Annual report for 2001-2002

Heightened Vigilance

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Print copies may be requested:

• by telephone: (819) 953-7622 Ottawa-Gatineau area
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• in writing to:
  Foreign Affairs Canada
  Passport Office
  Corporate Planning and Executive Services
  Gatineau, Canada K1A 0G3

Cat. No E77-2002
ISBN: 0-662-67091-4
© Public Works and Government Services Canada

TABLE OF CONTENTS

1. Message from the CEO
   • Impact of September 11
   • Increased Workload
   • Response by Office and Staff
2. Highlights of 2001-2002
3. Challenges and Changes
   • Strategic Planning
   • Priorities and Commitments
4. Organization, Products and Services
5. The Impact of September 11
   • Heightened Vigilance
   • Specific Measures
6. Progress on Strategic Initiatives
   • Improved Service
   • Easing Burden on Client
   • Efficiency
7. Business Performance
   • Rising Demand
   • Productivity
   • Wait Times
   • Call Centres
   • Client Satisfaction
   • Finances
8. Financial Statements
9. Points of Service in Canada

MESSAGE FROM THE CEO

As the period described in this report began, the Passport Office was looking forward to making significant progress on three major initiatives: the automation of the passport application process, the design and production of a new digitized passport document, and the introduction of a new set of passport fees and regulations. We were also planning to review and expand our pilot projects involving the use of receiving agents, specifically Canada Post, to provide more convenient access to our services in areas not currently served by a passport office. And we hoped to improve cooperation with our provincial counterparts in strengthening the security and reducing fraudulent use of personal identity documentation.

Then came September 11. As with many other organizations, this tragedy profoundly affected the Passport Office - its services, security processes, operations and, perhaps most significantly, our clients and staff. Shortly after this event, we experienced a dramatic increase in the volume of applications. In a number of our offices and in our mail-in operation the effects of this increase continued to be felt for many months. At the same time, however, we had to respond to the threats presented by September 11, and introduce a series of enhanced security measures to protect the integrity of our passport process and document, which further increased our workload. A number of clients were understandably upset by the resulting delays in receiving their passport and difficulties in obtaining information about them. Passport employees, who have a history and culture of excellent service delivery, were frustrated by their inability to respond to these developments.

It is to the immense credit of Passport Office staff that while they struggled with service delivery issues, they were able to respond to the requirement for enhanced security measures and make important progress on the major initiatives mentioned above:

• Extensive changes to our fees and regulations on December 11, including a one-person-one- passport policy, were approved on December 11 and successfully implemented.
• Application forms were revised to incorporate more information to assist in confirming the identity of applicants.
• Background checks on applicants were increased significantly.
• As of November 26, in order to address problems with Quebec baptismal certificates, we began to accept only those Quebec birth certificates issued by Le Directeur de l'État civil after January 1, 1994.
• To implement the new security measures, a large recruitment and training effort was mounted to provide the additional staff required.
• To ensure fairness in decisions regarding the refusal to issue or revocation of a passport, we established and filled an independent Adjudicator position.
• Pilot projects were launched to explore improved document verification with provinces, and to investigate the potential of facial recognition software in the prevention of passport fraud.
• The IRIS® System, which captures application information electronically, now processes 100% of passport applications received within Canada. It provides the potential for a much simplified passport renewal process in the future, and has made possible the new, more secure passport design. The new technology to be used in the production of this improved passport book was tested and ready for implementation by the end of March.

As we reflect on this past year, it is important to remember that, despite all of the challenges we faced, we were able to maintain and improve the security of the Canadian passport, and to provide service to the great majority of our applicants within established standards. We have also laid the groundwork for significant improvements in security and service over the next several years. I would like to dedicate this annual report to Passport Office staff who worked long hours, and with extraordinary dedication, to make all of this possible.

Sincerely,

Michael J. Hutton
Chief Executive Officer

Highlights of 2001-2002

• June:
  Customer Satisfaction Survey (96% 'satisfied' or 'very satisfied')

• October:
  Increased Background Checks and more Detailed Application Form

• December 11:
  New fees and regulations, including a new policy
  (One Person/One Passport)

• January 14:
  Creation of an Independent Adjudication and Conflict Management Office

• February:
  Mission and Vision reviewed and redefined

• March 31:
  Over 2 million Travel Documents issued during the past year

• Coming:
  · New Passport Booklet
  · Passport Renewals
  · On-line Applications

The top three values noted by clients were competence of staff, acceptance of the passport by other countries, and efficiency of staff. The main improvement desired was reduction of waiting time, both for walk-in service and in general.

