2016–2017 Livestock Financial Protection Board annual report
1. Chair's message
July 27, 2017
The Honourable Jeff Leal
Minister, Agriculture, Food and Rural Affairs
77 Grenville St., 11th Floor,
Toronto, Ontario M7A 1B3
Dear minister,
Pursuant to section 6(1) of the Farm Products Payment Act, I am pleased to submit a report describing the work of the Livestock Financial Protection Board for the year ending March 31, 2017, for tabling in the legislature. This report has been prepared in compliance with the Agencies & Appointments Directive.
As a board, we continue to focus on administering the fund for livestock producers, adjudicating claims, granting or refusing the payment of all claims and recovering any money to which the board is entitled. As fund administrator, one of our goals is to ensure long-term sustainability of the fund. Once again the fund's investment strategy performed well and helped the fund maintain both a healthy and stable funding ratio.
The following are some highlights for the 2016/17 fiscal:
- The fund remained actuarially sound with a balance of $7.35 million ($2.05 million above the actuarial target of $5.30 million).
- Investment income of $237,478.
- Rate of return on investment of 3.35%.
- Debt recovery rate 33.2%, 3.2% higher than our target rate.
In the 2016/17 fiscal the board received no claims for compensation from livestock sellers.
The board received the minister's mandate letter in November 2016 and shall report results against the given expectations in the 2017–18 annual report.
Respectfully submitted,
Larry Witzel
Chair, Livestock Financial Protection Board
2. Overview/mandate
The Ontario Beef Cattle Financial Protection Program (program) was established in 1982 and provides compensation to sellers
The program has two components: (1) the annual licensing of dealers under the Livestock and Livestock Products Act (LLPA), and (2) the administration of the compensation fund established under the Farm Products Payment Act (FPPA).
The Ministry of Agriculture, Food and Rural Affairs (ministry) is responsible for the licensing of dealers. The Livestock Financial Protection Board's (board) primary role is to administer the fund for livestock producers (fund). The board is established under the authority of section 3 of O. Reg. 560/93 — Fund for Livestock Producers, made under the FPPA. It is also classified as a board-governed provincial agency (trust) under the Agencies & Appointments Directive (AAD). Trust agencies administer funds and/or other assets for beneficiaries named under statute. The functions of the board are outlined in section 4(1) of the FPPA as follows:
- to administer its funds
- to investigate all claims made to it under the FPPA and to determine the extent of their validity
- to grant or refuse the payment of all claims or any part thereof and determine the amounts and manner of payment
- to recover any money to which it is entitled under the FPPA by suit in a court of competent jurisdiction or otherwise
There are 171 licensed dealers and approximately 19,000 beef farmers (including milk producers who market veal calves, bulls, and culled dairy cattle for slaughter purposes) subject to the FPPA and the LLPA.
The fund for livestock producers
All money to which the board is entitled is paid into the fund. Contribution to the fund is based on a fixed rate per head of livestock in a transaction. Under O. Reg. 321/11 — Fees Payable to Boards (O. Reg. 321/11), a fee of ten cents per head of cattle sold is payable to the board, unless the sale is on consignment, in which case the ten cent fee is owed by each of the consignee and consignor.
Fees are remitted by the buying dealer on behalf of the producer when the sale is made directly by a producer, by the selling dealer when the sale is by a dealer, and by the consignee on behalf of the consignor and on their own behalf, where the sale is on consignment. Fees are payable on or before the 15th day of the month following the month of sale unless less than 1,000 head are sold or purchased annually, in which case the fee is payable annually.
The fund is used to:
- Provide compensation to qualified sellers in the event that certain buyers default on payment.
- Offset the cost of determining financial responsibility of dealers as part of the licensing component of the program.
- Pay board expenses (other than for the remuneration of those of its employees who are public servants employed under Part 111 of the Public Service of Ontario Act, 2006)
footnote 3 . - Pay for professional, technical or other assistance to or on behalf of the board.
A claim may be made if a seller hasn't been paid according to the timelines in the regulations, if the buyer has ceased operation, or if the buyer's assets have been placed in the hands of a receiver or trustee. O. Reg. 560/93 lays out discretionary grounds under which a claim may be denied. Examples of grounds for refusing payment include the claimant extending credit to the buyer; the director under the LLPA not being notified promptly where payment was not received on time, and the claim not being submitted on time.
