Financial Statements

Notes to the Financial Statements

1. Authority and objectives

The Department of Justice was created by an Act of Parliament in 1868 to be responsible for the legal affairs of the Government of Canada and to provide legal services to individual departments and agencies. The Department’s work reflects the duties of its Minister’s dual role as Attorney General of Canada and as Minister of Justice. The Department is established under the authority of Schedule I to the Financial Administration Act and is funded through annual appropriations.

The department conducts its two priorities along three program activities:

(a) A fair, relevant and accessible justice system that reflects Canadian values

Justice policies, laws and programs

Under Canada's federal system, the administration of justice is an area of shared jurisdiction between the federal government and the provinces. Through this program activity, the Department fulfils its constitutional responsibility to ensure a bilingual and bijural national legal framework for the administration of justice by developing policies and laws and testing innovative approaches to strengthen the framework within the following domains: criminal law, youth criminal justice, sentencing, marriage and divorce, access to justice and Aboriginal justice. Through this program activity, the Department also provides significant ongoing funding to provinces and territories in support of their constitutional responsibility for the day to day administration of justice.

The Office of the Federal Ombudsman for Victims of Crime

This program activity raises awareness of the needs and concerns of victims in areas of federal responsibility, provides an independent resource that addresses complaints of victims about compliance with the provisions of the Corrections and Conditional Release Act that apply to victims of offenders under federal supervision, and assists victims to access existing federal programs and services.

(b) A federal government that is supported by effective and responsive legal services

Services to government

As a common service provider, the Department of Justice provides an integrated suite of legal advisory, litigation and legislative services to departments and agencies to help them meet their policy and programming priorities and advance the overall objectives of the government. Through this program activity, the Department also provides legal services to the Justice Portfolio and supports the Minister as legal advisor to the Cabinet on complex, whole of government issues.

2. Summary of significant accounting policies

These financial statements have been prepared in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.

The significant accounting policies are as follows:

(a) Parliamentary appropriations

The Department is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the department do not parallel financial reporting according to generally accepted accounting principles for the public sector since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and the Statement of Financial Position are not necessarily the same as those provided through appropriations from Parliament. Note 4 provides a high-level reconciliation between the bases of reporting.

(b) Net cash provided by Government

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

(c) Change in net position in the Consolidated Revenue Fund

The change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non-respendable revenue recorded by the Department. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

(d) Due from the Consolidated Revenue Fund (CRF)

The amounts are the result of timing differences 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 Department is entitled to draw from the CRF without further appropriations.

(e) Revenues

Revenues are derived from the provision of advisory, litigation and legislative services provided by Department of Justice's law practitioners and they are recognized in the year the services are rendered. These revenues are based on legal services rates approved annually by Treasury Board in accordance with the Common Services Policy, for non-appropriated mandatory legal services to Government departments and agencies as well as legal services to Crown corporations and non-federal and international organizations.

Service and administration fees revenues under the Family Law programs are recognized based upon the services provided in the year, such as upon validation of the garnishment application or upon issuance of the divorce clearance certificate. The fees prescribed by Family Orders and Agreements Enforcement Assistance Act are to cover the administrative costs of processing each garnishee summons served on the Minister.

Fines, forfeitures and awarded court costs are recognized upon receipt of payment by the Department. Fines and forfeitures include two groups of payments: those provided for under the Criminal Code (s.734 through s.737) and those provided for under the Contraventions Act. Fines and forfeitures are in effect penalties for illegal actions, rather than fees.

(f) Expenses

Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized 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.

Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement.

Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment. The liability is calculated based on salary levels in effect at March 31 and the number of days remaining unpaid at the end of the fiscal year. Payments of these obligations are funded through future year appropriations.

Expenses related to the provision of legal services are limited to those costs borne and settled directly by the Department. The cost of legal services which are paid directly by client departments to outside suppliers such as legal agents, are not included in the expenses of the Department.

