection Agency for the year ended March 31, 1999. This financial statement is the responsibility of the Agency’s management. My responsibility is to express an opinion on this financial statement based on my audit.

I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In my opinion, this financial statement presents fairly, in all material respects, the results of operations of the Agency for the year ended March 31, 1999 in accordance with the accounting policies set out in note 2 to the financial statement.

I wish to draw to your attention that Section 31 of the Canadian Food Inspection Agency Act, which requires the Agency to prepare financial statements in accordance with generally accepted accounting principles, has not yet been proclaimed. As disclosed in note 2 to the financial statement, management is working towards the adoption of generally accepted accounting principles for the year ending March 31, 2000.

Sheila Fraser, FCA
Deputy Auditor General
for the Auditor General of Canada

Ottawa, Canada
August 20, 1999

STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999

NOTES TO THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999

1. Authority and purpose

The Canadian Food Inspection Agency (the "Agency") was established, effective April 1, 1997, under the Canadian Food Inspection Agency Act. The Act consolidates all federally mandated food and fish inspection services and federal animal and plant health activities into a single agency.

The Agency is a departmental corporation named in Schedule II to the Financial Administration Act and reports to Parliament through the Minister of Agriculture and Agri-Food.

The mandate of the Canadian Food Inspection Agency is to enhance the effectiveness and efficiency of federal inspection and related services for food and animal and plant health. The objectives of the Agency are to contribute to a safe food supply and accurate product information; to contribute to the continuing health of animals and plants; and to facilitate trade in food, animals, plants and related products.

The Agency is responsible for the administration and enforcement of the following acts: Agriculture and Agri-Food Administrative Monetary Penalties Act, Canada Agricultural Products Act, Canadian Food Inspection Agency Act, Feeds Act, Fertilizers Act, Fish Inspection Act, Health of Animals Act, Meat Inspection Act, Plant Breeders’ Rights Act, Plant Protection Act, Seeds Act, the Consumer Packaging and Labelling Act as it relates to food, and the enforcement of the Food and Drugs Act as it relates to food.

The Minister of Health remains responsible for establishing policies and standards relating to the safety and nutritional quality of food sold in Canada. The Minister of Health is also responsible for assessing the effectiveness of the Agency’s activities related to food safety.

Operating expenditures are funded by the Government of Canada through a budgetary lapsing authority. Compensation payments and employee benefits are authorized by separate statutory authorities. Non-tax revenues collected, including inspection fees, registration, permit, and certificate issuance, are deposited to the Consolidated Revenue Fund and are available for use by the Agency.

2. Significant accounting policies

The statement of operations has been prepared in accordance with the reporting requirements and standards established for departmental corporations by the Receiver General for Canada.

Section 31 of the Canadian Food Inspection Agency Act, which requires the preparation of financial statements in accordance with generally accepted accounting principles (GAAP), has not yet been proclaimed. Management is working towards the preparation of GAAP financial statements for the year ending March 31, 2000.

The most significant accounting policies are as follows:

1. Expenditure recognition:
   Expenditures are recorded on an accrual basis, with the exception of employee termination benefits and accumulated vacation pay which are recorded on a cash basis.

2. Revenue recognition:
   Non-tax revenues are recorded on a cash basis.

3. Capital expenditures:
   Acquisitions of capital assets are charged to operating expenditures in the year of purchase.

4. Services provided without charge by other Government departments:
   Estimates of amounts for services provided without charge by other Government departments are included in expenditures.

5. Contributions to Superannuation Plan:
   The Agency’s employees participate in the Superannuation Plan administered by the Government of Canada. The employees and the Agency contribute equally to the cost of the Plan. Contributions by the Agency are charged to expenditures in the period incurred and represent the total obligation of the Agency to the Plan.

3. Prior Period Adjustment – Correction in 1998 Statement of Operations

The 1998 statement of operations did not include all estimated costs of accommodation provided without charge by Public Works and Government Services Canada (PWGSC) for facilities that were occupied by the Agency. The amount of these excluded costs is estimated to be $8,387,000.

The 1998 statement of operations has been restated to include the above costs. The effect of this restatement is to increase accommodation expenditures and the net cost of operations by $8,387,000. In note 4, services provided without charge by other Government departments – accommodation for 1998 has also been increased by $8,387,000.

4. Parliamentary appropriations:

5. Accounts receivable:

6. Liabilities:

7. Year 2000 Loan

In order to meet the Agency’s requirements with respect to government wide mission critical systems, the Agency has negotiated a loan fund with the Treasury Board in the amount of $ 15.4 million. For 1999, the Agency received the authority to spend $ 11.2 million against the fund which is reflected in the total amount disclosed for Vote 20 – Operating expenditures in note 4 to the statement of operations. The fund will be used to finance the Agency’s requirements to upgrade and/or replace existing systems, equipment, computer applications and infrastructure components which are not Year 2000 compliant.

As at March 31, 1999, the Agency had drawn $ 7.4 million against its fund.

The terms and conditions call for the amounts advanced to bear no interest and be repayable in three equal annual instalments beginning in the fiscal year 2001-2002.

8. Capital expenditures

Capital assets including land, buildings, laboratories and equipment, were transferred from Agriculture and Agri-Food Canada, Health Canada, and Fisheries and Oceans Canada at the time of the Agency’s creation.

During the year, the Agency incurred capital expenditures which have been charged to operating expenditures as follows:

9. Contingencies

The Agency is a defendant in certain cases of pending and threatened litigation which arose in the normal course of operations. At March 31, 1999, the total amount of claims is estimated at $175.6 million (1998 – $ 168.2 million). Settlements, if any, that may be made with respect to these actions, are expected to be accounted for as an operating expenditure when paid.

10. Specified purpose account

The Agency conducts joint projects with outside organizations related to food inspection and animal and plant health. Funds received from the outside organizations are administered by the Agency through a specified purpose account held in the Consolidated Revenue Fund. The transactions of the specified purpose account are not reflected in the statement of operations.

11. Compensation payments

The Health of Animals Act and the Plant Protection Act allow for the Minister, via the Agency, to compensate owners of animals and plants destroyed pursuant to the Acts. Actual expenditures for compensation payments for the year were as follows:

12. Advisory board

Pursuant to Section 10 of the Canadian Food Inspection Agency Act, the Minister of Agriculture and Agri-Food has appointed an advisory board to advise the Minister on any matter within the responsibility of the Agency. Direct expenditures relating to the board’s activities for the year amounted to $ 45,992 (1998 – $ 14,000) and are included in the statement of operations.

13. Related party transactions

Through common ownership, the Agency is related to all Government of Canada departments, agencies and Crown corporations. The Agency enters into transactions with these entities in the normal course of business.

14. Uncertainty due to the Year 2000 Issue

The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity’s ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Agency, including those related to the efforts of other government departments and agencies, customers, suppliers, or other third parties, will be fully resolved.

15. Comparative figures

Certain figures presented for comparative purposes have been reclassified to conform with the financial statement presentation adopted for 1999.