Departmental Financial Statements 2011-12

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 Veterans Review and Appeal Board. 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 judgement, 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 Veterans Review and Appeal Board's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Veterans Review and Appeal Board'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 Veterans Review and Appeal Board; 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.

The Veterans Review and Appeal Board will be subject to periodic Core Control Audits performed by the Office of the Comptroller General and will use the results of such audits to adhere to the Treasury Board Policy on Internal Control.

In the interim, the Veterans Review and Appeal Board will proceed with a risk-based assessment of the system of ICFR. It should be noted that the Board has a service partnership agreement with Veterans Affairs Canada (VAC) regarding a full range of administrative and financial services. Consequently, the Board's ICFR are completely reliant of VAC's ICFR.

The financial statements of Veterans Review and Appeal Board have not been audited.

John D. Larlee, Chair, Veterans Review and Appeal Board, Charlottetown, Canada

Date

Heather Parry, Chief Financial Officer, Charlottetown, Canada

Date

Statement of Financial Position

Veterans Review and Appeal Board
Statement of Financial Position (unaudited)
At March 31
(in thousands of dollars)
  2012 2011
Restated
(Note 11)
Liabilities
   Accounts payable and accrued liabilities (Note 4) $                        298 $                        491
   Vacation pay and compensatory leave 188 199
   Employee future benefits(Note 5) 1,246 1,837
        Total net Liabilities 1,732 2,527
Financial assets
   Due from the consolidated Revenue Fund 298 491
        Total net Financial Assets 298 491
        Departmental Net Debt 1,435 2,037
Non-financial assets
   Tangible capital assets (Note 6) 19 394
        Total non-financial assets 19 394
Departmental net financial position $                 (1,416) $                 (1,643)

Contingent liabilities (Note 7)

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

John D. Larlee, Chair, Veterans Review and Appeal Board, Charlottetown, Canada

Date

Heather Parry, Chief Financial Officer, Charlottetown, Canada

Date

Veterans Review and Appeal Board
Statement of Operations and Departmental Net Financial Position (unaudited)
For the year ended March 31
(in thousands of dollars)
  2012
Planned
Results
2012 2011
Expenses
   Veterans Review and Appeal Board $13,035 $13,686 $13,137
          Total expenses 13,035 13,686 13,137
 
Net cost from continuing operations 13,035 13,686 13,137
 
Transferred operations (Note 11)
   Expenses 44 44 66
   Revenue 0 0 0
Net cost of transferred operations 44 44 66
 
Net cost of operations before government funding and transfers 13,079 13,730 13,203
Government funding and transfers
   Net cash provided by Government 14,555 12,750 12,444
   Change in due from Consolidated Revenue Fund 0 (193) (403)
   Services provided without charge by other government departments
(Note 8)
1,412 1,553 1,486
   Transfer of assets and liabilities to other government departments
(Note 9)
0 153 0
 
Net cost of operations after government funding and transfers (2,888) (227) (324)
 
Departmental net financial position - Beginning of year (1,643) (1,643) (1,967)
 
Departmental net financial position - End of year $1,245 $(1,416) $(1,643)

Segmented information (Note 10)

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

Veterans Review and Appeal Board
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 $(227) $(324)
   Change due to tangible capital assets
      Amortization of tangible capital assets (61) (91)
      Adjustments to tangible capital assets (Note 6) (161) 0
      Transfer to other government departments (153) 0
Total change due to tangible capital assets (375) (91)
Net increase (decrease) in departmental net debt (602) (415)
Departmental net debt - Beginning of year 2,037 2,452
Departmental net debt - End of year $1,435 $2,037

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

Veterans Review and Appeal Board
Statement of Cash Flows (unaudited)
For the year ended March 31
(in thousands of dollars)
  2012 2011
Operating activities
Net cost of operations before government funding and transfers $13,730 $13,203
   Non-cash items:
      Amortization of tangible capital assets (61) (91)
      Services provided without charge (1,553) (1,486)
   Variations in Statement of Financial Position
      Decrease (increase) in accounts payable and accrued liabilities 193 403
      Decrease (increase) in vacation pay and compensatory leave 11 136
      Decrease (increase) in future employee benefits 591 279
Cash used for operating activities 12,911 12,444
Capital Investment Activities
   Adjustments to tangible capital assets (Note 6) (161) 0
Cash used for capital investment activities (161) 0
Financing activities 0 0
Net cash provided by Government of Canada $12,750 $12,444

The accompanying notes form an integral part of these statements.