Challenges and Changes

In our fast-changing, 21st century world, globalization (of production, commerce, money, ideas, crime, terrorism, and certainly human mobility and travel) is creating new opportunities, risks and requirements. Canadians - perhaps the world's most international-minded, multicultural, trade-dependent people - need and expect official documents that are secure and universally respected, to ease their way across borders and around the globe.

This creates complex new challenges for the Passport Office. Working in an environment where the pace, scope and direction of change is increasingly unpredictable, we can't just keep trying to do things the same way, only better. Rather, the Passport Office must cope with today's demands, plus the fall-out of September 11, by balancing three essential factors - cost, service, security - while also looking ahead, planning for the future, and investing in the technology and human resources that together can meet the needs of coming years.

As part of the ongoing process of improvement and innovation, the Passport Office carried out a Strategic Planning Conference early in 2002 to review its planning assumptions and establish short-term priorities. Among the results, within the framework of a five-year business plan, were revised and redefined statements of our vision and mission, and new strategic orientations as well as priorities for fiscal year 2002-03:

Mission

To issue internationally respected travel documents.

To achieve this result, we will pursue three organizational goals:

• ensuring zero-defect for identity authentication and passport production;
• ensuring on-time delivery and greatest possible access to service;
• delivering maximum value for each dollar spent.

Vision

In a rapidly changing policy and technological environment, we aim to:

• achieve a leadership role on secure identity and travel documents within the Government of Canada; and
• consistently meet clients' expectations.

We will do this by:

• contributing to the enhancement of secure identity in Canada;
• investing in our employees;
• improving access to and simplifying services; and
• strengthening our management regime.

Strategic orientations are thus: securing identity in Canada; tailoring client service; and modernizing management. Appropriate objectives have been set, and priorities established for 2002-03, to support progress in our vision.

The review process will continue, resulting in an updated and more detailed business plan that will include an operational translation of the strategies, with new performance indicators and targets.

Where are we headed? The Passport Office is building systems that will give Canadians a service of world-leading convenience and security. Within the next few years:

• Applicants will have a variety of choice in applying - including from anywhere, through Passport On-line (using a secure channel).
• On-line data checks with provincial/territorial registrars' offices will make verification quicker and easier.
• Canadian passports will be extremely tamper-proof thanks to digital imprinting of the bearer's photo and holograms (since 2002). Biometric (facial recognition) technology (starting 2003) will further guard against abuse.
• A simple process will, for the first time, allow renewal of existing passports (starting 2003), improving convenience for customers while cutting costs and waiting times.
• Canadians will be able to check the status of their application by phone or Internet at any time ... to apply from, for instance, Iqaluit and pick up the passport in Hamilton ... to use, for a fee, Urgent and Express services.

The Passport Office was planning, investing and innovating during 2001-02 so that its overall service to Canadians will be increasingly convenient, prompt and cost-effective in coming months and years, while passport production and identity authentication become even more secure.

Organization, Products and Services

The Passport Office is entrusted with the responsibility of issuing travel documents to Canadians and permanent residents of Canada for the purpose of travelling abroad. To fulfill this mandate, we work closely with other government agencies, and strive to be a model of efficient service to the public by stressing the values of service excellence, integrity, competence and respect.

In 1990, the Passport Office was designated a Special Operating Agency of the Department of External Affairs (now Foreign Affairs and International Trade). This means that it operates somewhat like a private-sector enterprise. The Passport Office is operating under a revolving fund, financing its operations entirely from the fees charged for passports and other travel documents rather than being funded by the government.

Organizationally, the Passport Office is managed through a small Executive Committee (responsible for policy, strategic planning, and efficiency) and a broader Management Committee that implements policy, recommends improvements, and ensures that performance objectives are met.

Service is provided through 29 offices, from St. John's to Victoria, administered by four regional directorates:

• Eastern (Québec and Atlantic provinces)
• Ontario
• Western (British Columbia and Prairie provinces)
• Central Operations (walk-in clients in the National Capital Region, as well as applications mailed in from across Canada and the United States).

People in the North - Yukon, Northwest Territories, and Nunavut - can apply by mail or through their MPs.

Web site and toll-free telephone services operate around the clock. We provide all services in English and French, as well as TTY services for people with hearing difficulties. Passport applications are available at our offices, and at all Canada Post outlets and franchises, or may be downloaded from our Web site (www.pptc.gc.ca).