The program provides
Protection for producers
If the board decides that a claim from a producer made in respect of a dealer is valid, the board pays 95% of the portion of the claim that it recognizes as valid.
Protection for licensed dealers
Where an approved claim relates to a licensed dealer selling to a producer or feeder cattle finance co-operative who defaults on payment, compensation is 85% of the portion of the claim that the board recognizes as valid, up to a maximum of $125,000. In these cases, there is no compensation for claims of less than $5,000. Where an approved claim relates to a licensed dealer selling to another licensed dealer, the board pays 95% of the portion of the claim that it recognizes as valid.
3. Board appointments
Section 4(1) of O. Reg. 560/93 requires that the board be composed of at least five members consisting of one member each from Beef Farmers of Ontario (BFO), Canadian Meat Council (CMC) and the operators of community sales under the Livestock Community Sales Act, together with such other members as the minister considers advisable.
The regulation also requires the minister to appoint a chair and a vice chair from among its members. The board operates at arm's length from the government but is accountable to the government in exercising its mandate. The members of the board are appointed by the minister. These individuals, in addition to administering the fund, draw upon their expertise in the livestock industry in hearing and adjudicating cases before them. The board may also call upon technical experts and professionals to provide assistance.
As at March 31, 2017, there were seven board members which included a chair and vice chair. The CMC position has been vacant since 2008, and while the board has been in contact with the CMC with regard to having a member appointed, to date the CMC has not submitted any candidates. Every attempt is made to appoint female candidates to the board to comply with the Ontario government target that, by 2019, women make up at least 40% of all appointments to every provincial board and agency. Women currently make up 1 out of 7 members of the board.
The table below shows the names of appointees for fiscal 2016/17 and the term of their appointments.
| Name | Organization | Date appointed | Expiry date |
|---|---|---|---|
| Mr. Larry Witzel Chair | Ontario Livestock Auction Markets Association | April 17, 2007 | April 17, 2018 |
| Mr. Gerry Houtzager | Ontario Independent Meat Packers | April 13,2015 | April 13, 2018 |
| Mr. Paul Sharpe Vice chair | Beef Farmers of Ontario | November 30, 2007 | December 2, 2018 |
| Mr. Kevin McArthur | Ontario Livestock Dealers Association | July 18, 2011 | July 18, 2017 |
| Mr. Dan Darling | Beef Farmers of Ontario | April 23, 2015 | April 23, 2018 |
| Mr. Murray Allen | Dairy industry | September 5, 2008 | September 5, 2017 |
| Ms. Jennifer Haley | Veal industry | October 6, 2008 | October 6, 2018 |
Five members of the board constitute a quorum for transacting the board's business. The board is made up of industry representatives from a wide range of livestock industry sectors. This broad industry knowledge is important in understanding the clientele and the claim files.
4. Board staff and key activities
In the 2015/16 fiscal year the ministry undertook a competitive procurement process to secure a delivery agent to provide the:
- Ministry with assistance in administering the licensing component of the Ontario Beef Cattle Financial Protection Program.
- Board with fund investment and administrative and adjudication support.
The Beef Cattle Financial Protection Program Inc. (BCFPPI) was ultimately the successful proponent. The tripartite contract entered into between the ministry, the board and BCFPPI is for a three year term with an additional two year optional term. BCFPPI is a not-for profit corporation governed by a board of directors. The board of BCFPPI has representatives from the BFO, Ontario Livestock Dealers Association, and Ontario Livestock Auction Markets Association. The contract will end December 31, 2020.
BCFPPI acts as the board's administrator and is responsible for assisting the board in preparing its annual report, business plan and other documentation required for compliance with the Memorandum of Understanding (MOU) and the Agencies & Appointments Directive. The board has delegated day to day management of the fund to BCFPPI. This includes receiving and depositing check-off fees; preparing monthly, quarterly and annual financial statements, preparing documentation for annual audits and investment of the fund. The fund is invested according to guidelines set out in the MOU.
The board has continued its arrangement for the provision of secretariat support with BCFPPI. In addition BCFPPI supplies adjudication support behind an ethical fire wall, with its only task being drafting decision letters as directed by the board.
Counsel
The Ministry of the Attorney General provides legal services to the board. The lawyer assigned to the board provides the board with advice, opinions, and other legal assistance in judicial reviews, claim adjudication and recovering monies owed to the board, and also contributes to the continuing education of board members.