Notes to Financial Statements (unaudited) for the year ended March 31

1. Authority and Objectives

The Veterans Review and Appeal Board was established in 1995 pursuant to the Veterans Review and Appeal Board Act. The Veterans Review and Appeal Board received full departmental status by Order in Council in 2009.

Veterans Review and Appeal Board is a division of the public service named in Schedule I.1 of the Financial Administration Act. The Minister of Veterans Affairs is designated the appropriate Minister for the Veterans Review and Appeal Board in Parliament and at Cabinet.

The Veterans Review and Appeal Board program provides Canada's traditional Veterans, Canadian Forces members and Veterans, Royal Canadian Mounted Police members, qualified civilians and their families with full opportunity to request review and appeal hearings to ensure a fair adjudicative process for disability pension, disability award, and War Veterans Allowance applications.

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

Veterans Review and Appeal Board is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Veterans Review and Appeal Board 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.

(b) Net cash provided by Government

Veterans Review and Appeal Board operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by Veterans Review and Appeal Board is deposited to the CRF and all cash disbursements made by Veterans Review and Appeal Board 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 federal government.

(c) Amounts due from/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 the Board is entitled to draw from the CRF without further appropriations to discharge its liabilities.

(d) Expenses are recorded on the accrual basis:

  • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
  • Services provided without charge by other government departments for accommodations, the employer's contribution to the health and dental insurance plans, and legal services are recorded as operating expenses at their estimated cost.

(e) Employee future benefits

(i) Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer pension plan, administered by the Government. Veterans Review and Appeal Board Canada contributions to the Plan are charged to expense in the year incurred and represent the Board's total obligation to the plan. Veterans Review and Appeal Board's responsibility with regards to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada.

(ii) Severance benefits: Employees entitled to severance benefits, as provided for 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.

(f) Contingent liabilities

Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(g) 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 foreign currencies are translated into Canadian dollars using exchange rates in effect on March 31. Gains and losses resulting from foreign currency transactions are reported on the Statement of Operations and Departmental Net Financial Position according to the activities to which they relate.

(h) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Veterans Review and Appeal Board 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
   
Buildings 25 Years
Works and infrastructure 25 Years
Machinery and equipment 5-15 Years
Informatics 2-5 Years
Motor vehicles 5 Years
Leasehold improvements Lesser of useful life or term of the lease
Assets under construction Once in service, in accordance with asset type

(i) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable.

The most significant items where estimates are used are contingent liabilities, the useful life of tangible capital assets and the liability for employee future benefits. 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

Veterans Review and Appeal Board receives funding through annual Parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, Veterans Review and Appeal Board 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 appropriations
  2012   2011
  (in thousands of dollars)
Net cost of operations before government funding and transfers 13,730   13,203
 
Adjustments for items affecting net cost of operations but not affecting authorities:      
Amortization of tangible capital assets
(61)   (91)
Services provided without charge by other government departments
(1,553)   (1,486)
Decrease (Increase) vacation pay and compensatory leave
11   136
Decrease (Increase) employee future benefits
591   279
Other
28   50
Sub-total
12,746   12,091
 
Adjustment for items not affecting net cost of operations but affecting authorities 0   0
 
Sub-total
0   0
 
Current year authorities used 12,746   12,091
(b) Authorities provided and used
  2012   2011
  (in thousands of dollars)
Vote 10 - Operating expenditures 11,232   10,406
Statutory amounts 1,685   1,692
Sub-total
12,917   12,098
 
Less:
Lapsed: Operating (171)   (7)
Sub-total
(171)   (7)
 
Current year authorities used 12,746   12,091
4. Accounts Payable and accrued liabilies

The following table presents details of the Board's accounts payable and accrued liabilities:
  2012   2011
  (in thousands of dollars)
Accounts payable to other government departments and agencies 81   184
Accounts payable to external parties 0   0
Accrued liabilities 217   307
 
Total accounts payable and accrued liabilities 298   491

5. Employee Future Benefits

(a) Pension benefits: Veterans Review and Appeal Board employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue 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/Quebec Pension Plans benefits and they are indexed to inflation.

