Archived - Financial Statements for the year ended March 31, 2011 (unaudited)

1. Authority and Objectives

The Department, under its legal name the Department of Indian Affairs and Northern Development, was established by the Government Organization Act, 1966 and continued by the Department of Indian Affairs and Northern Development Act (R.S., 1985, c. I-6). It is named in Schedule I of the Financial Administration Act. However, the Department is more commonly known by its applied title under the Federal Identity Program (FIP) as Aboriginal Affairs and Northern Development Canada (AANDC).

AANDC is one of the federal government departments responsible for meeting the Government of Canada's obligations and commitments to First Nations, Inuit and Métis, and for fulfilling the federal government's constitutionally mandated role in the North. The mandate of the Department is derived largely from the Department of Indian Affairs and Northern Development Act, the Indian Act and its amendments, as well as numerous other statutes, negotiated agreements and relevant legal decisions.

To deliver on its mandate, AANDC has structured its operations along seven strategic outcomes as follows:

1. People - Activities within this strategic outcome are dedicated to achieving a Canada where there is strengthened individual and family well-being for First Nations and Inuit.  Program activities are designed to:
   • Provide tools to achieve better educational outcomes for First Nations and Inuit;
   • Support safety and well-being through the delivery of social services; and
   • Enhance First Nations' capacity to manage their individual affairs.
2. Government - Under this strategic outcome, activities enable and support good governance and effective institutions for First Nations and Inuit.  Program activities are designed to:
   • Support stable, effective First Nations and Inuit governments;
   • Provide legal certainty over ownership and use of lands and resources; and
   • Provide approved payments to Aboriginal groups for settlement of claims.
3. Economy - This strategic outcome concentrates on establishing a supportive investment/business climate to enable First Nations, Inuit and Métis people, their communities and their businesses to seize economic opportunities.  These activities promote:
   • Sustainable business development;
   • Investment leading to jobs in communities; and
   • Management of infrastructure facilities.
4. North - Through this strategic outcome, AANDC fulfills the federal government's constitutionally mandated responsibilities in Canada's three northern territories. Program activities are designed to:
   • Strengthen northern governments for all Northerners;
   • Improve Northerners' health and well-being; and
   • Support the sustainable development of the North's natural resources.
5. Land - This strategic outcome focuses on the sustainable management of First Nation and Inuit lands, resources and environment. Program activities support:
   • First Nations' governance over land, resources and environment;
   • Strengthening the social and economic well-being of communities; and
   • Economic development and encourage investment.
6. Office of the Federal Interlocutor - Under this strategic outcome, activities focus on improving the socio-economic well-being of Métis, Non-Status Indians and urban Aboriginal people. These activities support:
   • Capacity development within Métis and Non-Status Indian organizations;
   • Urban Aboriginal people in taking advantage of economic opportunities; and
   • Respect for Aboriginal rights of Métis and developing membership systems.
7. Internal Services - Under this strategic outcome, activities are designed to support the effective delivery of AANDC's programs and services and other corporate obligations of the organization. These activities include:
   • Management and oversight services;
   • Financial management services; and
   • Legal services.

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

1. Parliamentary authorities - AANDC is financed by the Government of Canada through Parliamentary authorities.  Financial reporting of authorities provided to AANDC does not parallel financial reporting according to generally accepted accounting principles since authorities 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 authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.
2. Net cash provided by Government - AANDC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by AANDC is deposited to the CRF and all cash disbursements are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.
3. Amounts due from/to the CRF - These amounts are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that AANDC is entitled to draw from the CRF without further appropriations to discharge its liabilities.
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 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, provided that the transfer is authorized and a reasonable estimate can be made;
   • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment; and
   • Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, legal services, and workers' compensation 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 pension plan administered by the Government. AANDC'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.
7. Accounts receivable - Accounts receivable are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.
   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.
8. Loans receivable - Loans receivable are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.
   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.
   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.
9. 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.
10. 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.
11. 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.
    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	20 years
    Administrative, institutional, recreational and residential	40 years
    Works and infrastructure	30 years
    Machinery and equipment
    Communication equipment	5 years
    Lab, scientific and testing equipment	10 years
    Construction, excavating and clearing equipment	15 years
    Generating equipment	15 years
    Informatics hardware and software	3 years
    Ships and boats	10 years
    Motor vehicles
    Passenger vehicles and light trucks	5 years
    Heavy trucks	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

12. Measurement uncertainty - The preparation of these financial statements 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 contingent liabilities, environmental 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 Authorities

AANDC is financed by the Government of Canada through Parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary authorities in prior, current or future years.

Accordingly, AANDC 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 authorities used

b) Authorities provided and used

4. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

5. Interest Receivable

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

6. Loans Receivable

The following table presents details of loans receivable:

Reserve for losses on loans - AANDC has access to an annual $2 million statutory authority for funding payments to lending institutions to honour loan guarantees.  Payments made in excess of the $2 million authority limit are charged to program expenses and funded by budgetary authorities.

AANDC charged $1,354,000 to its reserve in 2011 ($1,872,000 in 2010) for payments covering the default of 3 loans (10 in 2010).

7. 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 AANDC for the purpose of future settlements of Aboriginal land claims. Following the ratification of a negotiated agreement, these assets are transferred to the Aboriginal group.