Investigator
The ministry's Regulatory Compliance Unit provides the board with investigative support if there is a claim. There were no claims in the 2016/17 fiscal.
5. Description of activities over the year
The board's activities are geared towards fulfilling its mandate. The board has two types of meetings: regular meetings and adjudicatory meetings and hearings.
- Regular meetings are held to do training, approve the business plan, annual report, and year-end financial statements and for general fund administration. These are held annually.
- Adjudicatory meetings and hearings are held to consider applications for payments from the fund. These are ad hoc and depend on whether or not there is a claim on the fund.
There was one board meeting in the 2016/17 fiscal year by conference call where the audited financial statements were approved. Approval for the business plan, annual report and MOU were done by email approval after the documents were sent to the board members for review and input.
Fund management/administration
The board is responsible for the overall governance of the fund. The primary purpose of the fund is to compensate sellers in the event of a default by a buyer. The board's main objective when managing investment capital is to safeguard its ability to remain as a going concern so that it can continue to deliver financial protection to livestock sellers. As such, the board's investment policy focuses on ensuring security, liquidity and maximization of investment income. In addition, there are restrictions in place so that only authorized investments are undertaken.
In order to ensure liquidity and manage interest rate risk, the fund's investments mature at various points in time. The board's responsibility as fund administrator includes:
- establishing or approving all policies as required
- approving payments from the fund
- reviewing, adopting and monitoring the strategic planning process
- approving the annual audited financial statements of the fund
- reviewing and approving the board's operating budget
- ensuring policies and processes are in place for the identification of risks and reviewing and approving risk management strategies
- ensuring that an actuarial review of the fund is conducted when required
As part of its ongoing efforts to ensure the solvency of the fund, the MOU requires the board to undertake an actuarial review, at any time, in order to ensure the actuarial soundness of the funds. The board had an actuarial study completed in July 2015 by Ernst & Young. The conclusion of the review was that a Fund of approximately $5.3 million would cover net claims with 85% confidence. However, based on the assumptions used, the actuary also projected a gradual depletion of the fund over 5 years, unless the fees were increased substantially. In February 1, 2016 a fee increase from five cents to ten cents was approved by the minister. The increase became effective on July 1, 2016.
The actuary also made a number of other recommendations for the board to consider. The board discussed the various recommendations and made decisions with regard to the ones to pursue. For example, the actuary recommended that the board consider the purchase of excess of loss and/or stop loss insurance (reinsurance). The board investigated and it proved too costly and as such was not pursued.
Claims investigation and adjudication
The process begins when the seller files a claim with the board or indicates an intention to file a claim. Once the board receives a claim, the ministry's Regulatory Compliance Unit in the Food Safety and Traceability Programs Branch conducts an investigation. When the investigation is completed an investigative report is given to the board. The board conducts an in-depth analysis, which may involve legal services, and either makes a final decision or offers an opportunity for the parties to make submissions or attend a hearing before making its final decision.
If the board offers an opportunity for a hearing, and a hearing is requested by one of the parties, a notice of hearing is mailed to the parties stating the time, date and location of the hearing. The board works to adjudicate cases within 60 days of receiving the file from the investigators. Where a hearing is held, it may take longer to make a decision. After the claims adjudication process is completed, the board sends a decision letter to the claimants and buyer.
Appendix 1 shows the history of claims to the fund up to March 31, 2017.
Recovery of money owed
The board, through legal counsel and the administrator, work to recover money owed to the board. Since inception, the board has paid out $10,752,997.64 and has recovered $3,568,194 for a 33.2% recovery rate. At the end of last fiscal year the board's recovery rate was 33.2% (see Appendix 2 for recovery history). As per the MOU, in 2010/11 a recovery policy was developed and is currently in force. The recovery policy states that the board will make every reasonable attempt to recover monies that is owed to the board. Its objectives are to utilize both ministry and external legal staff in recovering as much outstanding debt as is reasonably achievable using a variety of tools and options. There is currently one active debt recovery file. It is not known at this time what yield, if any, that file will produce.
6. Analysis of operational and financial performance
The board administers the fund established under the FPPA. Should a licensed dealer or producer default, the board adjudicates any claim(s) and determines the payment (if any) to be made from the fund.
No claims were received against the fund in the current fiscal year.
The balance of the fund at the beginning of the fiscal year was $7,103,567 and at the end of fiscal 2015/16 it was $7,349,117, an increase of $245,550.
