Archived - Variance Analysis Summary: Aboriginal Affairs and Northern Development Canada - Financial Statements for the Year Ended March 31, 2012 *

PAYE - G&C External:
Decrease of $50M due to overall reduction of balances for most regions as a result of the continuous effort to implement the Policy on Payables at Year End (PAYE) and quarterly PAYE review by Corporate Accounting & Reporting.

$20M out of the total reduction occurred in Ontario region. $19M of the $20M related to a PAYE set up in 2008-09 to Minister of Finance for social services and released in 2011-12.

PAYE - O&M External:

• Decrease of $17M due to Out of Court settlement set up in 2010-11 (one time item).
• Increase of $27M mainly due to Settlements for the Indian Residential Schools claims. PAYEs were set up for 481 claims in 2011-12, increased from 316 in 2010-11.

The majority of the variance can be attributed to the increase in the Indian Moneys Suspense Account.

During 2011-12, total receipts credited to the Indian Moneys Suspense Account exceeded total releases by $8.2M. This explains the increase in the liability. The major source of this increase was receipts received for the Frog Lake Band due to a dispute between the band and Twin Butte Energy. All receipts related to the agreements in dispute, approximately $10M in 2011-12, have been placed in the suspense account.

The balances of the Indian Band Funds, Indian Savings Accounts and Indian Estates Accounts comprise the Indian Moneys Trust Accounts. Changes in balances result from total revenue credited to the accounts minus total disbursements made during the year.

In 2011-12, Indian Band Funds disbursements exceeded revenue by $209.8M. The decrease in the balance of the Indian Band Funds is primarily due to a court-mandated transfer of the Ermineskin Indian Band's capital trust fund balance on August 1, 2011. This transfer was performed under Section 64 of the Indian Act in the amount of $240.4M.

There were no significant change in the other Indian Moneys Trust Accounts.

Specific Claims:
$258M of the net decrease in balance can be explained by the settlement of 8 claims. The major settlements are shown below:

• $80.6M Roseau River Anishinable First Nation
• $149M Fort William

The remaining decrease can be attributed to the change in valuation when more precise estimates become available as claims progressed through the specific claims process.

Comprehensive Native Land Claims:
The net decrease in balance is largely attributable to a $398M reduction in liability for the Agreements-in-Principle (AIP) Mandates in the BC region due to the change of probability from likely to unlikely:

• Nuu-chah-nulth($228M)
• Lax'Kw'alaams ($157M).
• Hupacasath First Nation($13M)

To a lesser extent, removal of the Eeyou Marine settlement ($69M) to Settled Claims also contributes to the decrease.

The total decrease has been offset by a $37M increase of the Mandated amount for the Labrador Innu claim and by an increase of approx. $55M due to the variation in the value of the Final Domestic Demand Implicit Price Index (FDDIPI).

Increase in the liability for Giant Mine (in the Northern Region) as a result of the following:

• The pre-remediation period covered by the Site Stabilization Plan has been extended by four years. This has resulted in increased costs required for a longer period.
• Increase in NPV due to a decrease in applied discount rate based on Treasury Board guidance.
• 2011-12 liability now includes an estimate for employee benefits (EBP).

This represents a $7.5M decrease of liability in the Southern Region, resulting from a combination of the following:

• Expenditures reducing liability (minus $9.7 million);
• Reassessments of cost estimates and adjustments made to the Contaminated Sites Management Program's (CSMP) cost model (minus $30.6 million);
• New liabilities related to 72 sites that were assessed (plus $32.7 million).

There has been a decrease of $12.4M resulting from a change of responsibility for 10 sites. In 2010-11, it was unknown whether the responsibility lay with AANDC or a third party.

The above decrease was offset by an increase of $4.8 M for the sites where responsibility remains unknown. The increase of liability for these sites is due to the increase of the cost model estimate with more historical data being available, as well as an adjustment due to inflation.

Employee Severance Benefit Liability is based on a calculation promulgated by the Office of the Comptroller General of Canada.

