Archived - Indian and Northern Affairs Canada Financial Statements for the Year Ended March 31, 2008 (Unaudited)

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). INAC is named as a department in Schedule I of the Financial Administration Act.

INAC's mission is to support First Nations, Inuit and Northerners in achieving their social and economic aspirations; in developing healthy and sustainable communities; and in more fully participating in and benefiting from Canada's political, social and economic development.

INAC is generally 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.

In order to deliver its mission and achieve its mandate, INAC has structured its operations along five strategic outcomes as follows:

1. 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.
   
   
2. People - Activities within this strategic outcome focus primarily on Aboriginal people on reserves and on promoting access to a range and level of services comparable to those available to other Canadians. 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.
   
   
3. 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.
   
   
4. 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.
   
   
5. 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.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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 legislatio n or authorization for payment receives Parliamentary approval prior to the co mpletion of the financial statements;
   • Contributions are recognized in the ye ar in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement;
   • Vacation pay and compensatory leave are ex pensed 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
6. 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 ex penses 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.
7. Accounts and Loans Receivable
   
   Accounts and 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.
8. 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.
   
   
   • 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.
   • Loan guarantees - 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 allowance for losses on outstanding loan guarantees is based upon forecasting models developed by program areas.
9. 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

10. 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.

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)

b) Appropriations provided and used

(in thousands of dollars)

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

(in thousands of dollars)

4. Expenses

The following table presents details of expenses by category:

(in thousands of dollars)

5. Revenues

The following table presents details of expenses by category:

(in thousands of dollars)

The Norman Wells 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.

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.

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.

The treaty land entitlement relates to a series of reimbursement payments received from the Province of Saskatchewan pursuant to an Amended Cost Sharing Agreement between INAC and the Province of Saskatchewan dated September 22, 1992. The payments were a reimbursement of savings that was agreed the Province would recognize as a result of converting certain Northern communities to reserve status. These savings were agreed to be reimbursed over a period of 13 years. The last of these payments was made on March 1, 2007.

6. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

(in thousands of dollars)

7. Loans Receivable

The following table presents details of loans receivable:

(in thousands of dollars)

8. 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)

9. Tangible Capital Assets

(in thousands of dollars)

Amortization expense for the year ended March 31, 2008 is $7,607 ($5,243 in 2007).

10. 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)

11. 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, 2008, INAC had 12 outstanding settled claims (13 in 2007). Payments totalled $128,000,000 in 2008 ($192,330,000 in 2007).

The present value of the liability for settled claims at March 31, 2008 is $546,534,000 ($642,160,000 in 2007). Future scheduled claim payments are as follows:

(in thousands of dollars)

12. 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.

13. Employee Benefits

14. 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)

15. 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 in part (a).

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)

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)

16. Subsequent Events

a) Indian Residential Schools Resolution Canada - Pursuant to Order in Council P.C. 2008-805 dated April 25, 2008, Indian Residential Schools Resolution Canada (IRSRC) was amalgamated and combined with INAC under the Minister of INAC, effective June 1, 2008.

This amalgamation will result in an equity adjustment in the 2008-2009 fiscal year. At March 31, 2008, the net assets of IRSRC included total assets of $13,844,000 and total liabilities of $1,083,965,000. IRSRC's assets are comprised mainly of accounts receivable and tangible capital assets, while their liabilities are comprised mainly of accounts payable and allowances for claims and litigation.

For the year ended March 31, 2008, IRSRC's net cost of operations was ($1,306,068,000), comprised mainly of transfer payments to First Nations and First Nations organizations and professional and special services.

b) Mackenzie Gas Project – Pursuant to Order in Council P.C. 2007-1888 dated December 6, 2007, the powers, duties and functions of the Minister of INAC under the Mackenzie Gas Project Impacts Act in relation to the Mackenzie Gas Project (the Project) were transferred to Industry Canada.

However, further to a Memorandum of Understanding between the two departments, INAC continued to operate the Project until March 31, 2008. Effective April 1, 2008, operational control of the Project was transferred to Industry Canada.

This transfer will result in an equity adjustment in the 2008-2009 fiscal year. For the year ended March 31, 2008, total expenditures relating to the Project totalled $8,479,000, comprised mainly of salaries, operating expenditures, and contributions.

c) Ministerial Loan Guarantees – INAC's On Reserve Housing Guarantee program authority of $1.7 billion to guarantee loans made by approved lenders as defined in the National Housing Act, as well as loans made by provincial corporations or their agents and by Canada Mortgage and Housing Corporation, was exceeded on May 26, 2008.

The Department has taken remedial action to address this situation, including the implementation of a strengthened management control framework over the Ministerial Loan Guarantee process. The Department is currently preparing a Treasury Board submission, seeking an increase in the current authority limit, to be submitted for Treasury Board consideration and approval in the fall of 2008.

17. Comparative Information

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