Fund performance and investment strategy
The board's main objective when managing the fund is to safeguard its ability to remain as a going concern so that it can continue to deliver financial protection to qualified livestock sellers. Investment income is one important source of revenue for the fund.
The investment strategy flows from the investment guidelines set out in the MOU. The board is responsible for the prudent management of the fund's investments. The board is required to invest the fund in accordance with the principles in sections 26, 27, 27.1 and 27.2 of the Trustee Act. The agency is required to have an investment policy set out in accordance to the guidelines set out in section 27 of the Trustee Act and Schedule E.
Under the MOU, the board must review the investment policy at least annually and amend as required. Additionally, the investment policy must be reviewed by an actuary as part of any actuarial review to ensure it remains relevant to the prevailing and forecasted nature of the fund's liabilities.
The board is currently updating its investment policy based on the guidelines set out in the MOU. When short or medium term investments mature, research is done on the variety of rates available. If it appears that interest rates are generally rising then a shorter maturity date would be chosen to take advantage of potentially higher rates at maturity. If rates appear to be falling then a longer maturity would be selected.
The fund's asset mix is made up of
Cash, short and medium-term investments
Cash, short and medium-term investment holdings at year end were $6,046,881. This consist of cash of $400,646 and short-term investments of $5,646,235. Short-term investments consist of three financial instruments. First is a financial instrument that matures in February 2018 and earns 1.60% per annum. The second is a financial instrument that matures in February 2018 and earns 1.30% per annum. The third instrument is a $4 million first mortgage on development lands in the city of Kitchener, Ontario bearing interest at 5% per annum, payable semi-annually. The mortgage, originally signed December 10, 2004, was renewed with a principal due in full on December 10, 2017 with interest paid semiannually.
Long-term investment
Long-term investment consists of a financial instrument that matures in February 2019 and earns 1.46% per annum.
The board's strategic investment mix was instrumental in minimizing the impact of the economic downturn on its investments. The board considers its investment in real estate to be a safe investment that has generated great returns with little to no risk. Diversification among different assets, such as the mortgage, is the board's key strategy to reduce risk.
Board revenues
Interest income on investments
Interest income on these investments totaled $237,478 for the 2016/17 fiscal year. In the 2015/16 fiscal year, investment income was $241,410 and in the 2014/15 fiscal year, investment income was $254,063. The small decrease between the 2016/17, 2015/16 and 2014/15 fiscal years was due primarily to a continuing small decrease in interest rates.
Contributions
The amount of money flowing into the fund from check-off fees was $204,805 for the 2016/17 fiscal year, compared to $109,267 in the 2015/16 fiscal year. This represents an overall increase of $95,538. The increase was due to the fee increase that was approved in the current fiscal year.
Board expenses
The board is authorized to use the fund to:
- pay valid claims (which are recoverable from the defaulter)
- offset the cost of determining financial responsibility (one component of licensing)
footnote 4 - pay board expenses
- pay for professional, technical or other assistance to or on behalf of the board
Total board administration expense (excluding claims payment) in the 2016/17 fiscal year was $196,733 (this was $2,756 under budget primarily due to less administrative support needed). The total includes the costs incurred in the determination of financial responsibility of livestock dealers, and other board administration support.
Financial position
As at March 31, 2017, the fund balance stood at $7,349,117. This is an increase of $245,550 from March 31, 2016. See Appendix 3: audited financial statements.
The table below shows the budget to actual and the variance for 2014/15, 2015/16 and the 2016/17 fiscal years.
| Fiscal year | Budget 2014/15 | Actual 2014/15 | Variance 2014/15 | Budget 2015/16 | Actual 2015/16 | Variance 2015/16 | Budget 2016/17 | Actual 2016/17 | Variance 2016/17 |
|---|---|---|---|---|---|---|---|---|---|
| Opening equity | N/A | $7,347,626 | N/A | N/A | $7,367,550 | N/A | N/A | $7,103,567 | N/A |
| Fees | $106,000 | $110,083 | $4,083 | $110,000 | $109,267 | -$733.00 | $114,000 | $204,805 | $90,805 |
| Interest | $250,000 | $254,063 | $4,063 | $280,000 | $241,410 | -$38,590 | $290,000 | $237,478 | -$52,522 |
| Recoveries | $35,000 | $0 | -$35,000 | $50,000 | $21,870 | -$28,130 | $50,000 | $0 | -$50,000 |
| Claims paid | $250,000 | $164,452 | -$85,548 | $250,000 | $409,006 | $159,006 | $250,000 | $0 | $250,000 |
| Admin expense | $183,650 | $179,770 | -$3,879 | $236,250 | $227,524 | -$8,726 | $199,489 | $196,733 | $2,756 |
| Closing equity | N/A | $7,367,550 | N/A | N/A | $7,103,567 | N/A | N/A | $7,349,117 | N/A |
7. Discussion of performance target
In its 2017-2020 business plan the board identified several key priorities for action. What follows is a brief summary of key accomplishments regarding each of these priorities in the 2016/17 fiscal year. The table below shows the targets achieved/not achieved and actions to be taken.
