Archived - Aboriginal Affairs and Northern Development Canada — Future-Oriented Financial Statements for the Year Ending March 31, 2014

Future-Oriented Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31

Future-Oriented Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31

Future-Oriented Statement of Cash Flow (Unaudited)
For the Year Ended March 31

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).

Additional information is provided in Section I of AANDC's 2013-14 Report on Plans and Priorities(RPP).

2. Methodology and Significant Assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of the department as described in the RPP.

The information in the estimated results for fiscal year 2012-13 is based on actual results as at November 30, 2012 and forecasts for the remainder of the fiscal year. Estimated year end information for 2012-13 is used as the opening position for the 2013-14 planned results, and forecasts have been made for the planned results for the 2013-14 fiscal year.

The main assumptions are as follows:

• AANDC's activities will remain substantially the same as the previous year.
• Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.
• Accruals for new contingent liabilities and new environmental liabilities cannot be reasonably foreseen or quantified and have therefore been excluded from the forecast.
• Allowances for uncollectibility are based on historical experience. The generalhistorical pattern is expected to continue.

These assumptions are adopted as of December 31, 2012.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to accurately forecast final results for the remainder of 2012-13 and for 2013-14, actual results achieved for both years will vary from the forecastinformation presented, and this variation may be material.

In preparing the future-oriented financial statements AANDC has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include:

• The timing and amounts of acquisitions and disposals of tangible capital assets, which would affect gains/losses and amortization expense.
• The implementation of new collective agreements, which would affect salaries and employee future benefits.
• Interest rates, which would affect the net present value of settled claims.
• Economic conditions, which would affect the amount of revenue earned and the collectibility of loans receivable.
• Further changes to the operating budget through additional new initiatives or technical adjustments later in the year, which would affect forecasted expenditures.

Once the RPP is presented, AANDC will not be updating the forecast for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of Significant Accounting Policies

These future-oriented 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:

5. Parliamentary Authorities

AANDC receives most of its funding through annual parliamentary authorities. Items recognized in the Future-Oriented Statement of Operations and Departmental Net Financial Position and the Future-Oriented 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 authorities requested

b) Authorities requested

Authorities presented reflect current forecasts of statutory items, approved initiatives included and expected to be included in Estimates documents and, when reasonable estimates can be made, estimates of amounts to be allocated from Treasury Board central votes.

Forecast authorities requested for the year ending March 31, 2014 are the planned spending amounts presented in the 2013-14 RPP. Estimated authorities requested for the year ending March 31, 2013 include amounts presented in the 2012-13 Main Estimates and Supplementary Estimates (A) and (B), planned for presentation in Supplementary Estimates (C) and estimates of amounts to be allocated at year-end from Treasury Board central votes.

6. 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, 2014 an obligation for termination benefits in the amount of $0 ($3,534,000 in 2013) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

7. Other Liabilities

Indian moneys

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 overnor-in-Council. Interest accumulated in the accounts is compounded semi-annually.

There are three categories of Indian moneys administered by AANDC: Indian band funds, Indian savings accounts, and Indian estate accounts.

Indian band funds

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

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

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

Indian savings accounts

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

Sources of moneys include inheritances and per capita distribution of band funds. Moneys are generally disbursed from these accounts pursuant to an authorized request from an individual.

Indian estate accounts

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

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

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

Other trust accounts

Relative to AANDC's legislative mandate, trust accounts may also be established in accordance with settlement agreements, legislative authorities other than the Indian Act, or court decisions.

Claims and litigation

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

There are four significant types of claims faced by AANDC: comprehensive land claims, specific claims, general litigation claims, and claims arising from the legacy of Indian residential schools^{Footnote 1}.

Comprehensive land claims arise in areas of the country where Aboriginal rights and title have not been resolved by treaty or by other legal means. As at the date of preparation of these future-oriented financial statements, there are 81 comprehensive land claims under negotiation, accepted for negotiation or under review.

