To ensure that liabilities existing at the fiscal year-end for
work performed, goods received, services rendered, transfer
payments and other items are recorded in the accounts and
financial statements of Canada.
It is the policy of the Government of Canada to record
liabilities to outside organizations and individuals incurred up
to and including March 31st in each fiscal year and to charge
them to existing appropriations or provide for them through a
central provision for valuation.
This policy applies to all federal government organizations
considered to be departments within the meaning of Section 2 of
the Financial Administration Act.
Departments and agencies must identify and quantify
liabilities to outside organizations and individuals resulting
from operations up to and including March 31st in each fiscal
year. In the absence of certainty, estimates must be used to
determine the amounts of liabilities, as long as reasonably
accurate values can be assigned.
Liabilities that exceed designated materiality limits must be
charged to a relevant lapsing or non-lapsing appropriation and
recorded in the appropriate liability account. If this is not
possible the liabilities must be reported to the Treasury Board
Secretariat.
Liabilities must be charged to appropriations even if they
cause the appropriation to be overexpended.
Settlement of recorded liabilities must be charged to the
appropriate liability account. Where a settlement exceeds the
recorded liability, the excess must be charged to a current-year
appropriation. Where the recorded amount exceeds the settlement,
the excess must be credited to current-year non-tax revenue.
Subject to direction of the Treasury Board, liabilities to
organizations and individuals outside the government entity which
are charged to existing appropriations under this policy must
remain recorded until settled or for as long as the liability
exists.
Amounts owing between organizations of the Government of
Canada must be recorded against appropriations as specified by
this policy.
Where the limit of an appropriation is overexpended by
recording these liabilities or for any other reason, a reserved
allotment for the amount of the excess must be established
against the equivalent appropriation in the following fiscal
year.
Technical requirements for identifying, quantifying, recording
and reporting liabilities are contained in Appendix A
attached.
Monitoring of the PAYE process will normally be accomplished
by the interaction of departmentally established internal
controls and the internal and external audit functions, and by
scrutiny of the central accounts maintained by the Receiver
General. If needed, the Treasury Board Secretariat may require
departments to report relevant data for monitoring the PAYE
process.
This policy is issued under the authority of Sections 9, 37,
63 and 64 of the Financial Administration Act.
Cancellation
This chapter cancels chapter 6-4 of the "Financial Management"
volume dated December 31, 1991; and the previous policy on PAYE,
contained in Chapter 9, Section 13 of the Treasury Board Guide
on Financial Administration for Departments and Agencies of the
Government of Canada is superseded by this policy.
Enquiries concerning this policy should be directed to your
departmental headquarters. For interpretation of this policy,
departmental headquarters should contact:
Comptroller Sector
Program Branch
Treasury Board Secretariat
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
Liabilities
Liabilities are financial obligations to outside organizations
and individuals as a result of transactions and events occurring
on or before the accounting date, that is, March 31. They are the
result of contracts, agreements and legislation in force at the
accounting date that require the government to pay for goods and
services acquired or provided on or before the accounting date.
They also include obligations for certain transfer payments.
Liabilities for transfer payments are recognized in the period
that the events giving rise to the transfer occurred,
provided:
- a liability exists;
- the transfer is authorized;
- eligibility criteria, if any, have been met by the recipient;
and
- a reasonable estimate of the amount can be made.
These definitions are in general accordance with accounting
and reporting principles recommended for governments by the
Public Sector Accounting and Auditing Committee of the Canadian
Institute of Chartered Accountants. However, the Government's
appropriation, accounting, and reporting policies and practices
impose some special criteria for defining and recording
liabilities. These criteria are incorporated in these technical
requirements.
Liabilities to be considered under this policy do not include
items that are recorded through other departmental or central
procedures such as vacation pay, accrued sick leave, termination
benefits, and pension obligations.
Liabilities do not include commitments for payments resulting
from transactions and events occurring after the fiscal year-end
date.
Recording liabilities in the accounts
Liabilities determined under the terms of the policy must be
charged to an existing departmental appropriation (if there is
one) pursuant to section 37(1) of the Financial Administration
Act. Liabilities must be charged to the relevant
appropriation even when the appropriation has been, or will be
over-expended.
