Supplementary statement

Public Accounts of Canada 2018 Volume I—Top of the page Navigation

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Employment Insurance Operating Account

Management's responsibility for financial statements — Employment Insurance Operating Account

The financial statements of the Employment Insurance Operating Account (the Account) are prepared in accordance with Canadian public sector accounting standards by the management of Employment and Social Development Canada (ESDC). The Canada Employment Insurance Commission, through the officers and employees of ESDC, is responsible for the delivery of the Employment Insurance program and the day-to-day administration of the Account. The Chairperson, as the Accounting Officer, and the Chief Financial Officer of ESDC are responsible for the preparation of these financial statements and the integrity and objectivity of the information contained within, including the amounts which must, of necessity, be based on best estimates and judgement. The significant accounting policies are identified in Note 2 to the financial statements.

To fulfill their accounting and reporting responsibilities, the management of ESDC has developed and maintains books of account, financial and management controls, information systems and management practices. These systems are 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 Employment Insurance Act and regulations, as well as the Financial Administration Act and regulations.

The Auditor General of Canada, the external auditor of the Employment Insurance Operating Account, conducts an independent audit of the financial statements in accordance with Canadian generally accepted auditing standards and provides a report to the Minister of Families, Children and Social Development.

The financial statements of the Employment Insurance Operating Account are an integral part of the Public Accounts of Canada, which are tabled in the House of Commons and are referred to the Standing Committee on Public Accounts for examination purposes.

Louise Levonian
Deputy Minister
Employment and Social Development Canada
and Chairperson of the Canada Employment Insurance Commission

Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada

Gatineau, Canada
August 28, 2018

Independent Auditor's Report — Employment Insurance Operating Account

To the Minister of Families, Children and Social Development

I have audited the accompanying financial statements of the Employment Insurance Operating Account, which comprise the statement of financial position as at 31 March 2018, and the statement of operations and accumulated surplus, statement of change in net financial assets and statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Employment Insurance Operating Account as at 31 March 2018, and the results of its operations, changes in its net financial assets, and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Nathalie Chartrand, CPA, CA
Principal
for the Auditor General of Canada

28 August 2018
Ottawa, Canada

Approved by:

Louise Levonian
Deputy Minister
Employment and Social Development Canada
and Chairperson of the Canada Employment Insurance Commission

Mark Perlman, CPA, CMA
Chief Financial Officer
Employment and Social Development Canada

Notes to the financial statements for the year ended March 31, 2018

1. Authority, objective and responsibilities

The Canada Employment Insurance Commission (the Commission), a departmental corporation named in Schedule II to the Financial Administration Act, administers the Employment Insurance Act (the Act). The Commission is co-managed by Commissioners representative of the Government, workers and employers. The objective of the Act is to provide employment insurance (EI) benefits, employment programs and services to eligible workers. The financial transactions relating to this objective are reported through the Employment Insurance Operating Account (the Account).

The Account was established in the accounts of Canada by the Act. All amounts received under the Act are deposited in the Consolidated Revenue Fund and credited to the Account. The benefits and the costs of administration of the Act are paid out of the Consolidated Revenue Fund and charged to the Account. In these financial statements, the Consolidated Revenue Fund is represented by the Balance of the account with Receiver General for Canada.

The Commission, through the officers and employees of the Department of Employment and Social Development (ESDC), is responsible for the delivery of the Employment Insurance program and the day-to-day administration of the Account. The Commission sets the EI premium rate, the annual maximum insurable earnings and the employer's premium reduction in respect of wage-loss plans, subject to the legislated parameters in the Act.

Starting with the 2017 EI premium rate, the Commission assumed responsibility for setting the EI premium rate for each year no higher than needed to cover the projected costs of the EI program over a seven-year period and eliminate any cumulative surplus/deficit in the Account.

The Minister of National Revenue is responsible for collecting premiums from employers and employees, and for administering and enforcing the provisions of the Act relating to benefit repayments receivable from higher income claimants.

The Act authorizes the Commission, with the approval of the Minister responsible for ESDC, to enter into Labour Market Development Agreements (LMDA) with each province and territory. Under these agreements, the Government of Canada provides contributions to provincial and territorial governments to be used to pay for all or a portion of the costs of their benefits and measures provided they are similar to the employment benefits and support measures established under Part II of the Act. The contributions can also be used to pay for any administration costs incurred in providing these similar benefits and measures.

The Act also requires the Commission to make regulations to provide a system to reduce employers' and employees' premiums when payments under a provincial law would have the effect of reducing or eliminating the special benefits payable under the Act.