The 2011-12 decrease was mainly due to a one-time payment of $42M for the severance pay cash out related to severance elimination for certain employee groups (including CR, AS, PM etc.).

The decrease was offset by an increase in liability calculated with a higher discount rate of 25.3% (increased from 23.79% in 2010-11).

The decrease in Due from the Consolidated Revenue Fund can be attributed to the following:

• Decrease in regular accounts payable ($122M) (see SFP Tab 1).
• Decrease in PAYE - G&C External ($50M) (see SFP Tab 1).
• Decrease in Indian Band Funds ($209M) (see SFP Tab 4).

Variance represents the change in the expense related to the Settled Claims liability from 2010-11 to 2011-12.

During 2011-12, the Settled Claims liability and corresponding expense decreased by $75M, resulting from $158M payments for the year which was offset by an addition of a comprehensive land claim for Eeyou Marine region and increase in NPV due to lower interest rate. Please see SFP Tab 5 "Variance Summary - Settled Claims" for details.

During 2010-11, there was an increase of $56M in the Settled Claims liability and corresponding expenses mainly due to accrual of liabilities for future comprehensive land claim settlements for Maa-Nulth First Nations.

The Nutrition North Canada program (NNC) was implemented on April 1, 2011. NNC has replaced the Canada Food Mail program which was managed by Canada Post Corporation in our care. These funds were transferred from Vote 15.

In 2010-11, the expenses incurred by Canada Post Corporation for the Canada Food Mail program was $59M, reported as Operating Expenses (Northern parcel service) in 2010-11 Financial Statements.

This expense represents the change in the Environmental Liability balance (in the Southern Region) during the fiscal year.

2011-12 decrease of $7.5M in the liability and corresponding expenses resulting from a combination of the following:

• Expenditures reducing liability (minus $9.7 million);
• Reassessments of cost estimates and adjustments made to the Contaminated Sites Management Program's (CSMP) cost model (minus $30.6 million);
• New liabilities related to 72 sites that were assessed (plus $32.7 million).

2010-11 decrease of $52.1M in the liability and corresponding expenses was a net result of a $164.7M decrease in liability for 427 sites and a $112.5M increase in liability for 239 sites.

The total variance can be explained by a $13.8M decrease of adjustments to payables at year end (PAYE).

Since 2009-10, a departmental effort has been undertaken to evaluate existing balances of PAYE in conjunction with the implementation of the policy on PAYE. Regions were asked to remove any outstanding balances that did not meet the requirements outlined in the policy and to provide justification for any remaining balances. This effort continues, but required adjustments have diminished in size.

This expense represents the change in the Provision for Claims and Litigation for specific claims and comprehensive claims.

Decrease of $722M in the 2011-12 liability: This decrease was mainly due to settlement and change in valuation of specific claims $351M, reduction of mandated amounts for AIP mandates in the BC region $398M. (See SFP Tab 6 "Variance Summary - Provision for Claims and Litigation" for details)

Decrease of $1,043M in the 2010-11 liability: The majority of the decrease can be explained by the settlement of 19 specific claims totalling $666M and a decrease of the valuation in the liability as more precise estimates became available in the specific claims process.

This expense represents the change in the Environmental Liability balance (Northern Region) during the fiscal year.

2011-12 increase of $363M in liability and corresponding expenses represents the increased environmental liabilities for several sites (primarily Giant Mine and Faro Mine) and additional liabilities resulting from the identification of new sites. See SFP Tab 7 "Variance Summary - Environmental Liabilities" for more details.

2010-11 increase of $166M in liability and corresponding expenses was due to an increase in environmental liabilities in the Faro Mine and Giant Mine.