Passports help Canadians make some 4 million trips abroad every year, plus about 14 million overnight visits to the United States. There are approximately 8.8 million valid Canadian passports in circulation. In 2001-02, for the first time, more than 2 million Canadian passports were issued (1,934,813 in Canada and 105,398 in our missions overseas), an increase of 5% over the year before. On average, more than 900 passports are issued each working hour of the day.

Types of documents

Seven types of travel documents are issued to meet our clients' various needs:

• The 24-page passport (navy blue cover) for business and leisure travel makes up 98% of all travel documents issued by the Passport Office.
• The 48-page passport is identical, except for extra pages to suit frequent travellers such as business people.
• Diplomatic passports are issued to diplomats, officials, couriers, delegates to international conferences, etc. They are also issued to MPs.
• Special passports are issued to the families of officials, if they are also travelling at public expense (eligibility is determined by the Minister of Foreign Affairs and International Trade).
• Canadian diplomatic and consular missions may issue emergency passports, on behalf of the Passport Office, to Canadians stranded abroad.
• Refugee travel documents are issued to people who are determined by Citizenship and Immigration Canada to be refugees under the 1951 United Nations Convention, and who are legally landed in Canada. Such documents are endorsed for travel to all countries, except to the holder's country of origin, and are valid for two years with the possibility of extension.
• Certificates of identity are issued to legally landed immigrants who have been permanent residents of Canada for less than three years, and are stateless or are unable to obtain a passport or travel document from their country of origin. The certificate is endorsed for travel to countries specified in the document, and is valid for one to two years, with possible extensions.

Security of passports and other travel documents, always top-priority, became an even more pressing issue in the wake of September 11. Worldwide acceptance of the Canadian passport makes it a target of choice for those who attempt fraud by using someone else's identity, or by altering or counterfeiting a document. Maintaining the passport's integrity is of vital importance, and we ensure that all Canadian travel documents meet or exceed international specifications concerning format, issuance and integrity.

During 2001-02 the Passport Office also carried out, or prepared the way for, several new measures to make Canadian documents and procedures even more secure and fraud-resistant, as detailed later in this report.

Services are provided to a broad spectrum of clients, ranging from business people and diplomats, to young Canadians off to see the world, to those who travel overseas to be reunited with seldom-seen family. Any Canadian citizen over the age of 16 may apply for a passport. Demand varies with economic conditions, conflict abroad, and the weather at home, typically peaking as winter approaches and many Canadians follow the sun.

Almost 90 % of travel documents are issued to clients who apply in person. Walk-in service is the fastest: through the 1990s, more than 95% of those who applied in person received their passports within the target time of five working days. More recently, the added workload of introducing new technology, and stiffened security post-September 11 - that percentage has dropped. To reflect current reality, the target time has been increased to 10 working days for walk-ins, and to 20 working days (rather than 10) for mail-ins.

To save time for people applying in person, a Q-Matic system in larger offices minimizes delay, with a coordinator looking at each person's situation and directing the client to the staff member who can handle the application most efficiently. The target for maximum waiting time is 45 minutes; delays are shorter on average, but can be longer in offices in major cities and in those near the American border.

If applications arrive by mail, passports are delivered by Xpresspost (or FEDEX courier in the U.S.).

Special services are provided for clients who need their passports on a rush basis. For an extra fee, they can request Urgent (one working day) or Express (two to nine working days) service. These arrangements are available only to walk-in applicants, in all of our regional offices. Emergency service is also possible outside of business hours, in cases of illness or death in the immediate family; applicants must provide evidence of urgency, such as airline tickets, and the passport application must meet all requirements. If a passport is lost abroad, an emergency passport service is available at the nearest Canadian mission.

The Passport Office's four regional call centres can be dialed toll-free (1-800-567-6868) from anywhere in Canada. An automated answering service directs calls to the nearest regional call centre (each has 20 or more lines). Local numbers are also provided for the National Capital Region, Montréal, Surrey and Toronto areas.

The Passport Office received almost 60,000 e-mail messages and 1,660 letters. (649 e-mails conveyed a compliment and 63 a complaint). To tap the Internet's potential for supplying convenient, up-to-date information, the Passport Office has operated a Web site since 1996. In 2001-02, the Passport Office Web site received 1.6 million visits. Starting in 2000, application forms for Canadian residents and Canadians living in the U.S. have been posted on the site. A total of 229,215 application forms were downloaded in 2001-02, of which 38,000 by Canadians living in the US and 191,215 in Canada.

