Archived - AANDC - Quarterly Financial Report - For the quarter ended December 31, 2013

1. Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. It should be read in conjunction with the Main Estimates and Supplementary Estimates (A) and (B) for fiscal year 2013-14 as well as Canada's Economic Action Plan 2013 (Budget 2013). For purposes of both the Main and Supplementary Estimates, the Department is referred to as Indian Affairs and Northern Development.

The quarterly financial report has not been subject to an external audit or review.

1.1 Authority, Mandate and Program Activities

Aboriginal Affairs and Northern Development Canada (AANDC) supports Aboriginal people (First Nations, Inuit and Métis) and Northerners in their efforts to:

• Improve social well-being and economic prosperity;
• Develop healthier, more sustainable communities; and
• Participate more fully in Canada's political, social and economic development – to the benefit of all Canadians.

Further details on AANDC's authority, mandate and program activities can be found in Part II of the Main Estimates and the Report on Plans and Priorities.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting and a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. The accompanying Statement of Authorities includes AANDC's spending authorities granted by Parliament and those used by the Department consistent with the Main Estimates and Supplementary Estimates (A) and (B) as well as the Operating Budget Carry Forward, the Capital Budget Carry Forward, Reimbursement of Paylist Requirements and Compensation Adjustments for the 2013-2014 fiscal year.

The authority of Parliament is required before monies can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-2013 Main Estimates. In fiscal year 2012-2013, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. Additional funding was sought by AANDC through the 2012-2013 Supplementary Estimates (B). The department received this additional authority net of the planned savings or other amounts transferred by Treasury Board authority to a frozen allotment. In 2013-2014, the changes to departmental authorities were reflected in the 2013-2014 Main Estimates tabled in Parliament.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

1.3 AANDC's Financial Structure

The parliamentary vote structure of AANDC is made up of $8.7 billion in budgetary authorities of which $8.6 billion requires approval by Parliament; referred to as voted amounts. The remaining $165.3 million represents statutory authorities that do not require additional approval and are provided for information purposes.

Voted amounts totalling $8.6 billion are split between Operating Expenditures, Capital Expenditures and Grants and Contributions as follows:

• Operating Expenditures represents approximately $1.5 billion (18.1%), this includes $559.8 million (6.5%) for the Settlement Allotment (Independent Assessment Process and Alternative Dispute Resolution) and $160.6 million (1.9%) for the Assessment, Management and Remediation of Federal Contaminated Sites.
• Capital represents approximately $19.2million (0.2%)
• Grants and Contributions represent approximately $7.0 billion (81.7%)

More detailed information about AANDC's financial structure, including information about the fiscal cycle, cost drivers, expenditure trends, etc. can be found online.

2. Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

This section highlights the significant items that contributed to the net increase or decrease in resources available for the year and actual expenditures for the quarter ended December 31st, 2013. The explanation of variances considers that changes under 5% would have minimal impact on interpretation of results.

2.1 Statement of Authorities (Table 1) – Budgetary & Non-Budgetary

The Quarterly Financial Report reflects the year over year change in authorities for the period from April 1st to December 31st, 2013. Total year-to-date authorities available for use in the third quarter of 2013-14 were $8,792.7 million compared to $8,516.1 million for the same quarter of the prior year, representing an increase in Departmental Authorities of $276.6 million. The total 2013-14 year-to-date authority increase of $276.6 million over 2012-13 can be explained as follows:

• As shown in the table above, the $276.6 million increase in total authorities is primarily attributed to the increase of $90.1 million in Operating expenditures authority and $198.6 million in Grants and Contributions authority.
• The increase of $90.1 million in Operating expenditures authority is primarily due to an increase of funding for out-of-court settlements ($61 million) and the assessment, management and remediation of federal contaminated sites ($58 million). This increase is partially offset by a decrease in funding profile for the Indian Residential Schools Settlement Agreement ($14.8 million) and the savings identified as part of the Budget 2012 Spending Review ($11.6 million),
• The increase of $198.6 million in Grants and Contributions authority is primarily due to an increase in funding for specific claims activities ($138.2 million), ongoing Indian and Inuit programs providing access to basic services ($100.6 million) and initiatives to improve First Nations Education ($70 million). This increase is partially offset by a decrease in funding for First Nations Infrastructure Fund ($53.8 million), Income Assistance Program ($19.8 million), the savings identified as part of the Budget 2012 Spending Review ($19.7 million) and the Indian Residential Schools Settlement Agreement ($10.3 million).

2.2 Statement of Departmental Budgetary Expenditures by Standard Object (Table 2)

Highlights of Fiscal Quarter ended December 31, 2013

Departmental spending in the third quarter of 2013-14 was $10.7 million higher than the same period in 2012-13. This net increase of 0.5% can be attributed mainly to an increase of $30.5 million in professional and special services (standard object 4) and an increase of $9.8 million in personnel (standard object 1). These increases were offset by decreases of $12.4 million in other subsidies and payments (standard object 12), $11.3M in transfer payments (standard object 10), $4.9M in acquisition of land, buildings and works (standard object 8) and $1.3M in transportation and communications (standard object 2).