| Performance measure/indicator | Baseline 09/10 | Targets 16/17 | Targets achieved/not achieved and action to be taken |
|---|---|---|---|
| The fund remains actuarially sound with a balance of $5.8 million as recommended by the 2010 actuarial study | $5.8 million | $6.15 million | Achieved — fund balance at $7.35 million |
| Actuarial study completed at least once every five years to assess, the long term financial sustainability of the fund in relation to the contribution and payout rates | July 2010 | July 2015 | The board completed an actuarial study in September 2015 |
| Unqualified audit opinion from the annual audit | Achieved | Ongoing | Achieved |
| Review investment policy annually to ensure that investment targets are met (for example, return on investment) and take actions as necessary | ROI of 3.97% | ROI of 3.6% | Not achieved — rate of return on investment of 3.35% |
| Debt collection (recoveries) policy drafted and implemented (monitor debt recovery rate) | N/A | Debt recovery rate of 30% | Achieved — debt recovery rate of 33.2% |
| Budget is approved by May 31 as part of the business planning process | May 31 | May 2016 | Achieved |
| Quarterly financial reports completed and submitted to OMAFRA within 15 days of the end of the quarter | Achieved | Quarterly | Achieved |
| All payments from the fund are in 100% compliance with the FPPA (monitoring to ensure compliance with section 5(2); 5(5) and 7(2)) | Payments compliant with FPPA | Ongoing | Achieved — board fund used to pay board expenses and valid claims |
| Performance measure/indicator | Baseline 09/10 | Targets 16/17 | Targets achieved/not achieved and action to be taken |
|---|---|---|---|
| Investment activities in compliance with MOU and applicable legislation/directives | Compliant | Ongoing | Achieved |
| Annual report submitted 90 days after the auditors report | 120 days | 90 days | Achieved |
| Business plan submitted to the Ministry by December 31 | March 31/10 | Dec 31/16 | Achieved |
| Submit quarterly risk assessment report to the ministry | Within 15 days of the end of the quarter | Ongoing | Achieved |
| Submit quarterly financial statements to the ministry within 15 days of the quarter end | Within 15 days of the quarter end | Ongoing | Achieved |
| Stakeholders informed of boards finances via annual inserts in the BFO's annual report | February annually | Ongoing | Achieved |
| Performance measure/indicator | Baseline 09/10 | Targets 16/17 | Targets achieved/not achieved and action to be taken |
|---|---|---|---|
| Number of days from receipt of report completed by investigators until the board makes and issues its decision | 60 (Actual 300 target not achieved) | 60 | No claims this year |
| Decisions rendered on average in 30 days | Refer to FPPA and consult with legal counsel | Refer to regulation and consult with legal counsel | No claims this year |
| Number of cases filed for judicial review that ruled against the board's decision | 0 | 0 | Achieved |
| Board at quorum | 5 or more members appointed | 5 or more members appointed | Achieved — board at quorum |
Appendix 1: history of claims up to March 31, 2017
| Year | # of claims received | # of claims paid | Amount claimed | Amount paid |
|---|---|---|---|---|
| 1982 | 11 | 4 | $72,039.50 | $5,357.90 |
| 1983 | 12 | 5 | $377,713.20 | $135,476.30 |
| 1984 | 4 | 1 | $645.90 | $581.30 |
| 1985 | 23 | 11 | $287,441.00 | $258,696.90 |
| 1986 | 3 | 0 | $9,475.30 | N/A |
| 1987 | 142 | 15 | $1,813,633.50 | $1,451,326.50 |
