Archived - Indian and Northern Affairs Canada Financial Statements for the Year Ended March 31, 2009 (Unaudited)

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2009 and all information contained in these statements rests with the management of Indian and Northern Affairs Canada (INAC). These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of INAC's financial transactions. Financial information submitted to the Public Accounts of Canada and included in INAC's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the Department.

Management is supported by a Departmental Audit Committee (DAC), which includes members external to INAC. The role of the DAC is to oversee management's responsibilities for maintaining adequate processes and key control systems and reviews assessments of the probity and prudence of the Department's operations. The DAC will also review and recommend for approval internal audit plans and recommend for approval internal audit reports and the accompanying management action plans addressing recommendations.

The financial statements of INAC have not been audited.

Gatineau, Canada
August 11, 2009

For the year ended March 31

(in thousands of dollars)

Expenses (Note 4)	2009	2008
People	3,671,072	3,083,449
Government	1,840,816	1,910,260
Economy	1,430,463	1,291,519
Land	394,783	414,963
Office of the Federal Interlocutor	43,522	29,982
Total Expenses	7,380,656	6,730,174

Revenues (Note 5)	2009	2008
People	719	2,929
Government	2,255	2,829
Economy	9,305	10,425
Land	272,702	232,920
Office of the Federal Interlocutor		12
Total Revenues	284,981	249,115

	2009	2008
Net Cost of Operations	7,095,675	6,481,059

The accompanying notes form an integral part of these financial statements.

As at March 31

(in thousands of dollars)

Assets	2009	(restated) 2008
Financial assets
Accounts receivable and advances (Note 6)	62,138	64,928
Interest receivable (Note 7)	18,489	29,308
Loans receivable (Note 8)	777,937	751,259
Total financial assets	858,564	845,495
Non-financial assets
Prepaid expenses	2,172	2,172
Land held for future claims settlements (Note 9)	25,826	25,013
Tangible capital assets (Note 10)	44,870	36,939
Total non-financial assets	72,868	64,124
TOTAL	931,432	909,619

Liabilities and Equity	2009	2008
Liabilities
Accounts payable and accrued liabilities	987,948	855,608
Vacation pay and compensatory leave	17,254	15,419
Other liabilities (Note 11)	53,949	61,049
Trust accounts (Note 12)	1,126,747	1,033,554
Settled claims (Note 13)	607,931	546,534
Allowance for claims and litigation (Note 14)	10,335,936	9,107,409
Environmental liabilities (Note 14)	1,571,348	1,497,137
Allowance for loan guarantees (Note 14)	1,800	1,800
Employee severance benefits (Note 15)	78,549	58,502
Total liabilities	14,781,462	13,177,012
Equity of Canada	(13,850,030)	(12,267,393)
TOTAL	931,432	909,619

Contingent liabilities (Note 14)
Contractual obligations (Note 16)
The accompanying notes form an integral part of these financial statements.

As at March 31
(in thousands of dollars)

	2009	(restated) 2008
Equity of Canada, beginning of the year	(12,267,393)	(12,711,328)
Net cost of operations	(7,095,675)	(6,481,059)
Current year appropriations used (Note 3)	6,938,947	7,268,728
Revenue not available for spending	(284,981)	(249,115)
Change in net position in the Consolidated Revenue Fund (Note 3c)	(233,752)	(168,387)
Services received without charge from other government departments (Note 17)	85,698	73,768
Transfer of Indian Residential Schools Resolution Canada (Note 18)	(992,874)
Equity of Canada, end of year	(13,850,030)	(12,267,393)

The accompanying notes form an integral part of these financial statements.

For the year ended March 31
(in thousands of dollars)

Operating activities	2009	(restated) 2008
Net cost of operations	7,095,675	6,481,059
Non-cash items:
Services provided without charge from other departments	(85,698)	(73,768)
Amortization of tangible capital assets	(8,380)	(7,607)
Gain (loss) on disposal of tangible capital assets	2	(447)
Adjustments to tangible capital assets	1,454
Variations in Statement of Financial Position
Decrease in accounts receivable and advances	(2,790)	(43,232)
Decrease in interest receivable	10,819	(1,925)
Increase in loans receivable	26,678	31,925
Decrease in prepaid expenses		(1,758)
Increase in land held for future claims settlements	813	778
Decrease (increase) in liabilities	(1,604,449)	460,198
Cash used by operating activities	5,412,486	6,845,223

Capital investment activities	2009	2008
Acquisitions of tangible capital assets	14,925	6,215
Proceeds from disposal of tangible capital assets	(71)	(211)
Cash used by capital investment activities	14,854	6,004

Financing activities	2009	2008
Net cash provided by Government of Canada	5,427,340	6,851,227

The accompanying notes form an integral part of these financial statements.