If there is no existing departmental appropriation against
which the liability may be charged, and the liability exceeds
designated materiality limits, it will be recorded through the
Treasury Board Secretariat.
Because liabilities accrued under PAYE related to lapsing
appropriations represent approved spending authority, accurate
measurement of the use, or non-use of this authority is
essential. To permit identification of recorded amounts for
measuring use of this authority, liabilities related to lapsing
appropriations must be determined on the basis of individual
debts. For non-lapsing authorities, the use of appropriation
authority is not restricted to a period and the PAYE process is
primarily intended to measure amounts incurred during the period.
Therefore, liabilities related to non-lapsing authorities may be
calculated by group or class of recipient, as long as reasonably
accurate values can be assigned.
Amounts accrued under this policy must be recorded in the
accounts of Canada in designated liability accounts. They must
remain recorded as liabilities until:
- they are paid or otherwise settled;
- they cease to be liabilities; or
- they are cancelled by the expiry of any time limit or other
direction of the Treasury Board; or
- in the case of non-lapsing authorities only, they are
reversed against the subsequent year's appropriation.
Liabilities to be charged to existing appropriations
For liabilities to be accrued and charged to
appropriations:
- there must be an existing departmental appropriation to which
the amount may be legitimately charged;
- as at March 31,
- the work has been performed;
- the goods have been received;
- the services have been rendered; or
- the amount is owing in accordance with a contractual
arrangement or other enforceable agreement entered into on or
before March 31;
- the amount:
- meet stated materiality limits;
- can be substantiated and valued;
- can be identified with subsequent payments or
settlements;
- is expected to be paid in subsequent fiscal years;
- the charges to the appropriation must be fully codable;
- the accounting entries can be input before the accounting
deadlines established for the particular fiscal year-end.
Liabilities for transfer payments must be recorded if:
- the above criteria are met where applicable;
- the transfer is authorized; and
- any required eligibility criteria are met.
In the absence of certainty, estimates must be used to
determine the amounts of liabilities where the above criteria are
met, as long as reasonably accurate values can be assigned.
Other liabilities
Liabilities that cannot be charged to an existing departmental
appropriation must be reported to the Treasury Board Secretariat
for possible recording as a general liability, provided
materiality requirements are met.
General use of this provision is not expected as there should
be few liabilities that cannot be applied against existing
lapsing or non-lapsing appropriations.
Interdepartmental amounts (PAYE-OGD)
Amounts owing between government organizations should be
billed and settled through the interdepartmental settlement
process in the fiscal year in which they were incurred. However,
due to the short time available at the fiscal year-end, debtor
departments may not receive billings in time to make these
settlements.
In these circumstances departments must charge or credit the
amounts unilaterally to their own appropriations, using offset
accounts assigned to them by the Receiver General. Debtors should
not rely solely on creditor billings to establish their PAYE-OGD
entries. If invoices are not available, the amounts should be
determined by reference to internal data or information from the
creditor. Disputed amounts should be recorded at the amount of
the expected settlement. The amounts must be auditable.
Only amounts that fit the above criteria for "Liabilities to
be charged to existing appropriations" can be accrued. This
process is intended for recording OGD (Other Government
Departments) receivables and payables related to appropriations.
It must not be used for accrual of receivables related to non-tax
revenues.
PAYE-OGD amounts charged or credited to appropriations must
remain recorded until they are settled or cease to exist. When
prior year accruals are deleted from OGD accounts:
- debtors must reverse them to "Non-tax Revenue-Adjustments to
Payables at Year-End (PAYE)".
- creditors must charge them to the successor or equivalent
appropriation.
Materiality limits
Liabilities to be charged to an appropriation must be accrued
if they exceed the lesser of $5,000 or one-half of one percent of
the appropriation authority. Lesser amounts may be accrued at the
discretion of each department.
Liabilities to be reported to the Treasury Board Secretariat
should exceed $100,000.
Settlement and adjustment of PAYE liabilities
Lapsing authorities
For lapsing authorities, payment of amounts accrued under this
policy must be charged against the liability account in which
they are recorded. If a liability was not set up in the old year,
it can only be paid out of, or charged against, a new-year
appropriation.
The amount to be charged to the PAYE liability account is the
lesser of the amount recorded as payable or the actual
payment.