2. Significant accounting policies

The Account is a component of the Government of Canada reporting entity. In this context, its operations are consolidated with those of the Government and are presented in the financial statements of the Government of Canada.

(a) Basis of accounting

These financial statements are prepared in accordance with Canadian public sector accounting standards (PSAS).

(b) Premiums

Premiums are recognized as revenue in the period in which they are earned, when workers, through their employment, generate these premiums and the related employer's contribution. Premiums earned in the period are measured from amounts assessed by the Canada Revenue Agency (CRA) and from estimates of amounts not yet assessed. Premium revenue also includes adjustments between actual and estimated premiums of previous years.

(c) Benefits and support measures

Benefits and support measures include income benefits (or benefits under Part I of the Act) and employment benefits and support measures (benefits under Part II of the Act). Those benefit expenses are recorded when the recipients become entitled to the benefits. An estimate of the benefits earned by the recipients related to the current fiscal year but not yet paid are recorded as benefits payable. This estimate is based on actual payments made subsequent to year-end.

Income benefits provide temporary income support to claimants while they look for work. Income benefits include self-employed fishers and work-sharing agreements for temporary work shortages. It also includes special benefits such as maternity, parental, sickness and compassionate care benefits. Income benefit expenses represent the amounts paid and payable to claimants for the period relating to the fiscal year, for the weeks the claimants were entitled to the payments. Overpayments established during the year are deducted from these expenses.

The rates for income benefits are set on a calendar year basis. The maximum rate is $547 per week for the period from January to December 2018, and $543 per week for January to December 2017 ($537 per week for 2016). Benefits are paid at the lesser of 55% of average insurable earnings and the maximum rate. For claimants who qualify as a low-income family with children, the rate may be increased up to the lesser of 80% of average insurable earnings and the maximum rate.

Transfer payments to the provinces and territories under the LMDA are made pursuant to section 63 of the Act. Similar to the employment benefits and support measures, these transfer payments are recorded as expenses in the year in which the provinces/territories met the eligibility criteria and the transfers are authorized. Overpayments to provinces and territories are recovered and recorded as a reduction of expenses.

Support measures provide financial assistance, through government transfers, to eligible persons to help them re-integrate into the labour market and to third parties to help them provide employment assistance services to unemployed workers and employed persons if they are facing a loss of their employment. These expenses include the direct costs of financial and employment assistance programs and related measures provided to eligible persons and third parties. Government transfers are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement and the transfer is authorized.

Claimants with income levels higher than those stated in the Act have to repay benefits received. Benefit repayments received and the estimated benefit repayments receivable are assessed by the CRA based on tax returns assessed and an estimate of tax returns not yet assessed. These benefit repayments are disclosed in the Statement of operations and accumulated surplus and Schedule I as benefit repayments from higher income claimants.

(d) Administration costs

Administration costs are charged to the Account in accordance with various memoranda of understanding. The Account does not have employees and ESDC administers the Act. In addition to ESDC, other federal government departments also provide services to the Account. Under all the various memoranda of understanding, the Account is charged at cost and transactions are measured at the exchange value.

Also, the administration costs paid to provinces and territories to administer the LMDA are included in the administration costs for the year according to the provisions of those agreements and are also measured at the exchange value.

(e) Balance of the account with Receiver General for Canada

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

(f) Related party transactions

Inter-entity transactions

Inter-entity transactions are transactions between commonly controlled entities. The Account is a component of the Government of Canada reporting entity and is therefore related to all federal departments, agencies and crown corporations. Inter-entity transactions are recorded on a gross basis and are measured at the carrying amount, except for the following:

1. Inter-entity transactions are measured at the exchange value when undertaken on similar terms and conditions to those adopted if the entities were dealing at arm's length, or where cost provided are recovered.
2. Goods or services received without charge between commonly controlled entities are not recorded.

Other related party transactions

Related parties include individuals who are members of key management personnel (KMP) or close family members of those individuals, and entities controlled by, or under shared control of, a member of KMP or a close family member of that individual. KMP are individuals having the authority and responsibility for planning, directing and controlling the activities of the Account. Related party transactions, other than inter-entity transactions, are recorded at the exchange value.

(g) Measurement uncertainty

The preparation of financial statements in accordance with Canadian public sector accounting standards requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and revenues and expenses during the reporting period. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant estimates are related to premium revenue and receivables, administration costs, benefit repayments, allowances for doubtful accounts, estimated overpayments and underpayments of benefits disclosed in Note 9, contingent liabilities and the amounts presented in Schedule II. Actual results could differ significantly from those estimates.