1. Authority and Objectives

Indian and Northern Affairs Canada (INAC) was established by the Government Organization Act, 1966 and has been continued in its current form by the Department of Indian Affairs and Northern Development Act (R.S., 1985, c. I-6). Effective June 1, 2008, pursuant to Order-in-Council P.C. 2008-805, Indian Residential Schools Resolution Canada (IRSRC) was amalgamated and combined with INAC under the Minister of INAC. INAC is named as a department in Schedule I of the Financial Administration Act.

INAC's vision is a future in which First Nations, Inuit, Métis and northern communities are healthy, safe, self-sufficient and prosperous - a Canada where people make their own decisions, manage their own affairs and make strong contributions to the country as a whole.

INAC is one of the federal government departments responsible for meeting the Government of Canada's obligations and commitments to First Nations, Inuit and Northerners, and for fulfilling the federal government's constitutional responsibilities in the North. The broad mandate of the Department is derived largely from the Department of Indian Affairs and Northern Development Act, the Indian Act, and territorial acts, some of which are expressions of Parliament's legislative jurisdiction found in section 91(24) of the Constitution Act, 1867.

Consistent with its vision and to achieve its mandate, INAC has structured its operations along five strategic outcomes as follows:

a) Government - Under this strategic outcome, activities support capacity building for governance and institutions, cooperative relationships, and claims settlements as the foundation for self-reliant First Nations, Inuit and Northerners. These activities promote:

• Stable, effective First Nations and Inuit governments;
• Sustainable intergovernmental relationships recognized by all parties; and
• Legal certainty over ownership and use of lands and resources.

b) People - Activities within this strategic outcome support the Department's mandate with respect to provincial-type services on reserves south of the 60th parallel, as well as fulfilling other departmental statutory and treaty obligations to individuals. Taken together, these activities create a range of essential services throughout an individual's life such as:

• The registration of eligible persons as Indians and estate administration;
• Education; and
• Social services.

c) Land - Activities within this strategic outcome promote efficient land management practices that address the Crown's obligation to protect, conserve, and manage lands, resources and the environment in a manner consistent with the principles of sustainable development and First Nations' aspirations for greater control and decision making over their lands, resources, and environment. These activities are required to:

• Develop the underlying infrastructure and capacity for First Nations governance;
• Create opportunities for more direct responsibility and control by First Nations over land, resources and the environment; and
• Realize economic development, improved socio-economic and environmental conditions, and sound First Nations governance over land, resources and the environment.

d) Economy - This strategic outcome concentrates on establishing a supportive investment/business climate to enable First Nations, Inuit and Northerners, their communities and their businesses to seize economic opportunities. It also focuses on building the economic and community foundations necessary to increase Aboriginal and Northern participation in the economy. These activities promote:

• Investment leading to jobs in communities;
• Management of infrastructure facilities; and
• Mitigation of health and safety risks.

e) Office of the Federal Interlocutor - Under this strategic outcome, activities are designed to improve socio-economic conditions for Métis, Non-Status Indians and urban Aboriginal people through strengthened relationships with Métis and Non-Status Indian groups and organizations, urban Aboriginal Canadians, and provincial governments and municipalities. These activities support:

• Agreements furthering self-government for Métis and Non-Status Indians;
• Increased employment for urban Aboriginal people; and
• An increased knowledge base relating to Métis Aboriginal rights.

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2. Summary of Significant Accounting Policies

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

Significant accounting policies are as follows:

a) Parliamentary appropriations – INAC is primarily financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to INAC do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

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

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

d) Revenues – Revenues from regulatory fees are recognized in the accounts based on the services provided in the year. Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.

e) Expenses – Expenses are recorded on the accrual basis:

• Grants are recognized in the year in which conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives Parliamentary approval prior to the completion of the financial statements;
  
  
• Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement;
  
  
• Vacation pay and compensatory leave are expensed in the year that the entitlement occurs; and
  
  
• Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

f) Employee future benefits

• Pension benefits - Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government of Canada. INAC's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the Department to make contributions for any actuarial deficiencies of the plan.
  