Besides direct services to the public, the Passport Office also plays additional roles related to the national government and international agencies. Its Security, Policy and Entitlement Directorate provides consulting and advisory services to other government departments about the security standards of their documents. And the Passport Office keeps aware of global security issues by working with agencies such as the International Civil Aviation Organization and the International Standards Organization, as well as taking part in such forums as the Five Nations Virtual Secretariat (which links us with the passport authorities of the U.K., U.S., Australia, and New Zealand).

The Impact of September 11

Shock-waves from September's tragedy affected everyone, certainly our clients and staff. Implications and repercussions for the Passport Office, as a government agency with serious responsibilities for protecting national security, are major, far-reaching and permanent.

September 11 made the world painfully aware of the immense potential danger of identity fraud, and the vital need for heightened vigilance in maintaining the integrity of the passport, as a key factor in ensuring human security.

Many countries were forced to tighten measures to defend public security. In Canada, the Passport Office played an important role based on expertise in secure identity documents, and in the authentication of identity. Thus, there was intensified cooperation with national and international police authorities, with security agencies and border posts, and with the federal, provincial and territorial authorities that provide documents of identity.

We worked in close cooperation with Treasury Board, the Office of the Information Commissioner of Canada, Citizenship and Immigration Canada, and the Canada Customs and Revenue Agency to promote the standards set by the International Civil Aviation Organization for travel documents.

In the weeks and months following September 11, the Passport Office also took several specific steps that helped to strengthen our processes and enhance the integrity of the documents we issue:

• In October we tightened security measures in the process of applying for a passport, by carrying out more detailed examination of the information and references provided by applicants. In February, new application forms, requiring more background information, came into use.
• To cope with the combination of rising demand and more comprehensive checking, we conducted a large-scale hiring of 126 new examiners.
• In cooperation with Québec, we established new requirements for persons born there. Because of problems regarding some baptismal certificates, proof of their Canadian citizenship must now be either a birth certificate provided by Le Directeur de l'État civil du Québec issued after January 1, 1994 or a citizenship certificate provided by Citizenship and Immigration Canada.
• In December, a new 'one person/one passport' policy came into effect, requiring a separate passport for each child (rather than their names being included on a parent's passport). This policy, adopted by the International Civil Aviation Organization, tackles a quite different aspect of security: it is designed to reduce the risks related to the international traficking of children.
• At the same time, new passport fees were established ($85 for adults (instead of $60), $20 under age 3, and $35 age 3 to 15). The increased revenue will help meet the cost of closer checking, and of new technology to improve both security and convenience.
• To strengthen the process of verification at the border, the Passport Office is looking at systems such as biometric (facial recognition) technology. The technology will support the Passport Office to enhance the identity authentication process.
• To further improve verification, we have launched an initiative to create electronic links with the data-bases of the provincial and territorial authorities responsible for issuing documents of identity, starting with a pilot project with British Columbia. The goal is to have infrastructure in place, by the autumn of 2003, for quick electronic verification of birth certificates presented by passport applicants.

The tragic event of September 11 accentuated the crucial role of the Passport Office in protecting Canada's international reputation and in fulfilling part of the human security agenda - particularly in the struggle against criminal and illegal usage of individual (personal) identity.

Progress on Strategic Initiatives

The events of September 11 created a new environment for the Passport Office, changing not only the way we work but how we see the future. With new priorities, timetables and vision of our task, we are moving ahead through simultaneous initiatives to update and upgrade security, service, convenience and cost-effectiveness. Progress was made on several strategic projects during 2001-02, with important advances coming in the months and years ahead in many major areas.

Secure, accessible, convenient service

• We have developed a new design for the Canadian passport, with enhanced security features making alteration or forgery almost impossible (digital photo embedded into the page, a 'ghost' photo visible only under ultraviolet light, crystagrams that seem to move when the booklet is tilted, optically variable ink that changes colour under different lighting, digitally printed personal data and signature that cannot be changed or erased). The majority of this new passport, available in 2002, will be produced at secure new printing centres in Gatineau and Mississauga.
• As part of the Government On-line initiative, we are preparing for Passport On-line, with some steps happening in 2003. An interactive application form, accessible on our Web site, will feed information provided by the client into our system. We will also launch an Internet service for passport renewals.
• We are working with British Columbia authorities to set up a system for electronic verification of birth certificates, and will pursue this innovation with the other provinces and territories, and with federal institutions that issue identity documents.
• The biometrics (facial recognition) project is at the stage of testing of concept and products, with system development to come next.
• Improvement of counter service for walk-in clients, by reducing waiting time in major urban centres, is a continuing effort. A general model has been created and will begin operating in 2002-03, with a target of 95% of clients having waited less than 45 minutes in 2004-05.
• A pilot project with Canada Post was carried out until November 2001, in the Montréal and Toronto areas, offering a new service - acceptance of completed applications. Three-quarters of clients were satisfied with the $10 administrative charge, and 90% with the service. The project will be continued when new security measures are in place.