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

(g) Employee future benefits

i. Pension benefits

Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government of Canada. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the Department to make contributions for any actuarial deficiencies of the Plan.

ii Severance benefits

Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(h) Receivables

Receivables are stated at amounts expected to be ultimately realized; an allowance for doubtful accounts is made for receivables where recovery is considered uncertain. The allowance for doubtful accounts represents management's best estimate of probable losses in receivables. The allowance is determined based on an analysis of historic loss experience and an assessment of current conditions. The allowance is increased for losses and reduced by amounts written-off.

Under the Family Orders and Agreements Enforcement Assistance Act, remission order PC 1994-269, outstanding receivables are written-off once the garnishee application has terminated. The application terminates when the five-year life of the garnishment summons has expired or when the province or territory has requested that the application be cancelled.

(i) 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.

(j) Tangible capital assets

All tangible capital assets and leasehold improvements are recorded at their cost and amortized over their estimated useful life on a straight-line basis as follows:

Asset class Acquisition cost equal or greater than Amortization Period
Office and other equipment $10,000 5 to 8 years
Telecommunications equipment $10,000 4 to 5 years
Informatics hardware $1,000 3 to 5 years
Informatics software $10,000 3 to 5 years
Furniture and furnishings $1,000 10 years
Motor vehicles $10,000 5 years
Leasehold improvements $10,000 Lesser of useful life or remaining term of the lease
Work in progress In accordance with asset class Once in service, in accordance with asset class

Amortization of the tangible capital asset commences the month following the date the asset is put into service.

(k) Measurement uncertainty

The preparation of these financial statements in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. 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 severance benefits, allowance for doubtful accounts, and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Restatement of prior year figures

The financial statement results for the year ended March 31, 2008 have been restated to reflect the correction of an error with respect to recognition of accrued salaries for unratified collective agreements where the Government has little or no discretion to avoid a payment and the amount is reasonably determinable. No amount was recognized previously.

This resulted in an understatement of expenses of $7,292,306 and an understatement of liabilities of $12,384,493 for the year ended March 31, 2008. The March 31, 2008 deficit of Canada, beginning of the year was understated by $5,092,187.

4. Parliamentary appropriations

The Department receives most of its funding through annual Parliamentary appropriations. Items recognized in the Statement of Operations and the Statement of Financial Position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The following tables present the reconciliation between the current year appropriation used, the net cost of operations and the net cash provided by the government:

(a) Reconciliation of net cost of operations to current year appropriations used
(in thousands of dollars)
  2009 Unaudited
2008
Restated
Net cost of operations 765,933 723,016
Adjustments for items affecting net cost of operations but not affecting appropriations
Receivable from Treasury Board Secretariat for employee benefits - (3,477)
Amortization of tangible capital assets (Note 8) (10,605) (10,570)
Vacation pay and compensatory leave (1,183) (307)
Employee severance benefits (22,883) (904)
Accrual for unratified collective agreements (2,567) (7,293)
Adjustments to previous year's accounts payable 33,960 4,095
Bad debt expense (6,471) (4,915)
Revenue not available for spending 8,401 8,835
Employee benefits recovered 33,501 31,111
Services provided without charge by other government departments (Note 15) (76,765) (66,115)
Write off tangible capital assets (Note 8) (27) -
Other 1,025 1,190
Total Adjustments for items affecting net cost of operations but not affecting appropriations (43,614) (48,350)
Adjustments for items not affecting net cost of operations but affecting appropriations
Acquisitions of tangible capital assets (Note 8) 14,800 11,530
Change in prepaid expenses (25) (33)
Total change in net position in the Consolidated Revenue Fund 14,775 11,497
Current year appropriations used 737,094 686,163

(b) Appropriations provided and used
(in thousands of dollars)
  2009 Unaudited
2008
Restated
Vote 1 - Operating expenditures 321,119 298,232
Vote 5 - Grants and contributions 389,190 380,188
Statutory amounts 62,896 55,527
Less
Appropriations available for future years (4) -
Voted appropriations lapsed (36,107) (47,784)
Current year appropriations used 737,094 686,163