  
• Severance benefits - Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

g) Accounts and loans receivable

Accounts receivable are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

Loans receivable are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

Interest on loans receivable is calculated in accordance with the terms and conditions of each individual program. Interest is not accrued on loans approved for write-off or forgiveness.

h) Provision for losses on accounts and loans receivable

Accounts Receivable

The amount of the allowance is determined based on an assessment of each account. The collectibility of each account is reviewed by regional accounting offices on a semi-annual basis using a standard set of criteria to assess default risk.

Direct Loans and Defaulted Guaranteed Loans

The amount of the allowance is determined based on an assessment of each loan. The collectibility of each loan is reviewed by program managers on an annual basis using a standard set of criteria to assess default risk.

Loan Guarantees (contingent)

An allowance for loan guarantees is recorded for potential losses on loan guarantees when it is likely that a payment will be made in the future to honour a guarantee and when the amount of the loss can be reasonably estimated. The amount of the allowance is determined by taking into consideration the weighted average of the contingent liability and the historical percentage of default. The allowance is reviewed on at least an annual basis with any changes in the allowance being charged or credited to current year's expenditures.

i) Contingent Liabilities

A contingent liability is a potential liability which may become an actual liability when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

j) Environmental Liabilities

Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the Department becomes aware of the contamination and is obligated, or is likely to be obligated, to incur such costs. If the likelihood of the Department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

k) Tangible Capital Assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, or assets located on Indian Reserves.

Capital assets which are held for future contribution to First Nations are reported as land held for future claims settlements. Lands north of 60 degrees latitude owned by the Crown as a result of confederation are recorded at nominal value.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the assets as follows:

Asset Class	Amortization period
Buildings:
Residential mobile	10 years
Administrative, institutional, recreational and residential	40 years
Works and Infrastructure	30 years
Machinery and equipment:
Communications equipment	5 years
Lab, scientific and testing equipment	10 years
Construction, excavating and clearing equipment	15 years
Generating equipment	20 years
Informatics hardware and software	3 years
Ships and boats	10 years
Motor vehicles:
Passenger vehicles and light trucks less than 1 ton	5 years
Heavy trucks greater than 1 ton	10 years
Other vehicles	5 years
Leasehold improvements	Lesser of useful life or term of lease
Assets under construction	Once in service, in accordance with asset type

l) Measurement uncertainty

The preparation of financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are the allowance for claims and litigation, environmental liabilities, contingent liabilities, the liability for employee severance benefits, and the useful life of tangible capital assets. Actual results could differ significantly from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

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3. Parliamentary Appropriations

INAC receives most of its funding through annual Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years.

Accordingly, INAC has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a) Reconciliation of net cost of operations to current year appropriations used

(in thousands of dollars)

	2009	(restated) 2008
Net cost of operations	7,095,675	6,481,059

Adjustments for items affecting net cost of operations but not affecting appropriations:	2009	2008
Expenses for claims and litigation	(261,225)	678,402
Revenue not available for spending	284,981	249,115
Services provided without charge	(85,698)	(73,768)
Environmental liabilities	(74,211)	(183,281)
Settled claims	(61,397)	95,626
Refunds of transfer payments	43,211	29,987
Employee severance benefits	(20,047)	(2,153)
Amortization of tangible capital assets	(8,380)	(7,607)
Vacation pay and compensatory leave	(1,835)	788
Gain (loss) on disposal of tangible capital assets	2	(447)
Other	12,131	(4,228)
	6,923,207	7,263,493

Adjustments for items not affecting net cost of operations but affecting appropriations:	2009	2008
Acquisition of tangible capital assets	14,925	6,215
Prepaid expenses		(1,758)
Land held for future claims settlements	815	778
Current year appropriations used	6,938,947	7,268,728

b) Appropriations provided and used

(in thousands of dollars)

	2009	2008
Vote 1 - Operating Expenditures	1,189,276	725,942
Vote 5 - Capital Expenditures	17,754	1,210
Vote 10 - Grants and Contributions	5,733,595	6,341,338
Vote 15 - Payment to Canada Post Corporation	56,100	47,600
Vote 20 - Office of the Federal Interlocutor - Operating	9,672	9,692
Vote 25 - Office of the Federal Interlocutor - Contributions	30,344	27,249
Statutory Amounts	194,216	219,003
	7,230,957	7,372,034
Less:
Appropriations available for future years	(31,823)	(31,937)
Lapsed appropriations	(260,187)	(71,369)
	(292,010)	(103,306)
Current year appropriations used	6,938,947	7,268,728

c) Reconciliation of net cash provided by Government to current year appropriations used