3. Adoption of new accounting standards

The Public Sector Accounting Board (PSAB) issued new accounting standards effective for fiscal years beginning on or after 1 April 2017.

As a result, the Account adopted the new accounting policy standard for inter-entity transactions (PS 3420). This new section establishes standards on how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective. The adoption of this new standard did not result in any financial impact on the Account's financial statements. Refer to Note 2(f) for the Account's inter-entity transactions accounting policy.

The Account also adopted the new accounting standards for Related party disclosures (PS 2200), Contingent assets (PS 3320) and Contractual rights (PS 3380). These new accounting standards only impact note disclosures. The adoption of PS 3320 and PS 3380 did not result in any additional disclosures. The adoption of PS 2200 required additional information to be disclosed. Refer to Note 12 for related party transactions disclosure.

4. Benefit overpayments, penalties and interest receivable

Overpayments on claims processed during the current and preceding years are detected through a verification process. These overpayments are accounted for by reducing the benefit expenses during the year in which they are established.

Penalties may be imposed on a claimant or an employer that provided false or misleading information. Interest is charged on outstanding employment insurance debts caused through misrepresentation and on penalties. The Act sets the maximum amounts that may be imposed in these cases.

An allowance for doubtful accounts is recorded for benefit overpayments, penalties and interest receivable. The allowance is estimated by aging the balance of the accounts receivable outstanding and applying varying percentages based on past recovery experience to the aging categories.

During 2017–2018, the Account charged a total $19.9 million ($17.2 million in 2016–2017) of interest. The interest revenue presented in the Statement of operations and accumulated surplus ($16.6 million in 2017–2018 and $14.7 million in 2016–2017) is net of interest charged on accounts receivable deemed unrecoverable ($3.3 million in 2017–2018 and $2.5 million in 2016–2017). The allowance for doubtful accounts was increased by this amount.

5. Other accounts payable

6. Financial assets and liabilities

The fair values of the premiums receivable, benefit repayments receivable from higher income claimants, benefits payable and other accounts payable are considered by management to be comparable to their carrying values because of their short term maturity. These financial assets and liabilities should either be received or paid in the next fiscal year.

Benefit overpayments, penalties and interest are usually recovered over a period longer than one year. As interest is only applicable to overpayments caused through misrepresentation and on penalties, and as the allowance for doubtful accounts reduces the carrying value, the benefit overpayments, penalties and interest receivable is assumed to approximate its fair value.

All of these financial assets and liabilities arose in the normal course of business.

7. Comparison of results against budget

The budget amounts included in the Statement of operations and accumulated surplus and Schedule I—Benefits and support measures are part of the amounts reported in the Employment and Social Development Canada's future oriented consolidated financial statements, which are included in the 2017–2018 Departmental Plan.

8. Premiums

Premiums for the fiscal year are collected and measured by the Canada Revenue Agency (CRA) based on amounts assessed and reassessed at the time of preparation of its financial statements and an estimate of premiums earned in the period but not yet assessed or reassessed. The Account holds a significant balance of premiums receivable and benefits repayments receivable from higher income claimants which are due from CRA. CRA collects premiums from employers, employees and from higher income claimants on behalf of the Account. The premiums receivable are cashed on a monthly basis based on the forecasted premium revenue and are adjusted when actual amounts are known. The benefit repayments receivable are cashed on a monthly basis based on the actual amounts received by CRA from the higher income claimants during the previous month.

Premium revenue of $21,533 million ($22,537 million in 2016—2017) includes an estimate of premiums earned in the fiscal year but not yet assessed or reassessed at the time of preparation of the financial statements. Fiscal year 2017–2018 includes $7,757 million in forecasted premium revenue for the 3–month period from January to March 2018 ($7,347  million in 2017), or approximately 35.17% (34.87% in 2017) of the total forecast premium revenue of $22,057 million for calendar year 2018 ($21,069 million for 2017), net of reductions and refunds. This estimate is based on the forecasted total insurable earnings of $612,873 million in calendar year 2018 ($597,694 million in 2017). The total insurable earnings forecasts are mainly dependent upon the projected growth in both employment (1.38% in 2018 and 1.03% in 2017) and average wages (1.74% in 2018 and 2.12% in 2017).