(c) Reconciliation of net cash provided by Government to current year appropriations used
(in thousands of dollars)
  2009 Unaudited
2008
Restated
Net cash provided by Government 1,001,226 552,651
Revenue not available for spending 8,401 8,835
Change in net position in the Consolidated Revenue Fund
(Increase) decrease in accounts receivable and advances 21,574 (13,401)
(Decrease) increase in accounts payable, accrued liabilities and tranfer payments payables (355,603) 100,102
Adjustments to previous year's accounts payable 33,960 4,095
Employee benefits recovered 33,501 31,111
Other adjustments (5,965) 2,770
Total change in net position in the Consolidated Revenue Fund (272,533) 124,677
Current year appropriations used 737,094 686,163

5. Expenses

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Operating expenses
Salaries and employee benefits 520,323 462,915
Professional and special services 44,965 35,183
Accommodation 43,699 38,143
Travel and relocation 13,728 12,528
Amortization of tangible capital assets (Note 8) 10,605 10,570
Utilities, materials and supplies 7,109 7,924
Communications 7,036 6,057
Bad debts 6,471 4,915
Claims and ex-gratia payments 4,379 442
Information 3,857 4,321
Repairs and maintenance 3055 1,849
Rentals 949 1,067
Other 642 914
Total operating expenses 666,548 586,828
Transfer payments
Provinces and territories 310,550 325,336
Non-profit institutions and organizations 20,215 25,547
Individuals 10,549 7,361
International organizations 416 438
Total transfer payments 341,730 358,682
Total expenses 1,008,278 945,510

6. Revenues

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Services
Legal services 234,030 213,684
Family Law fees 7,865 8,047
Total 241,895 221,731
Other revenues 450 763
Total revenues 242,345 222,494

7. Receivables and Advances

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Federal government departments and agencies 18,181 37,746
External parties
Family Law 12,794 12,738
Less: allowances for doubtful accounts (12,038) (9,944)
Total accounts receivable from Family Law 756 2,794
Other receivables and advances 978 966
Less: allowances for doubtful accounts (224) (241)
Total other receivables and advances 754 725
Total receivables and advances 19,691 41,265

8. Tangible Capital Assets

Tangible capital assets
(in thousands of dollars)
  Opening balance Acquisitions Disposals and transfers Closing balance
Office and other equipment 647 354 - 1,001
Telecommunications equipment 2,727 709 - 3,436
Informatics hardware 21,240 3,659 - 24,899
Informatics software 17,907 2,380 2,752 23,039
Furniture and furnishings 15,757 3,557 - 19,314
Motor vehicles 100 - (42) 58
Leasehold improvements 12,858 423 2,882 16,163
Work in progress - software development 2,956 585 (2,779) 762
Work in progress - leasehold improvements 342 3,133 (2,882) 593
Total tangible capital assets 74,534 14,800 (69) 89,265

Accumulated amortization
(in thousands of dollars)
  Opening balance Current year amortization Disposals and transfers Closing balance
Office and other equipment 207 99 3 309
Telecommunications equipment 1,372 473 - 1,845
Informatics hardware 14,129 3,658 - 17,787
Informatics software 12,496 2,834 - 15,330
Furniture and furnishings 6,319 1,671 (3) 7,987
Motor vehicles 83 6 (42) 47
Leasehold improvements 7,260 1,864 - 9,124
Total accumulated amortization 41,866 10,605 (42) 52,429

Net book value
(in thousands of dollars)
  2009 Unaudited
2008
Office and other equipment 692 440
Telecommunications equipment 1,591 1,355
Informatics hardware 7,112 7,111
Informatics software 7,709 5,411
Furniture and furnishings 11,327 9,438
Motor vehicles 11 17
Leasehold improvements 7,039 5,598
Work in progress - software development 762 2,956
Work in progress - leasehold improvements 593 342
Total net book value 36,836 32,668

Amortization expense for the year ended March 31, 2009 is $10,605,000 ($10,570,000 in 2007-08).