(in thousands of dollars)

	2009	2008
Net cash provided by Government	5,427,340	6,851,227
Revenue not available for spending	284,981	249,115
	5,712,321	7,100,342

Change in net position in the Consolidated Revenue Fund:	2009	2008
Variation in accounts receivable and advances	2,790	43,232
Variation in interest receivable	10,819	1,925
Variation in loans	(26,678)	(31,925)
Variation in accounts payable and accrued liabilities	132,340	101,989
Variation in trust accounts	93,193	39,830
Other adjustments	21,288	13,335
	233,752	168,386
Transfer of Indian Residential Schools Resolution Canada	992,874
Current year appropriations used	6,938,947	7,268,728

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4. Expenses

The following table presents details of expenses by category:

(in thousands of dollars)

	2009	(restated)2008
Transfer payments – First Nations	4,929,682	5,667,146
Transfer payments – Provincial/Territorial governments and institutions	706,691	657,251
Transfer payments - Non-profit organizations	55,348	38,782
Transfer payments - Industry	21,369	2,676
Transfer payments - Other	5,727	3,613
Total transfer payments	5,718,817	6,369,468
Salaries and employee benefits	488,900	399,136
Professional services	335,049	246,892
Court awards and other settlements	316,507	33,586
Claims and litigation	261,226	(678,402)
Environmental liabilities	74,211	183,281
Canada Post Corporation	56,100	43,987
Travel and relocation	42,304	33,919
Accommodations	33,795	29,377
Machinery and equipment	15,603	13,206
Communications services	12,590	10,918
Rentals of buildings and machinery	11,443	9,644
Utilities, materials and supplies	8,327	9,012
Other expenses	5,784	26,149
Total operating expenses	1,661,839	360,706
Total	7,380,656	6,730,174

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5. Revenues

The following table presents details of revenues by category:

(in thousands of dollars)

	2009	2008
Resource royalties	140,166	87,560
Norman Wells project profits	125,435	115,780
Interest on loans	11,005	11,750
Miscellaneous	4,208	29,656
Leases and rentals	4,167	4,369
Total	284,981	249,115

Resource Royalties

The most significant sources of resource royalty revenues are those earned pursuant to the Northwest Territories and Nunavut Mining Regulations (formerly the Canada Mining Regulations) and the Frontier Lands Petroleum Royalty Regulations.

The Northwest Territories and Nunavut Mining Regulations (the Mining Regulations) prescribe a profit-sharing formula upon which royalty revenues are based. INAC receives a percentage of the profits companies earn from the sale of minerals extracted from land leased by these companies pursuant to the Mining Regulations. The Mining Regulations prescribe that royalties are generally payable four months after the fiscal year-end of the company.

The Frontier Lands Petroleum Royalty Regulations (the Royalty Regulations) also prescribe a profit-sharing formula upon which royalty revenues are based. INAC receives a percentage of the profits companies earn from the sale of oil and gas extracted from the land, which the company has the right to use pursuant to a production licence issued under the authority of the Canada Petroleum Resources Act. The Royalty Regulations prescribe that royalties are generally payable on the last day of the month following the month of production.

Norman Wells Project Profits

This project is a source of revenues earned pursuant to a contract between INAC and Imperial Oil. This contract prescribes a profit-sharing formula and sets out a payment schedule, whereby payments are made annually to INAC no later than March 20.

Leases and Rentals

The major source of lease and rental revenues is lease fees prescribed in the Mining Regulations. After a waiting period of 10 years, companies may lease land in the North for purposes of exploration and extraction of minerals. Leases are for a period of 21 years and are renewable. Lease fees are set out in the Mining Regulations and are payable annually on the anniversary date of the signing of the lease.

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6. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

(in thousands of dollars)

Accounts receivable and advances	2009	2008
Receivables from other Federal Government departments and agencies	29,856	33,541
Receivables from external parties	51,962	51,311
Employee advances	186	105
	82,004	84,957
Less: allowance for doubtful accounts on external receivables	(19,866)	(20,029)
Total	62,138	64,928

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7. Interest Receivable

The following table provides details of accrued interest receivable on loans:

(in thousands of dollars)

	2009	2008
Direct loans	21,744	32,487
Defaulted guaranteed loans	429	399
	22,173	32,886
Less: allowance for doubtful accounts	(3,684)	(3,578)
Total	18,489	29,308

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8. Loans Receivable

The following table presents details of loans receivable:

