Archived - Financial Statements for the Year Ended March 31, 2012 (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 the federal government department primarily responsible for meeting the Government of Canada's obligations and commitments to First Nations, Inuit and Métis, and for fulfilling the federal government's constitutional responsibilities in the North. The mandate of AANDC 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 six strategic outcomes as follows:

1. People - Activities within this strategic outcome are dedicated to achieving a Canada where there is strengthened individual, family and community 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 First Nation individuals and families in being self-sufficient, secure and safe within supportive, sustainable communities;
   • Support responsible Federal stewardship of the legislative, administrative and treaty obligations for which AANDC is responsible; and
   • Contribute to a fair resolution of Indian residential schools.
2. Land and Economy – This strategic outcome supports the full participation of First Nations, Inuit and Métis individuals and communities in the economy. These program activities promote:
   • Viable Aboriginal businesses and opportunity-ready communities;
   • Timely administration of reserve lands and prudent management of contaminated sites; and
   • Infrastructure which protects the health and safety of First Nation communities.
3. 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 capable and accountable First Nation governments and institutions;
   • Build relationships between parties based on trust, respect, understanding, shared responsibilities, accountability, rights and dialogue; and
   • Create and maintain ongoing partnerships to support historical and modern treaty structures.
4. North - Through this strategic outcome, AANDC promotes self-reliance, prosperity and well-being for the people and communities of the North. Program activities are designed to:
   • Strengthen northern communities and people;
   • Support scientific research and technology in the North; and
   • Support the management, sustainable development and regulatory oversight of the North's natural resources.
5. 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:
   • Governance and management support;
   • Resource management services; and
   • Asset management services.
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 program 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.

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

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 Departmental Net Financial Position and in 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.
   
   The planned results amounts in the Statement of Operations and Departmental Net Financial Position are the amounts reported in the future-oriented financial statements included in the 2011–2012 Report on Plans and Priorities. The future-oriented financial statements for 2011–2012 have been restated to reflect the revenue net of non-respendable amounts. This restatement resulted in a $202,077,000 increase in net cost of operations before government funding and transfers. The future oriented financial statements have been reclassified to conform to the current year presentation with the exception of transferred operations. Planned amounts do not include segregation of transferred operations as the transfer was not contemplated at the time of the forecast.
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 made by AANDC 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 authorities 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 that gave rise to the revenues takes place. Revenues that are non-respendable are not available to discharge AANDC's liabilities. While the Deputy Minister is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and therefore presented in reduction of AANDC's gross revenues.
5. Expenses – Expenses are recorded on the accrual basis:
   • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses 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.
   • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
   • 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. 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 - Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. 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 AANDC becomes aware of the contamination and is obligated, or is likely to be obligated, to incur such costs. If the likelihood of AANDC'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. AANDC 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 the remaining term of lease or useful life of the improvement
    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 future benefits, the allowance for doubtful accounts 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 receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position 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

In addition to the amount for authorities available for future years presented above, some of the other lapsed amounts may become available to AANDC in the 2013 fiscal year, but due to the timing of parliamentary approvals, these amounts had not been approved at March 31, 2012. Additional information on the use of authorities, including explanation of variances and lapsed amounts, can be found in AANDC's Departmental Performance Report.

4. Accounts Payable and Accrued Liabilities

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

In Canada's Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012–2013. As a result, AANDC has recorded at March 31, 2012 an obligation for termination benefits in the amount of $20,971,000 as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5. Other Liabilities

The following table presents details of other liabilities:

6. Trust Accounts

The following table shows AANDC's financial obligations in its role as administrator of trust accounts:

7. 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, 2012, AANDC had 12 outstanding settled claims (12 in 2011). Payments totalled $158,000,000 in 2012 ($99,000,000 in 2011).

The present value of the liability for outstanding settled claims, calculated using the appropriate Consolidated Revenue Fund Monthly Lending Rate as published by the Department of Finance, at March 31, 2012 is $519,626,000 ($594,489,000 in 2011)

Future scheduled claim payments are as follows:

8. 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.

9. Employee Future Benefits

a) Pension benefits

AANDC's employees participate in the Public Service Pension Plan (the 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 AANDC contribute to the cost of the Plan. For the year ended March 31, 2012, the expense amounts to $51,786,000 ($49,260,000 in 2011), which represents approximately 1.8 times (1.9 in 2011) 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.

b) Severance benefits

AANDC provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

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

10. Accounts Receivable and Advances

The following table presents details of AANDC's accounts receivables and advances:

11. Interest Receivable

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

12. Loans Receivable

The following table presents details of loans receivable:

13. 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:

14. Tangible Capital Assets

(in thousands of dollars)

Effective November 15, 2011, AANDC transferred informatics hardware with a net book value of $2,734,000 to Shared Services Canada. This transfer is included in the adjustment columns (refer to note 18 for further details on this transfer).

15. Departmental Net Financial Position

A portion of AANDC's net financial position is restricted to be used for a specific purpose. Related revenues and expenses are included in the Statement of Operations and Departmental Net Financial Position.