Both the employees and Veterans Review and Appeal Board contribute to the cost of the Plan. The 2011-2012 expense amounts to $1,211,740.37 ($1,187,421.57 in 2010-2011), which represents approximately 1.8 times (1.9 in 2010-11) the contributions by employees.

Veterans Review and Appeal Board's responsibility with regards 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: Veterans Review and Appeal Board provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

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 to benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Employee Future Benefits
  2012   2011
  (in thousands of dollars)
Accrued benefit obligation - beginning of year 1,837   2,117
 
Expenses for the year 414   (181)
 
Benefits paid during the year (1,005)   (99)
 
Accrued benefit obligation - end of year 1,246   1,837

6.Tangible Capital Assets

The following tables present details of tangible capital assets: (in thousands of dollars)
Cost
Capital asset class Opening balance Acquisitions Adjustments (1) Disposals and Write-Offs Closing balance
Machinery and equipment 573 0 (330) (175) 68
Leasehold improvements 6 0 (6) 0 0
Total 579 0 (175) 68
 
Accumulated Amortization
Capital asset class Opening balance Acquisitions Adjustments (1) Disposals and adjustments Closing balance
Machinery and equipment 185 61 (197) 0 49
Leasehold improvements 0 0 0 0 0
Total 185 61 (197) 0 49

Effective November 15, 2011, the Veterans Review and Appeal Board transferred minor equipment to Shared Services Canada with a net book value of $153.

Net Book Value
Capital Asset Class 2012
Net book value
2011
Net book value
Machinery and equipment 19 388
Leasehold improvements 0 6
Total 19 394

7. Contingent liabilities

Claims and litigation

Claims have been made against Veterans Review and Appeal Board in the normal course of operations. Legal proceedings for claims which no amounts are specified were still pending at March 31, 2012. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

Veterans Review and Appeal Board is related as a result of common ownership to all Government of Canada departments, agencies and Crown corporations. Veterans Review and Appeal Board enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, Veterans Review and Appeal Board received services which were obtained without charge from other Government departments as presented in part (a).

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

During the year Veterans Review and Appeal Board received services without charge from other departments, relating to accommodations, legal fees and employer's contribution to the health and dental insurance plans. These services without charge have been recognized on the Board's Statement of Operations and Departmental Net Financial Position as follows:

  2012   2011
(in thousands of dollars)
Accommodations 685   713
Employer's contribution to the health and dental insurance plans 793 713
Legal services 75 60
Total 1,553   1,486

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 and audit services provided by the Office of the Auditor General are not included in the Board'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 175   163
Total 175   163

Expenses disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).

9. Transfers from/to other government departments

Effective November 15, 2011, Veterans Review and Appeal Board transferred responsibility for the information technologies activities to Shared Services Canada in accordance with Section 31.1 of the Financial Administration Act, Order in Council 2011-0877 and 2011-1297, including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, Veterans Review and Appeal Board transferred the following assets to Shared Services Canada on November 15, 2011.

  2012
  (in thousands of dollars)
   
Assets:  
  Tangible capital assets (net book value) (note 6) $                     153
Total assets transferred                        153
   
Liabilities:                           0
Total liabilities transferred                           0
   
Adjustment to the departmental net financial position $                     153

10. Segmented Information

Presentation by segment is based on the Board'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 by major object of expenses. The segmented results for the period are as follows:

(in thousands of dollars) 2012 Total 2011 Total
Operating    
     
Professional and special services 523 587
Salaries and employee benefits 11,263 10,332
Utilities, materials and supplies 93 95
Transportation and communications 987 1,195
Repairs and maintenance 70 36
Accommodations 685 713
Amortization 17 25
Other 48 154
Total operating expenses 13,686 13,137
     
Total expenses 13,686 13,137
Revenues 0 0
Total Revenues 0 0
Net Cost of Operations 13,686 13,137

11. 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 the Board's financial statements are described below. These changes have been applied retroactively, and comparative information for 2010-11 has been restated.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position. Accompanying this change, Veterans Review and Appeal Board also presents a Statement of Change in Net Debt.

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, Veterans Review and Appeal Board 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 $226,522 for 2012 ($324,871 for 2011).