The decrease of expenditures in legal services provided by the Department of Justice is attributed to:

• Implementation of Law Practice Model (LPM) $2.1M: LPM was a department-wide exercise in Justice to reduce the cost of legal services by changing the mix of employees, increasing the proportion of junior counsel and decreasing the proportion of senior counsel.
• Reduction in Justice corporate overhead costs $1.7M

The 2011-12 annual budget cap-related expenses (including travel, hospitality, conference and seminars) was $36.3M, which was based on the 2010-11 actual spending on those activities. The Department also committed internally to reduce the actual expenditures at the 2010-11 level minus 5% with the exception of the Indian Residential Schools Adjudication Secretariat (IRSAS).

2011-12 cap-related expenses were $31M, well below the cap of $36.3M. The $4.8M reduction in total travel and relocation actual expenditures represents a decrease of 13%, well above the target of 5%.

Travel costs for public servants and non-public servants represent the most significant portion of expenses which fall under the targeted reductions. These costs decreased by $4.6M in 2011-12.

This represents payments made to the Province of British Columbia according to the Maa-Nulth Treaty which came into effect in 2011-12, including:

• Adjustment Fund payment $4.1M
• Cost-Sharing of Third Party Costs $1.4M

Direct Loans:
During 2011-12, there was a significant increase of $9.1M to the allowance and corresponding bad debt expense due to the increase in the total number of Specific Claims outstanding (141 in 2011-12 vs. 135 in 2010-11). Specific Claims are fully recorded as an allowance at the same time the receivable is created. (Also see SFP Tab 12 "Variance Summary - Loans Receivable")

During 2010-11 the allowance and corresponding bad debt expense decreased by ($1.0 M) due to several large value Specific Claims settlements which resulted in a net decrease to the allowance.

Guaranteed Loans:
In 2011-12, interest in the amount of $2M was accrued on outstanding doubtful loans. Interest on doubtful loans is recorded as bad debt expense.

The adjustment made after the asset valuation exercise in 2010-11 resulted in a slight decrease to the allowance and a credit to bad debt expense ($1.4 M).

Expenses incurred on behalf of government include bad debt expenses recorded on loans receivable. Please see EXP Tab14 "Variance Summary - Bad Debt" for details on the following variances:

• Direct loans $10.1M
• Guaranteed loans $3.5M

This expense represents the change in the Provision for Claims and Litigation for litigation claims, non-litigation claims and Indian Residential Schools claims.

Decrease of $480M in the 2011-12 liability: This is mainly due to the reduction of liability for Indian Residential School claims, which is primarily attributed to the settlement of more than 4,200 claims during the year. (See SFP Tab 6 "Variance Summary - Provision for Claims and Litigation" for details)

Increase of $656M in the 2010-11 liability: This can be explained the addition of 10,000 Indian Residential School claims to the department's estimate.

The decrease in oil and gas royalties was largely due to decreased oil production.

The decline in oil production in the Norman Wells field resulted from the temporary shutdown of the Rainbow pipeline and operation of the Enbridge pipeline at reduced capacity from April to August 2011.

The oil production decline in the Cameron Hills field resulted from the natural depletion of the oil field and limited production from three wells due to mechanical problems with pumping equipment.

Two factors contributed a significant increase in forfeiture revenue: Failure to drill a well on the lands by the end of Period 1; and the surrender and expiry of a number of exploration licences.

In addition, some exploration licences terminated in 2010-11 but the accounting of eligible expenditures was concluded in 2011-12.

The decrease of expenditures in legal services provided by the Department of Justice is attributed to:

• Implementation of Law Practice Model (LPM) $2.1M: LPM was a department-wide exercise in Justice to reduce the cost of legal services by changing the mix of employees, increasing the proportion of junior counsel and decreasing the proportion of senior counsel.
• Reduction in Justice corporate overhead costs $1.7M

Budget carryforward for which AANDC is seeking TBS approval:

• Operating budget carryforward $39M
• Capital budget carryforward $1M
• Carryforward of liabilities for Outstanding Collective Agreements $2M

Late reprofiling requests from 2011-12 to 2012-13 for which the Department is seeking TBS/DOF approval. Major items include:

• Specific Claims - Justice At Last $17.4M
• Indian Residential Schools Settlement Agreement- Commemoration Funding $7.4M