Supplementary statement

Public Accounts of Canada 2020 Volume I: Top of the page Navigation

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Employment Insurance Operating Account

Management's responsibility for financial statements

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, the Canada Emergency Response Benefit Act as well as the Financial Administration Act and regulations.

The Auditor General of Canada, the external auditor of the 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 Employment, Workforce Development and Disability Inclusion.

The financial statements of the 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.

Graham Flack
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
October 2, 2020

Independent Auditor's Report

To the Minister of Employment, Workforce Development and Disability Inclusion

Opinion

We have audited the financial statements of the Employment Insurance Operating Account (the Account), which comprise the statement of financial position as at 31 March 2020, 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 notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Account as at 31 March 2020, 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.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Account in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the 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.

In preparing the financial statements, management is responsible for assessing the Account’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Account or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Account’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Account’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Account’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Account to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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

Ottawa, Canada
2 October 2020

Approved by:

Graham Flack
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, 2020

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 Canada (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.

On March 25, 2020, Bill C-13, an Act respecting certain measures in response to coronavirus disease 2019 (COVID-19 Emergency Response Act), received Royal Assent. Part 2 enacted the Canada Emergency Response Benefit Act to authorize the making of income support payments to workers who suffer a loss of income for reasons related to the COVID-19. Part 18 of the COVID-19 Emergency Response Act also amended the Act to provide the Minister of Employment, Workforce Development and Disability Inclusion with the authority to make interim orders for the purpose of mitigating the economic effects of COVID-19. The EI emergency response benefit (ERB) was created using this new authority and the EI ERB was added in the new Part VIII.4 of the Act. EI ERB are paid pursuant to Part III of 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, work-sharing agreements for temporary work shortages. They also include special benefits such as maternity, parental, sickness, family caregiver 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 $573 per week for the period from January to December 2020, and $562 per week for January to December 2019 ($547 per week for 2018). 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.

The Canada Emergency Response Benefit (CERB) provides financial support to employed and self-employed Canadians who are directly affected by COVID-19. CERB is jointly delivered by ESDC and CRA. ESDC delivered the Employment Insurance Emergency Response Benefit to provide a flat rate income support payments of $500 per week to workers who suffer a loss of income for reasons related to COVID-19 for EI claims received on or after March 15, 2020, in place of the regular EI benefits. Employment Insurance Emergency Benefit payments may be increased by an amount for family supplement for claimants who qualify as a low-income family with children. The Employment Insurance Emergency Response Benefit expenses, which are paid out of the Account, represent an estimate of the benefits earned by claimants relating to the fiscal year but not paid as of March 31 2020. CRA delivered CERB on behalf of ESDC to provide income support to claimants who are self-employed or part-time employees for less than 8 months. The benefits administered by CRA are paid out of the CRF and are not charged to the Account.

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 transfers' 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 a portion of Income benefits they receive. 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. Employment Insurance Emergency Benefit is not subject to these repayments.

(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 revenues and receivable, administration costs, Employment Insurance Emergency Response Benefit and benefits payable, benefit repayments, allowance for doubtful accounts, estimated overpayments and underpayments of benefits disclosed in Note 8, contingent liabilities and the amounts presented in Schedule II. Actual results could differ significantly from those estimates.

3. Benefit overpayments and penalties 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. The Act sets the maximum amounts that may be imposed in these cases.

An allowance for doubtful accounts is recorded for benefit overpayments and penalties 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.

Interest is charged on outstanding EI debts caused through misrepresentation. This includes overpayments and penalties. As per section 56.1(3) of the Employment Insurance Regulations, the rate of interest charged to EI claimants, employers or third parties on outstanding debts is equal to 3% above the average bank rate.

During 2020, the Account charged a total $27.6 million ($25.8 million in 2019) of interest. The interest revenue presented in the Statement of operations and accumulated surplus ($22.4 million in 2020 and $21.2 million in 2019) is net of interest charged on accounts receivable deemed unrecoverable ($5.2 million in 2020 and $4.6 million in 2019). The allowance for doubtful accounts was increased by this amount.

4. Other accounts payable

5. 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 and penalties 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 and penalties receivable is assumed to approximate its fair value.