(in thousands of dollars)

	2009	2008
Direct loans portfolio:
Native claimants	436,205	431,497
First Nations in British Columbia	419,918	392,265
Other direct loans	519	519
	856,642	824,281
Less: allowance for doubtful accounts	(100,690)	(97,015)
Net recoverable value	755,952	727,266
Defaulted guaranteed loans portfolio:
On-reserve housing guarantees	8,891	7,945
Aboriginal loan insurance	7,200	8,752
Indian economic development guarantees	3,176	6,255
Other defaulted guaranteed loans	124	124
	19,391	23,076
Add: capitalized interest	11,111	9,434
Less: allowance for doubtful accounts	(8,517)	(8,517)
Net recoverable value	21,985	23,993
Loans receivable, net recoverable value	777,937	751,259

Direct Loans Portfolio

The objective of direct loans is to support active participation by First Nations and First Nations organizations and to promote a balanced exchange of ideas in negotiating the settlement of comprehensive land claims, specific claims, and treaties.

INAC's direct loans portfolio has two active programs in support of this objective:

Native Claimants

These are loans made to Native claimants to defray the costs related to the research, development and negotiation of comprehensive land claims and specific claims.

The significant terms and conditions of loans to Native claimants are as follows:

(a) loans made before an agreement-in-principle for the settlement of a claim is reached are non interest bearing;

(b) loans made after the date on which an agreement-in-principle for the settlement of a claim has been reached, bear interest at a rate equal to the rate established by the Minister of Finance in respect of borrowings for equivalent terms by Crown corporations;

(c) loans are due and payable, as to principal and interest, on the date on which the claim is settled, or on a date fixed in the loan agreement;

(d) loans may be restructured, including forgiveness of a portion of the principal or interest in arrears, when the borrower cannot meet the term of the original loan agreement; and

(e) INAC may seek security for loans when deemed appropriate.

The interest bearing and non-interest bearing portions of direct loans for Native claimants outstanding at March 31 are as follows:

(in thousands of dollars)

	2009	2008
Interest bearing	125,981	138,561
Non-interest bearing	310,224	292,936
Total	436,205	431,497

First Nations in British Columbia

These are loans made to First Nations in British Columbia to support their participation in the British Columbia Treaty Commission and to defray the costs related to the research, development and negotiation of treaties.

The significant terms and conditions of direct loans to First Nations in British Columbia are the same as those for loans to Native claimants, except as follows:

(a) loans made between April 1, 2004 and March 31, 2009, and after the date on which an agreement-in-principle for the settlement of a treaty has been reached, shall be interest free unless the loans become due and payable during this period.

The interest bearing and non interest bearing portions of direct loans for First Nations in British Columbia outstanding at March 31 are as follows:

(in thousands of dollars)

	2009	2008
Interest bearing	54,545	54,060
Non-interest bearing	365,373	338,205
Total	419,918	392,265

Other Direct Loans

INAC also has various legacy programs that are no longer active, as such no new loans will be granted under these programs. These legacy programs will continue to operate under their existing arrangements until the land claims are settled, at which point the loans will become repayable and the respective programs closed.

All loans outstanding at year-end under the various legacy programs both for the current and prior year are interest bearing.

Defaulted Guaranteed Loans Portfolio

The objective of loan guarantees is to encourage lending institutions to make loans for properties located on First Nations lands and to support access to credit markets for First Nations and First Nations organizations. Since properties located on First Nations lands cannot be used as collateral to secure the loans and lending institutions are prevented from foreclosing on these properties in the event of borrower default, as prescribed by the Indian Act, lending institutions can be exposed to greater business risk in issuing loans for properties located on First Nations lands.

As guarantor, loan guarantees issued under the various programs may become receivables of the Department when, at the request of a lending institution, INAC is required to honour these loan guarantees. As a result, INAC makes payment to the lending institution and establishes a receivable from the First Nation or First Nation organization.

The various loan guarantee programs are described below:

On-reserve Housing Guarantee Program

This program authorizes the Department to guarantee loans to individuals and Indian bands to assist in the purchase of housing on reserves because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. These loan guarantees enable status Indians residing on reserves, Band councils, or their delegated authorities, to secure housing loans without giving the lending institution rights to the property.

The significant terms and conditions of the On-reserve housing guarantee program are as follows:

Payments of principal and interest for loans issued under this program are amortized over a period of 25 years. The interest rates on the guaranteed loans are consistent with conventional mortgage interest rates offered by the major banks. On a semi-annual basis, any accrued interest receivable outstanding is capitalized as part of the principal amount owing on the loan.