Changes in this account are summarized in the following table:

8. Tangible Capital Assets

9. Accounts Payable and Accrued Liabilities

The following table presents details of accounts payable and accrued liabilities:

10. Other Liabilities

The following table presents details of other liabilities:

11. Trust Accounts

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

Moneys collected or received for the use and benefit of these groups are deposited to the CRF.  Pursuant to Section 61(2) of the Indian Act, interest on Indian moneys held in the CRF is allowed at a rate fixed from time to time by the Governor-in-Council.  Interest accumulated in the accounts is compounded semi-annually.

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

12. Settled Claims

The liability for settled claims represents AANDC'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 AANDC 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, 2011, AANDC had 12 outstanding settled claims (11 in 2010).  Payments totalled $99,000,000 in 2011 ($104,000,000 in 2010).

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, 2011 is $623,684,000 ($538,411,000 in 2010).

Future scheduled claim payments are as follows:

13. 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.

14. Employee Future Benefits

Pension benefits

AANDC'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, 2011, the expense amounts to $49,260,000 ($50,540,000 in 2010), which represents approximately 1.9 times (1.9 in 2010) the contributions by employees.

AANDC'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

AANDC 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 authorities. Information about the severance benefits, measured as at March 31, is as follows:

15. Restricted Equity of Canada

A portion of the Department's equity is restricted to be used for a specific purpose. Related revenues and expenses are included in the Statement of Operations.

The Environmental Studies Research Fund account was established pursuant to the Canada Petroleum Resources Act and related regulations to record levies stipulated under the Act. The balance of the account is to be used to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration, development and production activities on frontier lands authorized under this Act or any other Act of Parliament should be conducted. The balance of the account at the end of the year is included in Equity of Canada. Activity in the account is as follows:

16. Contractual Obligations

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

17. Related Party Transactions

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

a) Common services provided without charge by other government departments

During the year, AANDC received services without charge from certain common service organizations related to accommodation, the employer's contribution to the health and dental insurance plans, legal services and workers' compensation coverage. These services provided without charge have been recorded in AANDC's Statement of Operations as follows:

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the 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 in AANDC's Statement of Operations.

b) Other transactions with related parties

18. Segmented Information

Presentation by segment is based on AANDC's program activity architecture.  The presentation by segment is based on the same accounting policies as described in the summary of significant accounting policies in Note 2.  The following table presents the expenses incurred and revenues generated for each of AANDC's strategic outcomes, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

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.  AANDC 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.  AANDC 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 AANDC and Imperial Oil.  This contract prescribes a profit-sharing formula and sets out a payment schedule, whereby payments are made annually to AANDC 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.

19. Change in Accounting Estimate

During the year, AANDC undertook a comprehensive review of its accounting estimate for certain contingent liabilities.  Using the improved costing methodology implemented in the prior year and new information which became available, the accounting estimate for these contingent liabilities increased significantly.

The net effect of the change on the amounts reported for expenses and liabilities recognized in the current year is summarized below.

(in thousands of dollars)

20. Adoption of New Accounting Policies

During the year, AANDC adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements which is effective for the Department for the 2010-11 fiscal year. The major change in the accounting policies of the Department required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively with the following impact on the comparatives for 2009-10:

21. Comparative Information

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

Note to reader

With the Treasury Board Policy on Internal Control, effective April 1, 2009, departments are now required to demonstrate the measures they are taking to maintain an effective system of internal control over financial reporting (ICFR).

As part of this policy departments are expected to conduct annual assessments of their system of ICFR, establish action plan(s) to address any necessary adjustments, and to attach to their Statements of Management Responsibility a summary of their assessment results and an action plan.

Effective systems of ICFR aim to achieve reliable financial statements and to provide assurances that:

• Transactions are appropriately authorized;
• Financial records are properly maintained;
• Assets are safeguarded from risks such as waste, abuse, loss, fraud and mismanagement; and
• Applicable laws, regulations and policies are followed.

It is important to note that the system of ICFR is not designed to eliminate all risks, rather to mitigate risk to a reasonable level with controls that is balanced with, and proportionate to, the risks they aim to mitigate.

The system of ICFR is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess the effectiveness of associated key controls and adjust as required, as well as to monitor the system in support of continuous improvement. As a result, the scope, pace and status of those departmental assessments of the effectiveness of their system of ICFR will vary from one organization to another based on risks and taking into account their unique circumstances.

1. Introduction

This document is attached to the Aboriginal Affairs and Northern Development Canada (AANDC) Statement of Management Responsibility Including Internal Control Over Financial Reporting for the fiscal year 2010–11. As required by the Treasury Board Policy on Internal Control, effective April 1, 2009, this document provides summary information on the measures taken by AANDC to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides summary information on the assessments conducted by AANDC as at March 31, 2011, including progress, results, and related action plans, along with some financial highlights pertinent to understanding the control environment unique to the department.  This is the second annex produced by this department.

2. Control environment of AANDC relative to ICFR

The department recognizes the importance of setting the tone from the top to help ensure that staff at all levels understands their roles in maintaining effective systems of ICFR and is well equipped to exercise these responsibilities effectively.  The Department's focus is to ensure risks are managed well through a responsive and risk-based control environment that enables continuous improvement and innovation.

3. Assessment of AANDC's system of Internal Control over Financial Reporting

4. AANDC's assessment results during fiscal year 2010–11

5. AANDC's action plan