Flexible Service and less burdensome

• Clients with particular needs can choose, for an additional charge, Urgent, Express, or 'call back' service (after business hours and weekends).
• The decision to create an Independent Adjudication and Conflict Management Office (ACMO) has been formalized in January, with the appointment of its Chairperson. The ACMO will primarily act as a quasi-judicial body reviewing recommendations for passport revocation and passport services withholding in security cases (the Adjudication function), and producing final decisions. It will also provide a mechanism to review unresolved complaints from the public (the Ombudsman function). Complaints will therefore continue to be reviewed internally first. The Ombudsman will also serve as the Passport Office's disclosure's Senior Officer as designated in the Policy on the Internal Disclosure of Information Concerning Wrongdoing in the Workplace. Finally, mediation services will be offered, providing for informal out-of-court resolution of commercial disputes. Operating independently, the Office will produce its own annual report.
• We are setting up a simple renewal system, so that holders of an IRIS® passport will only need to complete a simplified form, provide a new photo, and pay the fee, rather than going again through the process of submitting original documents and full information. This new system, starting in 2003, will cut transaction time and by 2005-06 will handle about half of all applications (thereby allowing substantial savings in our internal costs).

Efficiency

• The Passport Office is improving work processes, in such matters as counter transactions, with measures that will increase speed and efficiency - including ergonomic improvement of work areas.
• Operational divisions are reviewing key processes to make them simpler and more efficient. For instance, improvements to the internal system for recording fees will eliminate the need for double-entry of such information. The Passport Office has also upgraded the planning process and has established new project-planning capacity.
• The management structure, as well, has been partly modified, with a revised Executive Committee focusing mainly on strategic issues. Two coordinators - one for operations, the other for functional services - will help to simplify communication and decision-making.
• The Passport Office has completely rethought its mission, vision, and strategic plan, and will also fully revise its performance indicators.

Business Performance

To help Canadians make their four million overseas trips, the Passport Office handled about four million client transactions in 2001-02 (including enquiries as well as processing of passport applications) - or some 16,000 transactions each working day. Compared to a decade ago, Canadians travel relatively less to the U.S. and make more of their trips to overseas countries (12.9% in 1991, 23.6% in 2000).

Trips abroad declined after September 11 (even as demand for passports increased) then rose again in early 2002. Increased demand was most notable at offices close to the U.S. border, where volume rose by 50% in some cases. During 2001-02, demand increased in three regions (West 17%, Ontario 5%, East 2%) but fell in one (Central 2%), for an overall rise of 5%. More than two million Canadian travel documents were issued in 2001-02, exceeding forecasts. The total is expected to be again about two million in 2002-03, then to rise by about 3.5% annually in subsequent years (depending on economic growth and interest rates) and surpass 2.3 million by 2006-07.

Regular Passports Issued by Region 2001-02

• Western: 25.90%
• Central (includes mailed applications): 19.99%
• Ontario: 34.26%
• Eastern: 19.84%

Passports Issued in Canada and Abroad

Total Factor Productivity

In 2001-2002, the real total productivity factor is decreased by 1%. Increased investment into passport printing technology coupled with an ongoing investment into IRIS® has resulted in continued decreases in capital returns. In addition, the tragic events of September 11th, 2002 had resulted in tighter security measures and as such have added to the cost of hiring more staff to deal with the new security measures. Such decline is normal during the first two stages (initial investment and growth) in the life-cycle of a major investment. Both these factors are the primary reasons explaining the decline in productivity.

Future gains in productivity, furthermore, are contingent not only on the Passport Office's ability to deliver more effective business applications but also the seamless interaction between IRIS® and Government on-line.

Turnaround and Wait Times had to be modified during 2001-02. Given the requirements of tightened post-September 11 security measures, introduced during our peak season, plus the work involved in completing the installation of the IRIS® system, the delivery time for a new passport was doubled to 10 working days for in-person applicants, and 20 working days for the 15% of clients who mail-in their applications. The new walk-in target was met, but an overloaded mail service accumulated a backlog, and by March mail-in applicants had to wait 30 to 45 days. Steps have been taken to eliminate this delay.