If the settlement is higher than the amount accrued, the
difference must be charged to the new-year appropriation.
If the settlement is less than the amounts accrued, the
difference must be credited to the non-tax revenue account
"Adjustment to Payables at Year-End (PAYE)". This amount will not
be available for spending in the new year except where a reserved
allotment for over-utilization has been established. In this
case, amounts over-estimated or accrued in error may be available
for spending in the new year provided that Treasury Board
approval is obtained.
Non-lapsing authorities
Settlements of amounts set up against non-lapsing
appropriations are not dependent upon the authority retained
through the PAYE process. Therefore, where PAYE amounts were set
up against non-lapsing authorities, they may be treated in either
of the following methods, at the department's option:
- payments may be charged to the PAYE liability account
established; or
- the liabilities set up may be reversed against the subsequent
year's appropriation and any payments charged to the
appropriation.
General
Payment of liabilities can only be charged against a
ministry's voted or statutory appropriations or the authority
carried forward in it's PAYE liability account. If there is no
such existing authority, it must be obtained before payment can
be made.
Carry forward of recorded liabilities
The Financial Administration Act permits the Treasury
Board to specify the period during which payment of PAYE
liabilities is allowed. Since no time limit has been specified,
unsettled liabilities related to lapsing authorities must be
carried forward until they cease to exist. This can occur for one
or more of the following reasons:
- the amount is paid or otherwise settled;
- the amount was overestimated or was accrued in error;
- the amount was forgiven;
- the amount became unenforceable through legal decision, or
action of legislation including any applicable statute of
limitations;
- the amount was settled by means other than payment such as
set-off against amounts owed to the Crown.
Removal of liabilities from the accounts
Recorded amounts that cease to be liabilities must be cleared
from the accounts before the end of the fiscal year in which they
cease to be liabilities. They must be credited:
- to the non-tax revenue account "Adjustment of Prior Year's
PAYE" for amounts charged to lapsing or expired
appropriations;
- to a revolving fund if the amount was originally charged
against a revolving fund authority; or
- to the non-lapsing authority against which the original debt
was charged.
Disputed amounts
Where the amount of a liability is in dispute, the best
available estimate should be accrued. Only if there is
significant or total rejection of the product or performance
related to the claim should no amount be recorded.
If there is a significant difference between the claim of a
creditor outside the entity and the amount accrued, reporting it
as a contingent liability must be considered. The annual Public
Accounts instructions contain the requirements for reporting of
contingent liabilities.
Special items
Goods and services tax
The policy on Goods and Services Tax (GST) requires that it
should be recorded only at the time of payment. Therefore GST
must not be included as part of the liability set up under
PAYE.
Work, goods and services
At the end of a fiscal year, appropriations are to be charged
with all outstanding debts arising from work performed, goods
received and services rendered on or before March 31.
The value of work performed and service rendered is determined
on the basis of performance up to and including March 31 and
billings or estimates of the debt owing for that performance. The
value of goods received is more complex as it involves ownership
of the goods.
Ownership can be interpreted as physical control or possession
(actual or constructive) of the goods that leads to a legal
liability to pay the supplier. If ownership is obtained by March
31, and inspection has determined that the goods are acceptable,
the goods are considered to have been supplied by the accounting
date and their value must be set up as a debt.
If physical control and title to the goods have not passed to
the Crown, only outstanding payments for work-in-process
completed to March 31 can be accrued as a debt, and then only if
the purchase contract provides for the payment(s).
In the case of large, long term contracts for supply of works,
buildings, major systems or equipment where physical ownership
has not been transferred, calculation of liabilities should be
based on the percentage of work completed which has not been
paid. Acceptance or non-acceptance of work or product completed
should be taken into account in determining the amount to be
recorded, but only significant or total rejection of the product
or performance should be considered as cause for not recording a
liability. Otherwise, the best estimate available should be
used.
Transfer payments
Transfer payments are transfers of money from the
government to an individual, an organization or other government
for which the government making the transfer does not:
- receive any goods or services directly in return, as in a
purchase/sale transaction;
- expect to be repaid in the future, as in a loan; or
- expect a financial return, as in an investment.
Generally liability for transfer payments is determined on the
basis of the government's obligation to make the payment and the
entitlement of the recipient to receive payment.