Other than the impact of the COVID-19 pandemic on benefits payables, all financial assets and liabilities arose in the normal course of business.

6. 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 Employment and Social Development Canada's future oriented consolidated financial statements, which are included in the 2019–20 Departmental Plan.

7. Premiums receivable and revenues

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 $22,637 million ($22,698 million in 2019) 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 2020 includes $7,217 million in forecasted premium revenue for the 3–month period from January to March 2020 ($7,750 million in 2019), or approximately 33.21% (34.40% in 2019) of the total forecast premium revenue of $21,732 million for calendar year 2020 ($22,529 million for 2019), net of reductions and refunds. This estimate is based on the forecasted total insurable earnings of $637,847 million in calendar year 2020 ($642,776 million in 2019). The total insurable earnings forecasts are mainly dependent upon the projected growth in both employment (-4.73% in 2020 and 0.85% in 2019) and average wages (2.64% in 2020 and 3.05% in 2019).

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 2019 and 2020 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 2018, as known and recorded at the time of the preparation of these financial statements is an increase in revenue of $336.8 million ($103.8 million decrease for calendar year 2017 in 2019 financial statements).

For the 2020 calendar year, premium rate for each $100 of insurable earnings was set under section 66 of the Act at 1.58 (1.62 in 2019 and 1.66 in 2018) 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 set at 1.20 for 2020 (1.25 in 2019 and 1.30 in 2018). The employers must pay 1.4 times the amount of the employee's premiums. The annual maximum insurable earnings for 2020 is $54,200 ($53,100 in 2019 and $51,700 in 2018).

Employment Insurance premiums include the employer's share of premiums paid by the federal government of $417.4 million ($403.5 million in 2019).

8. Estimated overpayments and underpayments of income 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 income 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, 2020, these undetected overpayments and underpayments are estimated to be $862.6 million and $193.2 million respectively ($605.8 million and $135.3 million in 2019). 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 3, are not directly linked to the above noted estimated overpayments and underpayments of benefits for the same period.

9. Administration costs

10. 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 one territory require a two year notice for cancellation of the agreements, other provinces and territories require a one year notice. The obligations for 2022 cannot be reasonably estimated.

11. 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 4, Note 7, Note 9 and Note 10.

There have not been any significant transactions with key management personnel and their close family members occurring at a value different from that at which the transaction would have taken place had the parties not been related.

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.

12. 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 $23.4 million as at March 31, 2020 ($33.4 million as at March 31, 2019).

13. Subsequent event

In March 2020, the World Health Organization classified the outbreak of COVID-19 disease as a global pandemic. In response, the government enacted emergency measures to combat the spread of the virus and announced the COVID-19 Economic Response Plan to help stabilize the economy during the pandemic.

The emergency measures introduced by the government are intended to protect the health and safety of Canadians and provide direct support to Canadian workers and businesses. The impact of the measures for which accounting recognition criteria were met prior to March 31, 2020, are recognized in these financial statements

The most significant of these measures is the Canada Emergency Response Benefit (CERB), of which EI eligible expenditures were paid out of the Account as Employment Insurance Emergency Response Benefit. This taxable benefit is an amount of $500 per week for up to 16 weeks for EI eligible Canadians. Subsequent to March 31, 2020, it was announced that the benefit would be extended to a maximum of 28 weeks.

As a result of the economic impact of the COVID-19, on September 14, 2020, the Government of Canada used its authority under the Act to temporary limit the change in the premium rate to zero for 2021 and 2022 in order to freeze the EI premium rate at the 2020 level. The Government of Canada also confirmed that it will be crediting the Account for the costs related to the CERB

Major government announcements including the Speech from the Throne in September 2020 and legislation introduced in Parliament authorizing new spending measures from April 1, 2020 onward will have an impact on the financial statements. As this pandemic is ongoing and the government response is continuing to evolve, the government is unable to determine the impact on the financial results of future years. The effects of the pandemic will continue into the foreseeable future, and the government continues to assess and monitor the effects on its financial condition, and provide regular updates on its financial results through regular reporting processes and periodic economic and fiscal updates.

The estimates provided in this Schedule for calendar year 2019 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