Despite increased volume and the added time needed by examiners to carry out background verifications, the average wait time experienced by walk-in clients before being served (36 minutes) remained about the same in 2001-02 as the year before (35.5 minutes), although delays were sometimes longer in the busiest offices. Our goal is to ensure that all applicants wait less than 45 minutes on 95% of working days for 2004-05. It is to be noted that the large discrepancy between the number of clients in 2000-01 and that in 2001-02 is due largely to the fact that, in 2001-02, Q-matic had been installed and operated in nearly all of our offices.

Passport waiting time

Note: the large discrepancy between the number of clients in 2000-01 and that in 2001-02 is due largely to the fact that, in 2001-02, Q-matic had been installed and operated in nearly all of our offices.

Call Centres handled about 2.27 million telephone calls to the Passport Office in 2001-02, an increase of 14% over the previous year. Nearly a million callers asked to speak to an officer. The call centre access rate (percentage of calls answered) dropped sharply after September 11, falling to 77% in 2001-02 from 90% the year before, while the average waiting time required in order to speak to an officer rose from 4.5 to 7 minutes. Corrective steps are being taken (additional lines and officers for each call centre) with the goal of meeting the industry norm (95% access).

Client Satisfaction

Client satisfaction was surveyed in June 2001, as part of the overall Government of Canada initiative to improve service to the public. The top three values noted by clients were competence of staff, acceptance of the passport by other countries, and efficiency of staff. The main improvement desired was reduction of waiting time, both for walk-in service and in general.

As in past surveys, almost all clients (96%) were either 'satisfied' (65%) or 'very satisfied' (31%), while only 1% were 'dissatisfied'. A large majority also indicated that Passport Office service was either the same as (36%) or better than (39%) other federal agencies - and either the same as (46%) or better than (20%) private sector service. (This is consistent with 1998 and 2000 surveys, in which the Passport Office ranked among the top ten organizations and was rated the leader among federal entities.) These favourable results, however, still left room for improvement, particularly regarding delays, in a survey that was taken before the long waiting-times that followed September 11. Further client feedback will be sought through questionnaires each year to help align service improvements with clients' specific need.

Auditing

As part of the Treasury Board Secretariat's requirement on a Government-wide audit on security, the Passport Office put in place a process and an action plan. The objective of the audit was to ensure the compliance of all sensitive information and goods with the Government Security Policy (GSP) and with the operational standards and the efficiency and effectiveness of the Security Program of the Passport Office (PPT). For more details, please see http://www.pptc.gc.ca/publications/index.aspx?lang=e.

The auditors from Consulting and Audit Canada concluded that improvement to the actual management control framework will ensure efficiency and effectiveness of the Security Program of the Passport Office and recommended that a sufficient level of financing be provided to ensure an operational level to the security function of the Passport Office be implemented.

Finances

As a special operating agency with a revolving fund, the Passport Office meets its costs from the fees it charges for travel documents. This revolving fund - which provides a measure of flexibility in balancing operating costs, capital expenditures, and carried-over surpluses or deficits - is managed strategically, on the basis of volume of demand, client requirements, and security imperatives.

To deal with deficits registered in recent years, cost-control measures were taken in 2000-01 (and continued in 2001-02). These included a freeze on new or expanded offices, cutting of non-critical current expenses, and postponement of some projects.

The Passport Office also obtained approval in December 2001 for fee increases, which will generate more funding to cover the cost of continuing investment in new technology. Pending their impact on revenue, Treasury Board approved a bridging loan of $7.8 million and took other helpful steps. And the Passport Office received $7.05 million from the government's $250 million program to combat terrorism. This one-time allocation was used to cover such unforeseen expenses as additional verification, security guards, revision of forms, and video cameras. Such special security measures, estimated to cost about $7 million for 2002-03, will be financed in future from the regular revenue generated by fees.

Several initiatives that will help to boost efficiency and cut costs were taken in 2001-02:

• a receiving agent pilot project with Canada Post;
• implementation of the Q-matic system for managing queues in our offices;
• preparation for Passport On-line, so clients can apply via Internet.

While the fee increase allows the Passport Office to lay down further foundation for client service and security, it brings to the forefront the need to be even more conscientious of cost-effective in its operations and strategic in its capital investments.

Financial Statements

Passport Office Revolving Fund

MANAGEMENT REPORT

The accompanying financial statements of the Passport Office Revolving Fund have been prepared as required by and in accordance with the policy of the Treasury Board on revolving funds and the reporting requirements and standards of the Receiver General for Canada. The primary responsibility for the integrity and objectivity of the data in these financial statements rests with the management of the Fund.