A variation in these assumptions would have an impact on the total insurable earnings forecasted and consequently, forecasted premium revenue. The sensitivity analysis below was determined based on changes to the respective assumptions while holding all other assumptions constant:

Actual premium revenue for calendar years 2017 and 2018 will only be known once the CRA has processed all employer declarations of premiums for these years. An adjustment for the difference between actual and estimated premiums will be recorded in the fiscal year in which the actual assessment or reassessment results are known. The difference between estimated and actual premium revenue for calendar year 2016, as known and recorded at the time of the preparation of these financial statements is a decrease in revenue of $188.0 million ($49.4 million decrease for calendar year 2015 in 2016–2017 financial statements).

For the 2018 calendar year, premium rate for each $100 of insurable earnings was set under section 66 of the Act at 1.66 (1.63 in 2017 and 1.88 in 2016) for the employees who were residents of provinces without a provincial plan. For employees who were residents of provinces with a provincial plan, the premium rate was 1.30 (1.27 in 2017 and 1.52 in 2016). The employers must pay 1.4 times the amount of the employee's premiums. The annual maximum insurable earnings for 2018 is $51,700 ($51,300 in 2017 and $50,800 in 2016).

Employment Insurance premiums include the employer's share of premiums paid by the federal government of $393.4 million ($412.6 million in 2016–2017).

9. Estimated overpayments and underpayments of benefits

The verification of claims is conducted both prior to and after claimants have begun to receive benefits, using a combination of up-front and automated control measures and post-payment verification activities.

In order to measure the accuracy of benefit payments, ESDC has a program in place which establishes an annual payment accuracy rate and estimates, through statistical extrapolation, the most likely value of incorrect benefit payouts.

For benefits paid during the twelve months ended March 31, 2018, these undetected overpayments and underpayments are estimated to be $677.5 million and $96.6 million respectively ($655.7 million and $219.1 million in 2016–2017). The annual payment accuracy rate (which is comprised of three error sources: claimant, employer and administrative) and estimated value of errors are used by ESDC to assess the quality of decisions and the need, if any, to improve its systems and practices of processing claims.

The overpayments established during the year, as indicated in Note 4, are not directly linked to the above noted estimated overpayments and underpayments of benefits for the same period.

10. Administration costs

11. Contractual obligations

The nature of the Account activities can result in some large multi-year agreements whereby the Account will be obligated to make future payments. Significant contractual obligations that can be reasonably estimated are summarized as follows:

Administration costs are charged to the Account in accordance with various memoranda of understanding (MOU) with related parties. The MOUs require written notification for cancellation and one of the more significant MOUs require one year advanced notification. Therefore, the administration costs disclosed are an estimation of the costs that will be charged to the Account in the next fiscal year. Administration costs are expected to continue to be charged to the Account in the upcoming fiscal years, but cannot be reasonably estimated at this time.

LMDA with eight of the provinces and territories require a two year notice for cancellation of the agreements. The obligations for 2020 cannot be reasonably estimated.

12. Related party transactions

The Account enters into transactions with federal government departments and entities in the normal course of business. Details of these transactions are provided in Note 5, Note 8, Note 10 and Note 11.

There were no significant transactions with key management personnel and their close family members that have occurred at a value different from which they would have been arrived at if the parties were unrelated.

The Account receives audit services without charge from the Office of the Auditor General of Canada. The value of these audit services are not material for the purpose of the Account's financial statements and have not been recorded.

13. Contingent liabilities

In the normal course of the operations, numerous appeals against or by the Commission are presently outstanding. The outcome of these appeals is not presently determinable. Any claims resulting from the resolution of these appeals will be accounted for as an expense in the period in which the outcome of the claim will be determinable. However, in the opinion of management, the result of these appeals should not have a significant impact on the operations of the Account as the total contingent liability amount is estimated at $27.6 million as at March 31, 2018 ($33.5 million in 2016–2017).

In 2011–2012, a class action was filed with the Federal Court seeking damages of $450 million plus interest. The representative plaintiff alleges that she was improperly denied sickness benefits for an illness, injury or disability suffered while on parental leave, despite an amendment in 2002 to the Employment Insurance Act. The proceeding has been certified as a class action. The final outcome of this claim is not determinable at this time and no liability has been recorded in the financial statements.

The estimates provided in this Schedule for calendar year 2017, which is prepared in accordance with Canadian public sector accounting standards are used by the Commission to establish the Employment Insurance premium rate for the following calendar year. The mechanism for setting the Employment Insurance premium rate is designed to ensure that revenues and expenditures break even over a seven year period.

Public Accounts of Canada 2017 Volume I—Bottom of the page Navigation

• Previous page: Consolidated specified purpose accounts
• Section 4—Table of contents: Section 4—Consolidated accounts as at March 31