| 1988 | 126 | 77 | $833,111.20 | $567,861.20 |
| 1989 | 8 | 5 | $66,882.60 | $46,715.50 |
| 1990 | 31 | 23 | $1,352,067.60 | $1,183,260.60 |
| 1991 | 2 | 0 | $9,810.80 | N/A |
| 1992 | 1 | 0 | $7,500.00 | N/A |
| 1993 | 1 | 0 | N/A | N/A |
| 1994 | 28 | 20 | $825,975.30 | $742,852.70 |
| 1995 | 2 | 1 | $12,110.70 | $10,899.60 |
| 1996 | 34 | 34 | $193,869.80 | $174,482.80 |
| 1997 | 2 | 0 | $17,852.50 | N/A |
| 1998 | 7 | 6 | $165,370.60 | $138,723.50 |
| 1999 | 1 | 1 | $11,384.60 | $7,969.20 |
| 2000 | 48 | 47 | $2,203,876.00 | $1,977,548.00 |
| 2001 | 142 | 125 | $995,275.60 | $807,618.80 |
| 2002 | 0 | 0 | N/A | N/A |
| 2003 | 17 | 8 | $3,782,026.70 | $210,319.00 |
| 2004 | 40 | 19 | $337,875.50 | $296,894.40 |
| 2005 | 10 | 6 | $211,152.40 | $70,842.90 |
| 2006 | 0 | 0 | N/A | N/A |
| 2007 | 0 | 0 | N/A | N/A |
| 2008 | 0 | 0 | N/A | N/A |
| 2009 | 18 | 1 | $703,100.80 | $18,727.90 |
| 2010 | 1 | 0 | $654,105.50 | N/A |
| 2011 | 38 | 22 | $2,230,621.71 | $567,980.00 |
| 2012 | 264 | 172 | $1,535,925.68 | $285,911.94 |
| 2013 | 61 | 61 | $1,225,030.94 | $1,218,609.00 |
| 2014 | 1 | 1 | $883.62 | $883.62 |
| 2015 | 4 | 3 | $183,895.76 | $164,451.82 |
| 2016 | 13 | 9 | $1,208,177.37 | $409,006.26 |
| 2017 | 0 | 0 | N/A | N/A |
| Total | 1,095 | 677 | $21,328,831.68 | $10,752,997.64 |
| Recovered | N/A | NN/A | N/A | $3,568,194.3 |
| Net paid out | N/A | N/A | N/A | $7,184,803.38 |
| Fund balance | N/A | N/A | N/A | $7,349,117.0 |
Appendix 2: history of claims recovered
| Year | Claims recovered |
|---|---|
| Prior to 1998 | $1,135,254 |
| 1998 | $3,302 |
| 1999 | $0 |
| 2000 | $435 |
| 2001 | $385,000 |
| 2002 | $0 |
| 2003 | $39,760 |
| 2004 | $78,977 |
| 2005 | $119,950 |
| 2006 | $0 |
| 2007 | $350,000 |
| 2008 | $0 |
| 2009 | $0 |
| 2010 | $31,044 |
| 2011 | $$332,869 |
| 2012 | $216,541 |
| 2013 | $561,382 |
| 2014 | $291,809 |
| 2015 | $0 |
| 2016 | $21,870 |
| 2017 | $0 |
| Total recovered | $3,568,194 |
Appendix 3: audited financial statements
Management's responsibility for financial reporting
The accompanying financial statements have been prepared by management in accordance with Canadian public sector accounting standards. Management is responsible for the accuracy, integrity and objectivity of the information contained in the financial statements. The financial statements include some amounts that are necessarily based on management's best estimates and have been made using careful judgement.
In discharging it's responsibility for the integrity and fairness of the financial statements, management maintains financial and management control systems and practices designed to provide reasonable assurance that transactions are authorized, assets are safeguarded, and proper records are maintained. The system's include formal policies and procedures and an organizational structure that provides for appropriate delegation of authority and segregation of responsibilities.
The board of directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The board meets regularly to oversee the financial activities of the agency and annually reviews the financial statements.
The financial statements have been audited by the auditor general of Ontario. The auditor general's responsibility is to express an opinion on whether the financial statements are fairly presented in accordance with Canadian public sector accounting standards. The independent auditor's report outlines the scope of the auditor general's examination and opinion.