The financial statements were prepared in accordance with the significant accounting policies on a basis consistent with that of the preceding year, as set out in Note 2. Some of the information included in these financial statements is based on management's best estimates and judgements and gives due consideration to materiality. To fulfill this reporting responsibility, the Fund maintains a set of accounts that provide a centralized record of the Fund's financial transactions. Financial information contained in the ministerial statements and elsewhere in the Public Accounts of Canada is consistent with that in these financial statements, unless indicated otherwise.

The Finance Administration Division of the Passport Office Revolving Fund complies with departmental financial management and accounting policies, develops those specific to the Fund's requirements and issues manuals and directives that maintain these policies and which describe procedures. The Fund maintains systems of financial management and internal accounting controls that provide management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations and that its assets are safeguarded.

Approved by:

Pierre R. Bélisle
Coordinator of Functional Directorates

Michael J. Hutton
Chief Executive Officer

AUDITORS' REPORT TO ASSISTANT DEPUTY-MINISTER, CORPORATE SERVICES, PASSPORT AND CONSULAR AFFAIRS

We have audited the balance sheet of the Passport Office Revolving Fund as at March 31, 2002 and the statements of operations, accumulated surplus and cash flows for the year then ended. These financial statements are the responsibility of the management of the Passport Office Revolving Fund. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 our opinion, these financial statements present fairly, in all material respects, the financial position of the Passport Office Revolving Fund as at March 31, 2002 and the results of its operations and its cash flows for the year then ended in accordance with the accounting principles for revolving funds of the Government of Canada as described in Note 2.

KPMG, Chartered Accountants
Ottawa, Canada
May 24, 2002

Balance Sheet

March 31, 2002, with comparative figures for 2001
(In thousands of dollars)

Assets

Liabilities and Equity of Canada

See accompanying notes to financial statements.

Statement of Operations

Year ended March 31, 2002, with comparative figures for 2001
(In thousands of dollars)

See accompanying notes to financial statements.

Statement of Accumulated Surplus

Year ended March 31, 2002, with comparative figures for 2001
(In thousands of dollars)

See accompanying notes to financial statements.

Statement of Cash Flows

Year ended March 31, 2002, with comparative figures for 2001
(In thousands of dollars)

See accompanying notes to financial statements.

Notes to Financial Statements

Year ended March 31, 2002
(In thousands of dollars)

1. Authority and purpose:

The Passport Office Revolving Fund (the "Fund") was established in 1969 to provide for the issue of appropriate travel documents to Canadian citizens and to certain permanent residents of Canada who are unable to obtain valid passports from their country of origin. The Revolving Fund Act authorized the operation of the Fund.

The Fund has a continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits, the total of which is not to exceed $4,000 at any time. An amount of $746 representing net assets assumed by the Fund and assets contributed to the Fund was charged to this authority when the Fund became budgetary in 1981.

2. Significant accounting policies:

1. Basis of accounting:
   These financial statements have been prepared in accordance with the policy of Treasury Board on revolving funds and the reporting requirements and standards of the Receiver General for Canada.

2. Inventories:
   The inventory of materials and supplies is carried at cost.

3. Capital assets:
   Capital assets are recorded at cost and amortized from the year of acquisition on a straight-line basis over their estimated useful lives as follows:

   Asset	Years
   Leasehold improvements	Term of lease
   Furniture	10 years
   Electronic data processing (EDP) equipment	3 years
   Other machines and equipment	5 years

4. Other capital assets:
   Effective April 1, 1994, all expenditures associated with the Technology Enhancement Plan (TEP) were capitalized. The project costs have been separated in four categories which are amortized on a straight-line basis over the useful life of each category as follows:

   Asset	Years
   Machines and equipment	10 years
   System	4 years
   Furniture	10 years
   Electronic data processing (EDP) equipment	4 years

   All project costs for the other capital projects are amortized on a straight-line basis over the useful life of the project.

5. Employee termination benefits:
   Employees of the Fund are entitled to specified termination benefits, calculated based on salary levels in effect at the time of termination as provided for under collective agreements and conditions of employment. The cost of these benefits is recorded in the accounts as the benefits accrue to the employees.