To control the occurrence of defaulted loans in this program, the Department restricts the eligibility of recipients for further loans until such time as a recovery plan has been reached and has been in operation in accordance with its terms and conditions for a period of six months.

Aboriginal Business Loan Insurance Program

This program, originally established under the Department of Industry, provides loan insurance to financial institutions on behalf of loans issued to Aboriginal individuals, organizations, corporations or partnerships for the purpose of increasing commercial enterprise activity by Aboriginal Canadians.

Indian Economic Development Guarantee Program

This program authorizes the Department to guarantee loans for non-incorporated Indian businesses on a risk-sharing basis with commercial lenders because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. Guarantees are provided for various types of borrowers whose activities contribute to the economic development of Indians and enable them to develop long-term credit relationships with mainstream financial institutions.

The significant terms and conditions of the Indian economic development guarantee program are as follows:

Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Accrued interest on loans issued under this program is never capitalized. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of INAC.

Other Defaulted Guaranteed Loans

INAC also has a legacy program that is no longer active. This legacy program will continue to operate under its existing arrangements until the defaulted guaranteed loans are paid and the program closed.

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9. Land Held for Future Claims Settlements

Land held for future claims settlements is segregated from other tangible capital assets as these assets are not acquired with the intention of being used on a continuous basis in government operations. Rather, these assets are properties acquired and held by INAC for the purpose of future settlements of Aboriginal land claims. Following the ratification of a negotiated agreement of a claim, these assets are transferred to the Aboriginal group.

Changes in this account are summarized in the following table:

(in thousands of dollars)

	2009				2008
	Opening balance	Acquisitions	Transfers	Closing balance	Closing balance
Land held for future claims settlements	25,013	823	10	25,826	25,013

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10. Tangible Capital Assets

(in thousands of dollars)

	Cost				Accumulated amortization				Total
Capital asset class	Opening balance	Acqui sitions	Disposals/ Adjustments	Closing balance	Opening balance	Amortiz ation	Disposals/ Adjustments	Closing balance	2009 net book value	2008 net book value
Land	606			606					606	606
Buildings	28,600			28,600	11,795	716		12,511	16,089	16,805
Work and infrastructure	1,409	35		1,444	1,225	45		1,270	174	184
Machinery and equipment	8,537	470	(1,470)	7,537	5,387	509	(1,402)	4,494	3,043	3,150
Informatics hardware	32,884	2,359	590	35,833	27,103	3,751	(85)	30,769	5,064	5,781
Informatics software	9,103	11,583	1,825	22,511	2,131	2,727	1,083	5,941	16,570	6,972
Ships and boats	130			130	69	8		77	53	61
Motor vehicles	4,473	363	(413)	4,423	2,907	590	(413)	3,084	1,339	1,566
Other vehicles	340	42		382	245	34		279	103	95
Leasehold improvements	240	73	33	346					346	240
Assets under construction	1,479		4	1,483					1,483	1,479
Total	87,801	14,925	569	103,295	50,862	8,380	(817)	58,425	44,870	36,939

Amortization expense for the year ended March 31, 2009 is $8,380 ($7,607 in 2008).

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11. Other Liabilities

(in thousands of dollars)

	2009	2008
Guarantee deposits	895,075	569,332
Securities held in trust	(874,783)	(543,619)
Other specified purpose accounts	33,657	35,336
Total	53,949	61,049

Guarantee Deposits & Securities Held in Trust

In fulfilling its duties under various acts that govern the use of federal Crown land, including land use activities, water resources, and water rights, the Department may issue licences, permits, and other instruments to individuals and organizations that propose to undertake resource exploration and other types of development projects.

In accordance with the terms and conditions of the instrument, the Department may require security deposits to ensure the lands and waters are returned in a condition acceptable to the Department. These security or guarantee deposits can be in the form of cash or paper securities (usually letters of credit).

Cash amounts received are transferred to and held in the CRF, whereas paper securities are held by the Department and recorded in the contra-liability account securities held in trust.

Other Specified Purpose Accounts

These include a number of Indian special accounts, the most significant of which is the Indian moneys suspense account. This account was established to hold moneys received for individual Indians and bands pending execution of the related lease, permit or licence, settlement of litigation, registration of the Indian or identification of the recipient. These monies are then disbursed to an Indian, or credited to an Indian Band Fund or Individual Trust Fund account, as appropriate.