Liabilities for transfer payments should be recorded if
- the Government has Parliamentary approval;
- the transfer is authorized;
- the recipient has met the eligibility criteria, if any;
- the amount is quantifiable and has not been paid; and
- any specific criteria required for accrual of the particular
type of transfer payment are met.
Grants are transfer payments for which the government
has discretion whether or not to pay. Although legislative
authority has been granted to make the payment, no obligation to
pay exists until the grant is approved. For this reason, there is
no liability to be recorded at the year end, except:
- when final supplementary estimates contain grant items and
specify that the items are deemed to have been made in-and are
chargeable to-the fiscal year just ended, the amounts may be paid
out of supplementary period cheque issue or accrued as
liabilities provided they have been approved; or
- for grants approved by Parliament when a commitment has been
made by an authorized person, and is properly approved for
payment before the end of the fiscal year; and
- when the entitlement of the recipient has been
established.
For certain continuing benefit programs, such as Old Age
Security, although entitlements are established and exist until
they are cancelled, such entitlements actually remain valid only
on a month to month basis. Eligibility is considered to come into
existence on the first day of the month in which it is paid.
Therefore, at the end of any one month, including the fiscal
year-end, no eligibility exists which would create a liability to
be recorded. For this type of payment, a liability should be
recorded only when eligibility for a retroactive payment has been
verified and quantified by the accounting date but not paid.
Contributions are paid under contractual arrangements.
For a contribution payment to be recorded as a payable at
year-end, the following conditions must be met:
- if the payment is a reimbursement of expenditures made by the
recipient by March 31, the amount is determined either by
reference to a payment claiming document or by an estimate made
on the basis of consultation with the recipient or program
officer. A record of correspondence, conversations, rationale and
calculations used to make an estimate must be prepared and kept
available for audit;
- if the payment is a scheduled payment (i.e. the date and
amount are specified in the contractual arrangement) the amount
must be set up if it is due but unpaid by March 31;
- in all other cases, either entitlement of the recipient to be
paid must be established and quantified, that is, a claim for
payment must be received to establish entitlement under the
agreement, or if it is an advance, it must be due under terms of
the agreement.
When the liability for a contribution is accrued, the
appropriate program officer must be satisfied with the
reasonableness of the charge to the appropriation.
Salaries
Amounts incurred by March 31 and to be paid after that date
for salaries and wages, overtime, retroactive wage and salary
settlements, and other entitlements for items such as
compensatory leave, extra duty, shift work and lay days for ships
crews are debts and therefore must be accrued under the
requirements of this policy.
Retroactive salary settlements
Retroactive salaries determined by contract agreements
negotiated but not paid on or before March 31 are deemed to be
debts under the following conditions:
- When salary contract agreements have been ratified and signed
before March 31, the retroactive amounts incurred under the
agreement must be charged to the appropriation to the extent they
satisfy PAYE requirements for recording debts.
- If the contract agreements have been ratified but not signed,
the amounts must be accrued, but only upon direction of the
Treasury Board Secretariat. Calculation of the accruals may be
done by either departments or agencies or the Treasury Board
Secretariat as required by the situation.
Retroactive salary accruals are normally calculated by Supply
and Services Canada. If this is done in time to enter the data
before the PAYE year-end cut-off, the transaction will be treated
as follows:
- Retroactive salaries processed for payment during April by
the close-out of the old-year pay master are automatically
charged to old-year appropriations by the pay system. No
additional action is required of departments and agencies.
- Retroactive salaries processed for payment after the
close-out of the old-year pay master are charged to the new-year
appropriation by the pay system. Based on the pay information
provided by Supply and Services Canada, departments are able to
identify the portion of the retroactive salaries applicable to
each fiscal year. Departments are then required to charge the
portion applicable to the old fiscal year to that year's
appropriation and to ensure the amounts accrued are deleted from
the new-year appropriation.
If the liability for retroactive salaries cannot be input into
the accounts before the established input cut-offs and they
exceed designated materiality limits, the amounts must be
reported to the Treasury Board Secretariat for central
accrual.
Other pay accruals
Accrual of amounts for overtime, shiftwork, extra-duty and
other items related to work performed by an employee before March
31 and to be paid after that date must be accrued on the basis of
application documents and should be only for amounts not
automatically charged to the old year through the pay system or
accrued centrally.