Larry Witzel, chair
Jim Wideman, administrator
July 19, 2017
Independent auditor's report
To the Livestock Financial Protection Board and to the Minister of Agriculture, Food and Rural Affairs,
I have audited the accompanying financial statements of the Livestock Financial Protection Board (fund for livestock producers), which comprise the statement of financial position as at March 31, 2017 and the statements of operations and fund balance and cash flows 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 Livestock Financial Protection Board (fund for livestock producers) as at March 31, 2017 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.
Susan Klein, CPA, CA, LPA
Assistant auditor general
Toronto, Ontario
July 19, 2017
Statement of financial position as at March 31, 2017
| Fiscal year | March 31, 2017 | March 31, 2016 |
|---|---|---|
| Cash | $400,646 | $449,434 |
| Short-term investments (Note 3) | $5,646,235 | $1,542,834 |
| Total | $6,046,881 | $1,992,268 |
| Fiscal year | March 31, 2017 | March 31, 2016 |
|---|---|---|
| Long-term investments (Note 3) | $1,302,236 | $5,111,299 |
| Fiscal year | March 31, 2017 | March 31, 2016 |
|---|---|---|
| Total assets | $7,349,117 | $7,103,567 |
| Fiscal year | March 31, 2017 | March 31, 2016 |
|---|---|---|
| Fund balance | $7,349,117 | $7,103,567 |
Commitment (Note 6)
See accompanying notes to financial statements.
On behalf of the board:
Original signed by Larry Witzel, chair and Paul Sharpe, board member
Statements of operations and fund balance for the year ended March 31, 2017
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Fees from producers | $204,805 | $109,267 |
| Interest income | $237,478 | $241,410 |
| Claims recoveries | N/A | $21,870 |
| Total revenue | $442,283 | $372,547 |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Administrative expenses (Note 5) | $196,733 | $227,524 |
| Claims paid | N/A | $409,006 |
| Total expenses | $196,733 | $636,530 |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Excess/(deficiency) of revenue over expenses | $245,550 | ($263,983) |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Fund balance, beginning of year | $7,103,567 | $7,367,550 |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Fund balance, end of year | $7,349,117 | $7,103,567 |
See accompanying notes to financial statements.
Statement of cash flows for the year ended March 31, 2017
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Excess/(Deficiency) of revenues over expenses | $245,550 | ($263,983) |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Net (purchases)/proceeds of investments | ($294,338) | $192,513 |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Decrease in cash | ($48,788) | ($71,470) |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Cash, beginning of year | $449,434 | $520,904 |
| Fiscal year | 2017 | 2016 |
|---|---|---|
| Cash, end of year | $400,646 | $449,434 |
See accompanying notes to financial statements.
Notes to financial statements — March 31, 2017
1. Establishment of the board (fund)
The Farm Products Payments Act designated the Livestock Financial Protection Board (board) as the board to administer the fund for livestock producers (the fund). The fund was established effective June 12, 1982, by regulation made under the Farm Product Payments Act. Ontario Regulation 321/11 "Fees Payable to the Boards" stipulates the livestock sales fees payable the fund. Effective February 1, 2016, this regulation was amended to increase fees from five cents to 10 cents per head of livestock.
The purpose of the fund is to protect livestock producers against loss through default in payment by a dealer. Effective July 1, 2011, producers are reimbursed 95% of an approved claim for any defaults in payments by dealers. The fund seeks recovery from the defaulted dealers of any such claims paid.
2. Significant accounting policies
(A) Basis of accounting
The financial statements are prepared by management in accordance with Canadian public sector accounting standards, including the standards for government not-for-profit organizations.
(B) Financial instruments
The fund's financial instruments consist of cash, short-term investments and long-term investments, which are measured at cost or amortized cost.
(C) Revenue recognition
All transactions are recorded on the accrual basis except for fees from producers and claim recoveries, which are recorded when received due to the inherent uncertainty regarding the amount and timing of revenue earned.
(D) Expenses
Expenses are recorded on an accrual basis, net of recoverable sales tax.
3. Investments
Short-term investments consist of three financial instruments issued by the Canadian chartered bank. First is a financial instrument that matures in February 2018 and earns 1.60% per annum. The second is a financial instrument that matures in February 2018 and earns 1.30% per annum. The third instrument is a $4 million first mortgage on development lands in the city of Kitchener, Ontario bearing interest at 5% per annum, payable semi-annually. The mortgage, originally signed December 10, 2004, was renewed with a principal due in full on December 10, 2017 with interest paid semiannually. In the event of the sale or any other conveyance of all or part of the lands, at the option of the board, the principal and accrued interest shall be immediately due and payable. At any time, the mortgagor can pay all or any part of the principal without notice or penalty.