9. Accounts payable and accrued liabilities

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Federal government departments and agencies 3,448 4,751
External parties
Accounts payable 45,202 33,767
Accrued salaries 12,892 10,840
Total accounts payable to external parties 58,094 44,607
Accrual for unratified collective agreements 14,953 12,384
Other liabilities - 1,025
Total other receivables and advances 73,047 58,016
Total accounts payable and accrued liabilities 76,495 62,767

10. Family Law account

Under the Family Orders and Agreements Enforcement Assistance Act, the Department assists provinces and territories in the enforcement of family support orders and agreements by providing garnishment assistance through the interception of designated federal moneys payable to individuals owing family financial support. These intercepted moneys (consisting of garnisheed moneys such as income tax refunds, employment insurance benefits, etc.) are deposited into the Family Law account from which payments to the provinces and territories are then made. The provinces and territories distribute these payments to the beneficiaries.

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Family Law account, beginning of year 4,578 3,931
Receipts 140,917 122,857
Payments (138,869) (122,210)
Family Law account, end of year 6,626 4,578

11. Employee future benefits

(a) Pension benefits

The Department's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 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 the Department contribute to the cost of the Plan. The expense presented below represents approximately 2.0 times (2.1 in 2007-08) the employees' contributions.

(in thousands of dollars)
  2009 Unaudited
2008
Pension expense 45,279 40,405

The Department's responsibility with regard to the Plan is limited to its contributions.  Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor. 

(b) Severance benefits

The Department 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:

(in thousands of dollars)
  2009 Unaudited
2008
Accrued future benefit obligation, beginning of year 73,366 83,850
Expense for the year 27,262 5,052
Benefits paid during the year (4,379) (4,147)
Departmental reorganization - (11,389)
Accrued future benefit obligation, end of year 96,249 73,366

12. Contingent liabilities

Claims and litigation

Claims have been made against the Department in the normal course of operations. Legal proceedings for claims estimated at approximately $509,297,000 were still pending at March 31, 2009 ($1,021,471,000 at March 31, 2008). 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. For this fiscal year, no amounts have been recorded.

13. Contractual obligations

The nature of the Department's activities results in some large multi-year contracts and obligations whereby the Department will be obligated to make future payments when the services and/or goods are received.

Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)
  2009-10 2010-11 2011-12 2012-13 2013-14
and thereafter
Transfer payments 175,402 175,402 2,800 2,800 -

14. Departmental reorganization

On December 12, 2006, the Office of the Director of Public Prosecutions was created as part of the Federal Accountability Act. This Office takes over the duties of the former Federal Prosecution Services within the Department of Justice and has been operating independently of the Department effective April 1, 2007.

The condensed assets and liabilities transferred from the Department of Justice Canada to the Office of the Director of Public Prosecutions are as follows:

(in thousands of dollars)
  Unaudited
2008
Statement of Financial Position
Assets 7,634
Liabilities 26,884
Net liabilities transferred 19,250

15. Related party transactions

The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms.

Also, during the year, the Department received without charge from other departments, accomodation, audit services, the employer's contribution to the health and dental insurance plans, and workers' compensation coverage. These services without charge have been recognized in the Department's Statement of Operations as follows:

(in thousands of dollars)
  2009 Unaudited
2008
Restated
Accommodation provided by Public Works and Government Services Canada 43,725 37,697
Employer's contributions to the health and dental insurance plans paid by Treasury Board Secretariat 32,706 28,343
Audit services provided by the Office of the Auditor General 260 -
Workers’ compensation coverage provided by Human Resources and Skills Development Canada 74 75
Total 76,765 66,115

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The cost of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included as an expense in the Department's Statement of Operations.

In addition, the Department of Justice has provided legal services, such as advisory, litigation and legislative services, without charge to other government departments for a total amount of $191,020,000 ($187,595,000 in 2007-08). The amount is determined based on actual salary and operating expenses attributed to non-recoverable services provided to other government departments.

16. Comparative information

Certain 2008 comparative figures are reclassified to conform to the current year's presentation.

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