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 Bowater Environmental Remediation Fund was established pursuant to a decision of the Commercial Division of the Superior Court in the Province of Quebec. The balance in the account is to be used to finance the remediation of environmental damage caused by Bowater Canadian Forest Products Inc. relative to a land lease issued by AANDC.

The balance of the funds at the end of the year is included in Departmental Net Financial Position. Activity in the funds is as follows:

16. Contractual Obligations

The nature of AANDC's activities can result in some multi-year contracts and obligations whereby AANDC 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. In addition, AANDC has an agreement for the provision of finance and administrative services to the Canadian Northern Economic Development Agency. 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 and Departmental Net Financial Position as follows:

The Government has centralized some of its administrative activities for purposes of efficiency, cost-effectiveness and economical 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 and Departmental Net Financial Position.

b) Other transactions with related parties

18. Transfers to Other Government Departments

Effective November 15, 2011, AANDC transferred responsibility for the provision of e-mail, data centre and network support services, including stewardship responsibility for the assets and liabilities related to the program, to Shared Services Canada. This transfer was performed pursuant to paragraph 2(a) of the Public Service Rearrangement and Transfer of Duties Act and Order-in-Council P.C. 2011–1297.

Accordingly, AANDC transferred the following assets and liabilities to Shared Services Canada on November 15, 2011:

In addition, the 2011 comparative figures have been reclassified on the Statement of Operations and Departmental Net Financial Position to present the revenues and expenses of the transferred operations. Total expenses related to transferred operations were $16,049,000 for 2012 ($30,087,000 for 2011).

During the transition period, AANDC continued to administer the transferred activities on behalf of Shared Services Canada. The administered expenses amounted to $9,765,000 for the year. These expenses are not recorded in these financial statements and are recorded in the financial statements of Shared Services Canada.

19. 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:

20. Accounting Changes

This note should be read in conjunction with note 21 - prior year corrections. Some of the 2011 restated amounts presented hereunder are the final restated amounts and are reported on the financial statements, while other amounts are also affected by prior year corrections and have been carried forward to note 21 for further restatement.

During 2011, amendments were made to Treasury Board Accounting Standards 1.2 - Departmental and Agency Financial Statements to improve financial reporting by government departments and agencies. The amendments are effective for financial reporting of fiscal years ending March 31, 2012, and later. The significant changes to the AANDC's financial statements are described below. These changes have been applied retroactively and comparative information for 2011 has been restated.

Net debt (calculated as liabilities less financial assets) is now presented in the Statement of Financial Position. Accompanying this change, AANDC now presents a Statement of Change in Departmental Net Debt and no longer presents a Statement of Equity.

Revenue and related accounts receivable are now presented net of non-respendable amounts in the Statement of Operations and Departmental Net Financial Position and Statement of Financial Position. The effect of this change was to increase the net of cost of operations before government funding and transfers by $281,086,000 for 2012 ($247,455,000 for 2011) and decrease total financial assets by $792,052,000 for 2012 ($775,044,000 for 2011).

Government funding and transfers, including the credit related to services provided without charge by other government departments, are now recognized in the Statement of Operations and Departmental Net Financial Position below "Net cost of operations before government funding and transfers". In previous years, AANDC recognized these transactions directly in the Statement of Equity of Canada. The effect of this change was to decrease the net cost of operations after government funding and transfers by $7,910,123,000 for 2012 ($8,210,088,000 for 2011).

The net effect of these changes on the 2011 comparative figures included in these financial statements is summarized below:

21. Prior Year Corrections

This note should be read in conjunction with note 20 - accounting changes. All 2011 restated amounts presented hereunder are the final restated amounts and are reported on the financial statements.

During the current year, it was discovered that some transactions had been improperly reported as accrued liabilities for the 2011 fiscal year. This led to a corresponding overstatement of the asset 'Due from Consolidated Revenue Fund'. Neither Parliamentary authorities nor departmental expenses for the 2011 fiscal year were affected by this misstatement.

It was also discovered that the liability for settled claims was overstated for the 2011 fiscal year, due to the recognition of an amount that had already been recognized as an accrued liability. The misstatement of the liability for settled claims was corrected during the 2012 fiscal year, while the accrued liability was extinguished by a cash payment.

During the 2012 third quarter contingent liability reporting exercise, a claim was reported for the first time. Upon further review, it was determined that this claim should have been reported in a prior year. This claim remains unresolved at March 31, 2012.

The net effect of these corrections on the 2011 comparative figures included in these financial statements is summarized below:

22. Comparative Information

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

Note to the 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 are 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.

1.0 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 2011–2012. 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, 2012, including progress, results, and related action plans, along with some financial highlights pertinent to understanding the control environment unique to AANDC. This is the third annex produced by this department.

2.0 Control environment of AANDC relative to ICFR

AANDC 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. AANDC's focus is to ensure risks are managed well through a responsive and risk-based control environment that enables continuous improvement and innovation.

3.0 Assessment of AANDC's system of Internal Control over Financial Reporting

4.0 AANDC's assessment results during fiscal year 2011–2012

5.0 AANDC's action plan