Amounts owing but not yet paid for severance and separation
payments to individuals who have been struck off strength by
March 31st must also be accrued.
Salary transfers
Salary amounts owing between departments as at March 31 as a
result of secondments or transfers of employees that cannot be
settled through the interdepartmental settlement process before
applicable cut-off dates may be recorded through PAYE-OGD.
Advance payments
An advance payment can be a liability only by virtue of a
contractual arrangement and must not be confused with progress
payments, which are made on the basis of actual or estimated work
performed.
For an advance payment to be recorded as a payable at
year-end, the following conditions must be met:
- must be required under the terms of a contractual
arrangement; and
- if it is a scheduled payment, the amount must be due on or
before March 31, or
- if it is based on estimates or forecasts prepared by the
other party, the documentation supporting the request for the
advance must be received by the department or agency on or before
March 31, because the amount becomes payable only on receipt of
the estimate or forecast.
Holdbacks
Where there is a holdback element in liabilities determined
under PAYE, the holdback amount should be recorded in the PAYE
liability accounts.
Issuing of loans
Loans are subject to this policy because they are payable
under a contractual arrangement. The wording of the loan
agreement establishes the conditions under which a payment is
required to be made. The amount must be accrued and charged to
the old-year appropriation if the conditions under the
contractual arrangement are met by March 31.
Real property
Where the transaction involves the transfer of real property
that is already held in the name of the Crown, the amount owing
is to be recorded as a payable at year-end if by March 31:
- the parties have agreed on the terms and conditions; and
- final Treasury Board and Governor in Council approval has
been obtained, where required.
Where the transaction involves the acquisition of real
property that is not already held in the name of the Crown, the
amount owing is to be recorded as a payable at year-end if:
- as of March 31 there was a binding agreement of purchase and
sale;
- all required approvals (Ministerial, Treasury Board, etc.)
are obtained by March 31; and
- by the final date for recording payables at year-end, title
search has been completed or the period for raising objections
has expired.
Where the amount owing has been recorded as a payable at
year-end, payment is to be charged to a liability account in
which the debt was set up (see "Settlement and adjustment of PAYE
liabilities", above). Under no circumstances are cheques to be
requisitioned other than immediately prior to the closing
date.
Crown corporations
For the purpose of this policy, Crown corporations are
considered to be outside the entity and ordinary debts to them
should be treated in the same manner as debts to any other
outside party. Appropriations granted for funding those
corporations are treated as follows:
- For corporations using the Consolidated Revenue Fund for
their banking operations, amounts for liabilities may be charged
to the funding appropriation in accordance with PAYE policy
requirements applicable to departmental operating
appropriations.
- For corporations not using the Consolidated Revenue Fund for
their banking operations, amounts may be charged to the funding
appropriation for amounts due and payable to the corporation at
the accounting date, billed before the PAYE cut-off date and in
accordance with the Government's cash management policies.
The following are required to be recorded in the Accounts of
Canada through PAYE;
- amounts owing to a Crown corporation as at March 31st
by the Government of Canada in accordance with the terms of a
contribution arrangement;
- amounts owing to a Crown corporation as at March 31st
by the Government of Canada under the provisions of a vote which
specifically provides for the reimbursement of expenditures made
or expenses or costs incurred by the corporation, as the case may
be;
- amounts owing to a Crown corporation as at March 31st
by the Government of Canada in respect of program, operating or
capital expenditures incurred by the corporation to March
31st;
- amounts payable as at March 31st by a Crown
corporation that are chargeable to a vote for program or
operating expenditures which it is required to pay from funds
appropriated by Parliament;
- amounts to which the Crown corporation is entitled under its
vote wording.
Appropriations are granted to ministries and therefore
responsibility for recording amounts payable to a Crown
corporation usually resides with the ministry concerned. However,
where responsibility and signing authority for the appropriation
has been delegated to the corporation, the corporation is
responsible for recording debts under the policy.
Ex gratia payments
An ex gratia payment is one for which the government
recognizes no liability. Therefore, no liability can be normally
be accrued.
Nugatory payments
A nugatory payment is one where no value or service has
been received but for which a liability is recognized. The amount
should be recorded if all required authorization for payment is
obtained before March 31.