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12. Trust Accounts

In accordance with the Indian Act, INAC has responsibility to administer certain Indian moneys of bands, minors, mentally incompetent individuals and deceased Indians.

All moneys collected or received on behalf of these groups are deposited to the CRF and bear interest at a rate fixed from time to time by the Governor-in-Council pursuant to Section 61(2) of the Indian Act. Interest is accumulated in the accounts and is compounded semi-annually.

The following table shows the Department's financial obligations in its role as administrator of these Indian moneys:

(in thousands of dollars)

	2009				2008
	Opening balance	Receipts	Payments	Closing balance	Closing balance
Indian Band Funds	981,562	327,952	237,706	1,071,809	981,562
Indian Savings Accounts	38,787	5,728	4,815	39,700	38,787
Indian Estates Accounts	13,205	6,851	4,817	15,238	13,205
Total	1,033,554	340,531	247,338	1,126,747	1,033,554

Indian Band Funds

These accounts were established to record moneys belonging to Indian bands throughout Canada pursuant to sections 61 to 69 of the Indian Act.

Moneys are classified as either capital moneys or revenue moneys.

Capital moneys of the band include all moneys derived from the sale of surrendered lands or the sale of band capital assets. Moneys from the sale of surrendered lands can include land sales, timber sales, oil and gas royalties, and sale of gravels. Revenue moneys are all moneys not classified as capital moneys.

Moneys are disbursed from these accounts pursuant to an authorized request from a band.

Indian Savings Accounts

These accounts were established to record moneys belonging to Indian minors pursuant to sections 52 and 52.1 to 52.5 of the Indian Act.

Sources of moneys include inheritances and per capita distribution of band funds. Moneys are held in these accounts until the minor attains the age of majority and are then paid out to the beneficiary in instalments over a period not exceeding three years.

Indian Estate Accounts

These accounts were established to record moneys belonging to mentally incompetent individuals and deceased Indians pursuant to sections 42 to 51 and 52.3 of the Indian Act.

Sources of moneys belonging to mentally incompetent individuals include inheritances, per capita distribution of band funds, and provincial assistance payments. Payments are made from these accounts for the maintenance and care of the individuals.

Estate accounts for deceased Indians include the proceeds of their liquidated assets that are held pending the settlement of the estate. The closing of the account usually corresponds with the final distribution to their heirs.

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13. Settled Claims

The liability for settled claims represents INAC's financial obligation pursuant to agreements related to comprehensive land claims and specific claims.

Comprehensive land claims are negotiated in areas where Aboriginal title has not been dealt with by treaty or by other legal methods. In such cases, the claim is based on an Aboriginal group's traditional use and occupancy of that land. Comprehensive land claim settlements result in agreement on special rights Aboriginal peoples will have in the future with respect to lands and resources.

Specific claims address past grievances arising out of non-fulfilment of Indian treaties and other lawful obligations, the improper administration of lands and other assets under the Indian Act, or formal agreements that are being pursued through negotiations.

An act of Parliament, based on a negotiated agreement, establishes the authority for INAC to make claim payments. The interest rate attached to these claim payments is set out in the act, along with a claim payment schedule. Claim payments are generally made over a number of years.

At March 31, 2009, INAC had 10 outstanding settled claims (12 in 2008). Payments totalled $113,000,000 in 2009 ($128,000,000 in 2008).

The present value of the liability for settled claims, calculated using the appropriate Consolidated Revenue Fund Monthly Lending Rate as published by the Department of Finance, at March 31, 2009 is $607,931,000 ($546,534,000 in 2008).

Future scheduled claim payments are as follows:

(in thousands of dollars)

	2010	2011	2012	2013	2014 and thereafter	Total
Scheduled payments	93,000	97,000	98,000	76,000	301,000	665,000

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14. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are classified into three categories: claims and litigation, environmental liabilities (contaminated sites) and loan guarantees.

Claims and Litigation

There are hundreds of claims and pending and threatened litigation cases outstanding against the Department. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

There are four significant types of claims faced by the department:  comprehensive land claims, specific claims, general litigation claims, and claims arising from the legacy of Indian residential schools.

There are 76 (75 in 2008) comprehensive land claims and 588 (689 in 2008) specific claims under negotiation, accepted for negotiation, or under review. Legal proceedings for 525 (525 in 2008) claims being pursued through the courts were still pending at March 31, 2009. And there are thousands of claims being managed by the Department with respect to the legacy of Indian residential schools, including class action claims, as well as claims submitted under its Alternative Dispute Resolution process and its Independent Assessment Process.