  2011 As
previously
stated
  Effect of Changes   2011 Restated
  (in thousands of dollars)
Statement of Operations and Departmental Net Financial Position:          
Government Funding and Transfers          
  Net cash provided by Government 0   12,444   12,445
  Change in due from Consolidated Revenue Fund 0   (403)   (403)
  Services provided without charge by other government departments 0   1,486   1,486
  Transfer of assets and liabilities to other government departments 0   0   0

12. Comparative Information

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

In previous years' financial statements, the activities of VRAB had been consolidated with those of VAC. Beginning with 2011/12, VRAB financial activity is reported separately. The following table outlines the restated comparison of 2011 key amounts:

  VAC VRAB Total Total
Previously
Reported
Difference
  (in thousands of dollars)
Statement of Financial Position          
           
Total gross liabilities 123,509 2,527 126,036 126,036 0
Total gross financial assets 66,039 491 66,530 66,530 0
Total non-financial assets 142,600 394 142,994 142,994 0
           
Statement of Operations and Departmental Net Financial Position          
Total Expenses 3,535,162 13,203 3,548,365 3,547,905 460
Total revenue 20,984 0 20,984 20,984 0
 
* The 2010-11 expenses have been restated, as per TBAS 1.2, to include Workers' Compensation of $460 in the services provided without charge.

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Veterans Review and Appeal Board for Fiscal Year 2011-2012 (Unaudited)

1. Introduction

Under the Treasury Board Policy on Internal Control, departments are required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR). As such, departments are expected to conduct annual assessments of their system of ICFR, establish action plans to address any necessary adjustments, and to attach to their Statements of Management Responsibility a summary of their assessment results and action plan.

The Veterans Review and Appeal Board (the Board) will use the results of the periodic Core Control Audit performed by the Office of the Comptroller General to adhere to the Treasury Board Policy on Internal Control. Until such audit takes place, the Board will proceed with a risk-based assessment of the system of ICFR. It should be noted that the Board has a service partnership agreement with Veterans Affairs Canada (VAC) regarding a full range of administrative and financial services. Among these services provided to the Board by VAC are the maintenance of financial signing authority records and the delegation instrument, accounting and financial statement preparation, and financial and procurement transactions. Consequently, the Board's ICFR are completely reliant on VAC's ICFR.

2. Assessment results as of March 31, 2012

Design effectiveness aims to identify and document key controls, to ensure that they are in place and aligned with the risks they aim to mitigate, and that required remediation is addressed appropriately and in a timely manner.

VAC completed testing of design effectiveness for its ELCs, ITGCs, and key business process controls in 2010-2011.

Operating effectiveness aims to ensure that key controls are working as intended over a defined period, and that required remediation is addresses appropriately and in a timely manner.

The operating effectiveness of VAC's key controls was tested during fiscal-year 2010-11. As a result of the testing, exceptions were noted in certain ITGC elements. The significant findings were around access management and change control. Corrective action to address these issues was completed in fiscal-year 2011-12.

On-going monitoring means that key controls are monitored on a regular basis to provide reasonable assurance that they continue to function effectively over time.

VAC is now following a rotational on-going monitoring schedule to ensure that all ICFR remain up-to-date and effective. A dedicated unit called Controls Assessment has been created under the direction of the CFO. This unit is responsible for a well-integrated risk-based approach to on-going monitoring; to monitor the completion of remedial actions identified; and to put in place a program to raise awareness and understanding of VAC's system of ICFR at all levels. Process documentation, including narratives and descriptions of all key controls, are updated by the process owners and revalidated on a rotating basis by the Controls Assessment unit.

3. Assessment Plan

By end of 2012-13, VAC plans to:

  • Communicate roles and responsibilities to managers at all levels around ICFR as well as expectations of when business process changes warrant a reassessment of controls.
  • Continue to implement Budget 2012 decisions to deliver on commitments made to modernize government by serving our clients in a more efficient manner and update documentation of impacted payment streams as required.
  • Continue to assess the impacts and address the changes to ICFR as required as a result of Transformation initiatives throughout the Department.
  • Continue to enhance and innovate financial controls by looking at payment streams where controls can be streamlined.

By end of 2013-14, VAC plans to:

  • Continue to monitor and strengthen all internal controls in departmental business processes including identifying and prioritizing risks and the controls to mitigate these risks, complete resolution of identified authority issues, as well as to monitor its performance in support of continuous improvement.
  • Continue to assess the impacts and address the changes to ICFR as required as a result of Transformation and Budget initiatives throughout the Department.
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