Specified purpose accounts
For the purposes of this policy, liabilities will not be
accrued against these accounts. However, the revenues and
expenditures of certain of these accounts are reported with those
of the government. Any accruals needed for reporting these
amounts will be separately obtained as required.
Signing authorities
Accrual of liabilities results in a charge to an
appropriation, and subsequently a payment may be made out of the
Consolidated Revenue Fund. Section 33 certification of
requisitioning authority is required when the debt is charged
against the appropriation and again when the debt is settled.
This permits financial officers to review the legality of the
transaction and to exercise the appropriate controls in both
instances. Where PAYE is not used and both the payment and the
charge to the appropriation are effected by a payment
requisition, section 33 is required only once.
Section 34 certification for performance or compliance with
contract is required at the time the appropriation is charged.
For an estimated debt, an "interim" certificate under section 34
must be provided at the time the appropriation is charged with a
debt, and a "final" certificate provided when the debt is
settled.
For accrual of transfer payments, certification under section
34 is not required, because that section relates specifically to
work performed, goods supplied or services rendered. Instead,
where an amount is being accrued, a signature must be obtained
from the person authorized by the appropriate minister to approve
payment of such amounts, certifying that the recipient is
entitled to the amount being charged to the appropriation, or in
the case of an estimate, that the amount is reasonable.
Over-utilization of appropriations and allotments
Appropriations
Where the limit of an appropriation is exceeded, the
Financial Administration Act requires that the subsequent
year's appropriations should be reduced by the amount of the
overspending.
This process is controlled by establishing a reserved
allotment for the amount of the excess against the equivalent
appropriation and the equivalent allotment in the subsequent
fiscal year. This is a mandatory reserved allotment established
by legislation rather than management and restricts the use of
spending authority granted by Parliament in the following fiscal
year. It is required to compensate for the over-utilization of
the old-year appropriation authority, and must be established
when the excess has been determined. This reserved allotment must
be approved by the Treasury Board, since its establishment will
require adjustments to new-year allotments previously authorized
by them.
When there is no identifiable equivalent or successor
appropriation in the following fiscal year, parliamentary
authority must be obtained to permit payment.
Subject to Treasury Board approval, the reserved allotment may
be reduced by the amount of over-utilization caused by an
overestimate of debts established under the prior year's
PAYE. The remainder of the reserved allotment represents overuse
of the prior year's lapsed authority which must be compensated
for by the reduction of the following year's spending authority.
The subsequent year's authority reported in the Public Accounts
as a part of the source and use of authority must be reduced by
the final balances of any frozen allotments established for the
year.
An overestimated debt can contribute only once to an
overexpenditure. If a reserved allotment contains an
overestimated PAYE debt which is not discovered until the
following fiscal year, the reserved allotment may be reduced at
that time.
Many appropriations do not lapse or do not have a legislated
spending ceiling. These authorities cannot be exceeded and
therefore are not subject to these requirements for reporting or
creating reserved allotments for exceeding appropriation
authority.
Allotments
Where an allotment within an old-year appropriation is
exceeded by recording payables at year-end, but the appropriation
as a whole has not been exceeded, the department or agency
concerned must obtain authority from the Treasury Board to make
old-year allotment transfers within the vote so the unused
authorities of other allotments within the vote can be used to
cover the over-utilization of the allotment.
Reporting
Departments and agencies that have exceeded their
appropriations must provide to the Treasury Board Secretariat, in
writing, the reasons that led to the appropriation authority
being exceeded and, if applicable, the corrective measures
undertaken to prevent future over-utilization. Unless otherwise
specified, this must be done no later than August 31st of the
subsequent fiscal year.
All departments and agencies that have exceeded an
appropriation or an allotment must report such excess to
Estimates Division, Program Branch of the Treasury Board
Secretariat together with a request for establishing any required
allotment adjustments.
Operating procedures
Departments and agencies must establish systems and operating
procedures that will enable them to identify and record all the
debts that are subject to this policy. In addition, the financial
control systems, especially the commitment control system, should
ensure that there is no over-utilization of appropriation
authority.
Procedures to be used to record old-year payments and payables
in the accounts of Canada are contained in instructions issued by
the Receiver General.
|