INAC has recorded an allowance of $10,335,936,000 ($9,107,409,000 in 2008) as an estimate of the likely liability that will result from the above claims. This estimate includes projections based on historical rates and costs of settlement of similar claims.

Environmental Liabilities

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the Department is obligated to incur such costs.

INAC has identified contaminated sites for which a liability of $1,571,348,000 ($1,497,137,000 in 2008) has been recorded. Estimated additional clean-up costs of $333,634,000 ($628,767,000 in 2008) have not been accrued, as the likelihood of incurring these costs cannot be determined at this time.

INAC's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the Department in the year in which they become known.

Loan Guarantees

Losses on loan guarantees are recorded when it is likely that a payment will be made to honour a guarantee. As at March 31, 2009, INAC has issued loan guarantees of $1,780,871,000 ($1,682,352,000 in 2008) for which a liability of $1,800,000 ($1,800,000 in 2008) has been recorded. INAC's authority limit for issuing loan guarantees under its On Reserve Housing Guarantee program is $2.2 billion ($1.7 billion in 2008).

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15. Employee Benefits

Pension Benefits

INAC's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. For the year ended March 31, 2009, the expense amounts to $43,660,000 ($37,978,000 in 2008), which represents approximately 2.0 times (2.1 in 2008) the contributions by employees.

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

Severance Benefits

INAC provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

(in thousands of dollars)

	2009	2008
Accrued benefit obligation, beginning of year	58,502	56,349
Expense for the year	25,818	8,735
Benefits paid during the year	(5,771)	(6,582)
Accrued benefit obligation, end of year	78,549	58,502

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16. Contractual Obligations

The nature of INAC's activities can result in some multi-year contracts and obligations whereby the Department will be obligated to make future payments when the goods or services are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

	2010	2011	2012	2013	2014 and thereafter	Total
Transfer payments	1,549,000	811,000	560,000	519,000	1,152,000	4,591,000

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17. Related Party Transactions

INAC is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. INAC enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, INAC received services which were obtained without charge from other Government departments as presented below.

a) Services provided without charge

During the year INAC received without charge from other departments, accommodation, the employer's contribution to the health and dental insurance plans, workman's compensation coverage, and legal services. These services without charge have been recognized in INAC's statement of operations as follows:

(in thousands of dollars)

	2009	2008
Accommodation provided by Public Works and Government Services Canada (PWGSC)	33,795	29,377
Contributions covering employers' share of employees' insurance premiums and expenditures paid by TBS (excluding revolving funds)	32,292	22,592
Workers' compensation coverage provided by Human Resources Canada	516	587
Salary and associated expenditures for legal services provided by Justice Canada	19,095	21,212
Total	85,698	73,768

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

b) Payables outstanding at year-end with related parties

(in thousands of dollars)

	2009	2008
Accounts payable to other government departments and agencies	17,303	15,211

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18. Transfer from Other Government Department

Effective June 1, 2008, pursuant to Order-in-Council P.C. 2008-805, Indian Residential Schools Resolution Canada (IRSRC) was amalgamated and combined with INAC under the Minister of INAC.

Accordingly, the following assets and liabilities related to IRSRC have been included in INAC's financial statements at March 31, 2009:

(in thousands of dollars)

Assets:
Accounts receivable and advances	5,035
Tangible capital assets (net book value) (Note 10)	3,276
	8,311
Liabilities:
Accounts payable	84,210
Vacation and compensatory leave	478
Employee severance benefits	6,405
Allowance for claims and litigation (Note 14)	910,182
	1,001,185
Adjustment to equity of Canada	992,874

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19. Prior Period Error

In 2008, INAC recorded an allowance of $10,618,915,000 as an estimate of the likely liability that will result from the hundreds of claims and pending and threatened litigation cases outstanding against the Department. In 2009, it was discovered that some of those claims had been improperly recorded as a likely liability. The financial statements of 2008 have been restated to correct this error. There is no effect in 2009.

The effect of the restatement on the 2008 financial statements is summarized below.

(in thousands of dollars)

	Effect on 2008
Decrease in expenses for claims and litigation	1,511,506
Decrease in net cost of operations	1,511,506
Decrease in allowance for claims and litigation	1,511,506
Increase in equity of Canada	1,511,506

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20. Comparative Information

Comparative figures have been reclassified to conform to the current year's
presentation.