Long-term investment consists of a financial instruments issued by the Canadian chartered bank that matures in February 2019 and earns 1.46% per annum.
4. Financial instruments risk management
The board's main objective when managing investment capital is to safeguard its ability to remain as a going concern, so that it can continue to deliver financial protection to the livestock producers in Ontario. The fund's investments are to ensure security, liquidity, and maximization of investment income. The board has restrictions in place so that only authorized investments that met these objectives are undertaken.
The nature of the fund's operations means that it is exposed to a variety of financial risks, which includes credit risk, liquidity and interest rate risk. The board's risk management approach is to minimize the potential adverse effects from these risks on its financial performance. Financial risk management is carried out by the board in accordance with its investment policy as prescribed by a Memorandum of Understanding between the board and the Ministry of Agriculture, Food and Rural Affairs. The board identifies, evaluates and mitigates financial risk.
i. Credit risk
Credit risk is the risk that other parties fail to perform as contracted. The board minimizes credit risk by placing investments only with major Canadian chartered banks and in a fully secured mortgage. At March 31, 2017, all cash and investments were held with major Canadian chartered banks.
ii. Liquidity risk
Liquidity risk is the risk that the fund may not have cash available to satisfy financial liabilities as they fall due. The board seeks to limit its liquidity risk by actively monitoring and managing its available cash reserves to ensure that it is able to satisfy financial liabilities as they fall due. Cash that is surplus to working capital requirements is managed by the board and invested in short-term and long-term bankers' acceptances with major Canadian chartered banks as well as in a fully secured mortgage.
iii. Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market price. Market risk comprises of three types of risk: currency risk, interest rate risk and other price risk. Currently, the fund is exposed only to interest rate risk.
iv. Interest rate risk
Interest rate risk refers to the adverse consequences of interest rate changes on the funds' cash flows, financial position and its operations. Due to the nature of the funds' financial instruments, their carrying value approximates fair value and as a result the fund is not exposed to significant interest rate risk. Mortgage instrument where fair value differs from cost is a fixed rate debt instrument which minimizes interest rate changes.
5. Related parties transactions
The Minister of Agriculture, Food and Rural Affairs (minister) and the Livestock Financial Protection Board entered into a three year agreement, effective January 1, 2016, with the Ontario Beef Cattle Financial Protection Program Inc. (not a related party) to assess the financial responsibility of livestock dealers and to provide administrative and secretariat support to the fund.
The fund paid the Ontario Beef Cattle Financial Protection Inc. approximately $195,000 in fiscal 2017 (2016 — $185,000). These costs are included in administrative expenses in the statement of operations and fund balance.
Certain administrative expenses incurred by the board, such as investigative and legal service costs, were absorbed by the Ministry of Agriculture, Food and Rural Affairs and were not included in the statement of operations and fund balance. The cost for these services amounted to $18,000 (2016 — $21,000).
6. Commitment
The board has a contract with the Ontario Beef Cattle Financial Protection Program Inc. as noted above. Contractual commitments are as follows:
| Year ended March 31, 2018 | ($ 000) |
|---|---|
| 2018 | 197 |
| 2019 | 151 |
| Total | 348 |
Footnotes
- footnote[1] Back to paragraph Sellers include both producers and licensed dealers. Dealers licensed under the Livestock and Livestock Products Act who sell livestock are designated as producers for the purposes of clause (d) of the definition of "producer" in section 1 of the Act, but the designation is only in respect of sales of livestock by the dealers to: (a) other dealers licensed under the Livestock and Livestock Products Act; or (b) other producers.
- footnote[2] Back to paragraph The buyer could also be a producer, where the claimant is a licensed dealer.
- footnote[3] Back to paragraph Legal and investigative support are currently provided and paid for by the ministry. The Ministry also pays Board members' remuneration (per diem, meal and travel).
- footnote[4] Back to paragraph Under the financial protection program, all dealers must be licensed annually, with licensing dependent upon a positive assessment of financial responsibility by the program administration. Section 7(2) of the FPPA allows the Board to use the Fund to pay the whole or any part of the costs incurred in determining financial responsibility.