6. Pension plan:
   Employees of the Passport Office are covered by the Public Service Superannuation Plan administered by the Government of Canada. Under present legislation, contributions made by the Passport Office to the Plan are limited to an amount equal to the employee's contributions on account of current service. These contributions represent the total pension obligations of the Passport Office and are charged to operations on a current basis. The Passport Office is not required under present legislation to make contributions with respect to actuarial deficiencies of the Public Service Superannuation Account and/or with respect to charges to the Consolidated Revenue Fund for the indexation of payments under the Supplementary Retirement Benefits Act.

7. Use of estimates:
   The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. These estimates are reviewed annually and as adjustments become necessary, they are recorded in the financial statements in the period in which they become known.

8. Revenue recognition:
   Revenues from passport fees are recognized upon application and receipt of payment.

3. Changes in accounting policy:

Effective December 11, 2001, the Passport Office recognizes revenues when an application and payment for a passport was received. In prior year, revenues from passport fees were recognized once the production of the passport was complete. This change in accounting policy was due to a change in the regulations prescribing fees for passport services. The effect on the results of operations for the year was to increase revenues by $1,925. The new accounting policy was not applied retroactively as this was a change in the regulations of the Government of Canada.

4. Change in accounting estimates:

Effective April, 2001, the Fund's management revised their estimates regarding the useful life of certain capital assets. This change in estimates is due to new information and developments that arose in the current year.

The effect on the results of operations for the year was to increase amortization by approximately $10,000 in the current year.

5. Parliament appropriations:

Pursuant to Treasury Board Decision 829317-1 dated December 6, 2001 an amount of $7,050 was transferred to the Passport Office for use in initiatives concerning public security. Of this amount $3,303 was expensed in the 2001-2002 fiscal period. Pursuant to Treasury Board Decision 828959 dated May 3, 2001, the Department of Foreign Affairs and International Trade ("DFAIT") approved spending of $983 under Vote 1 and $2,748 under Vote 5 for the Government On-line initiative.

The Passport Office received $1,618 of this appropriation from DFAIT. Of this amount, $330 was expensed in the 2001-2002 fiscal period.

6. Capital assets and accumulated amortization:

7. Deferred lease inducement:

8. Loan payable:

Pursuant to Treasury Board Decision 828716 dated February 8, 2001, the Passport Office received an amount of $7,800 as a loan from the Department of Foreign Affairs and International Trade. The initial amount and interest in the amount of $1,177 are repayable as follows:

• 2003-2004: $4,500
• 2005-2006: 4,477

9. Equity of Canada:

1. Accumulated net charge against the Fund's authority:
   Accumulated net charge against the Fund's authority is the cash position of the Fund, held by the Government on the Fund's behalf.

2. Accumulated surplus:
   The accumulated surplus is an accumulation of each year's surpluses including the absorption of the opening net assets of $746 upon establishment of the Fund.

10. Commitments:

The Passport Office rents office premises and other office equipment under long-term operating leases which expire in 2010. Future minimum lease payments by year and in aggregate are approximately as follows:

Subsequent to year end, the Passport Office signed a contract for $33,000 for a period of five years, for the purchase of passport materials.

11. Related party transactions:

Through common ownership, the Passport Office is related to all Government of Canada created departments, agencies and Crown corporations. Payments for passport operations at missions abroad, accommodation and legal services are made to related parties in the normal course of business.

12. Insurance:

The Passport Office does not carry insurance on its property. This is in accordance with the Government of Canada policy of self insurance.

13. Income taxes:

The Passport Office is not subject to income taxes.

Points of Service in Canada

* Indicates offices where bilingual services are offered

Alberta

British Columbia

Manitoba

Winnipeg*

Office hours: 08:00 - 16:00

New Brunswick

Fredericton*

Office hours: 08:30 - 16:30

Newfoundland and Labrador

St. John's

Office hours: 08:30 - 16:30

Nova Scotia

Halifax*

Office hours: 08:30 - 16:30

Ontario

Québec

Saskatchewan

Prince Edward Island

MAILED-IN APPLICATIONS

APPLICATIONS SENT BY COURIER

Enquiries:

Local calls from:

• NCR and area (819) 994-3500
• Montréal and area (514) 283-2152
• Toronto and area (416) 973-3251
• Vancouver and area (604) 586-2500

Toll-free 1 800 567-6868

TTY (For the deaf or hard of hearing persons):

• NCR and area (819) 994-3560
• Toll-free 1 866 255-7655

Web site:www.pptc.gc.ca

An application form for a passport may be obtained:

• by downloading the on-line form
• from any regional passport office
• at any Canada Post outlet
• from any Canadian Mission outside Canada