Specific claims deal with the past grievances of First Nations related to Canada's obligations under historic treaties or the way it managed First Nations' funds or other assets. The Government of Canada will pursue a settlement agreement with the First Nation when a claim demonstrates an outstanding lawful obligation. As at the date of preparation of these futureoriented financial statements, there are 389 specific claims under negotiation, accepted for negotiation or under review.

There are legal proceedings for 533 general litigation claims being pursued through the courts still pending as at the date of preparation of these future-oriented financial statements. There are also thousands of claims being managed by AANDC with respect to the legacy of Indian residential schools, including class action claims, as well as claims submitted under its Alternative Dispute Resolution process and its Independent Assessment Process.

AANDC has recorded a provision of $9,976,333,000 ($10,504,729,000 in 2013) as an estimate of the likely liability that will result from the above claims. This estimate includes projections based on historical rates and costs of settlement for similar claims. An additional amount of $5,099,186,000 ($5,099,186,000 in 2013) is considered uncertain as the probability of the occurrence or non-occurrence of the future event confirming that a liability existed at the financial statement date cannot be determined.

Environmental liabilities (Contaminated Sites)

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where AANDC is obligated or likely to be obligated to incur such costs^{Footnote 2}.

AANDC has identified 785 sites (791 sites in 2013) where such action is possible and for which a liability of $2,175,700,000 ($2,347,576,000 in 2013) has been recorded. AANDC has estimated additional clean-up costs of $6,024,000 ($6,024,000 in 2013) that have not been accrued, as these are not considered likely to be incurred at this time.

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

Loan guarantees

As at March 31, 2014, AANDC has issued loan guarantees under its On-Reserve Housing Guarantee program of $1,934,624,000 ($1,934,624,000 in 2013) and under its Indian Economic Development Guarantee program of $494,000 ($494,000 in 2013). AANDC's authority limit for issuing loan guarantees under these programs is $2.2 billion ($2.2 billion in 2013) and $60 million ($60 million in 2013) respectively.

A provision for losses on loan guarantees is recorded 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 provision is determined by applying the weighted average historical percentage of default to total outstanding loan guarantees. The provision is reviewed at least annually, with any changes being charged or credited to current year expenses.

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

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, 2014, the expense amounts to $46,248,000 ($50,167,000 in 2013), which represents approximately 1.8 times (1.8 in 2013) 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:

Direct loans portfolio

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

AANDC's direct loans portfolio has two active programs in support of this objective.

Native claimants

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

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

• before an agreement-in-principle for the settlement of a claim is reached, all loans issued are non-interest bearing;
• once an agreement-in-principle for the settlement of a claim is reached, all loans that remain outstanding and all loans subsequently issued are interest bearing at a rate equal to the rate established by the Minister of Finance in respect of borrowings with equivalent terms by Crown corporations;
• loans are due and payable, as to principal and interest, on the date on which the claim is settled, or on a date fixed in the loan agreement;
• loans may be restructured, including forgiveness of a portion of the principal or interest in arrears, when the borrower cannot meet the terms of the original loan agreement; and
• AANDC may seek security for loans when deemed appropriate. When an agreement-in-principle is reached for the settlement of a claim, any accrued interestreceivable is capitalized semi-annually as part of the principal amount owing on the loan. Aftera final agreement is reached, any accrued interest receivable outstanding is capitalized annually as part of the principal amount owing on the loan.

First Nations in British Columbia

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

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

a) loans issued after April 1, 2004 and after the date on which an agreement-in-principle for the settlement of a treaty is reached shall be non-interest bearing unless the loans become due and payable during this period.

Other direct loans

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

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

Defaulted guaranteed loans portfolio

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

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

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.

The various loan guarantee programs are described below.

On-reserve housing guarantee program

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

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

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

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

Indian economic development guarantee program

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

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

Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Accrued interest on loans issued under this program is not capitalized. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of AANDC.

Other defaulted guaranteed loans

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

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

Expenses and revenues disclosed in (b) exclude common services provided without charge which are already disclosed in (a).

20. 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 4. 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:

The major categories of revenues are described below.

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.

21. Comparative Information

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