The increase of $30.5 million in professional and special services are a result of timing differences for Department of Justice billings and their related payments for litigation services provided to the department.

The increase of $9.8 million in personnel is primarily due to the payroll schedule in which there was one more pay in the month of December compared to the previous fiscal year.

The decrease of $12.4M in other subsidies and payments is related to the timing of the payment of claimant awards primarily related to the Indian Residential School Settlement.

The decrease of $11.3M in transfer payments is largely a result of the timing of specific claims settlement payments.

Highlights of Fiscal Year-to-Date (YTD) Results

Year-to-date departmental spending at December 31, 2013 resulted in a net increase of $10.6M varied from one quarter to the other. The first quarter had a decrease in spending of $51.5M, an increase of $51.4M in the second quarter and an increase of $10.7M in the third quarter. The variances are mainly as a result of timing differences related to both Department of Justice billings and legal settlement and specific claims payments.

Year-to-Date Comparison of Budgetary Authorities and Expenditures as of December 31, 2013
($ millions)

Note: 2013-14 Q2 – No change in authorities
Figures may not add due to rounding

3. Risks and Uncertainties

3.1 Risks and Uncertainties

Risk management and risk-based decision-making have become a critical component in the way the Department prioritizes and conducts its business.  In September 2013, the Department completed an assessment of its top risks.  The process involved a documentation review of existing risk profiles at the program, region and sector levels followed by consultation sessions on each of the nine corporate risk areas.  The risk leads were actively involved, summarizing and presenting their assigned risk(s) to their colleagues on the Senior Team Management Team for discussion, then voting.  The results of the corporate risk assessment are one of many critical inputs into the Department's annual priority setting exercise.

Environmental Risk and Legal Risk are highest for AANDC in this year's assessment, meaning that the Department has identified these risks as potential areas of concern and will proactively develop mitigation strategies to manage them.  Both of these risk areas have significant financial implications for the Department. The Department's legal and operating environments are complex and continually evolving.  AANDC is the lead department responsible for the negotiation and implementation of self-government and land claims agreements.  Comprehensive land claims agreements and self-government agreements are legally binding, and are given further legal effect through implementing legislation.  Many are also constitutionally protected under section 35 of the Constitution Act, 1982.  Supreme Court and other court rulings on Aboriginal and treaty rights have a major impact on AANDC's mandate and the way the Department works to fulfill the Crown's legal obligations. Canada's historic relationship with Aboriginal peoples and the ongoing refinement of constitutional concepts and questions add to the complexity of litigation, as well as expose the Government of Canada to landmark court decisions and significant financial liabilities.  In an environment of rising costs, the Department is responsible for the long term management of major contaminated sites north of 60 (in particular, the Giant and Faro mines). Regulatory gaps are an issue and the Department also has to consider its role as it supports First Nation communities south of 60, as they pursue economic development opportunities around resource extract and development.

3.2 Risk Mitigating Strategies

Corporate and financial risk mitigation activities are reflected in the departmental planning documents and are monitored by senior management on a quarterly basis and modified as required. Cost containment measures are monitored monthly and review and challenge function is done through the Financial Status Report. A number of practices and internal controls help to manage risk departmentally, including senior management governance and oversight as established through committees, existing policies and procedures that ensure an appropriate level of monitoring, review and reporting.

A number of mitigation strategies are in place to manage legal risks and related costs. AANDC and the Department of Justice has enhanced its strategic planning process to better align the allocation of resources and the setting of priorities within the context of legal risk-management. Other advancements in regard to litigation hold procedures are being implemented in conjunction with key stakeholders of other departments. AANDC has also developed litigation risk scales to facilitate consistent sophisticated categorization, measurement and description of non-legal risks stemming from litigation.

In response to the Environmental Risk, the Department is developing options to improve waste management on reserve. AANDC is also supporting reforms to environmental regulations/legislation (north and south of 60). The Contaminated Sites Program is working with Environment Canada to analyze the remaining contaminated sites south of 60 and develop a funding strategy. For the North, new governance structures and processes are being established for the larger contaminated sites.

4. Significant changes in relation to Operations, Personnel and Programs

Significant changes in relation to Operations, Personnel and Programs during the third quarter of fiscal year 2013-14 include:

• Mr. Scott Stevenson joined Aboriginal Affairs and Northern Development Canada on October 21, 2013 as Senior Assistant Deputy Minister, Regional Operations.
• Associate Deputy Minister, Colleen Swords was appointed as Deputy Minister of Canadian Heritage, effective November 4, 2013.
• Hélène Laurendeau was appointed as Associate Deputy Minister, Aboriginal Affairs and Northern Development Canada, effective December 11, 2013.

5. Budget 2012 Implementation

This section provides an update of the savings measures announced in Budget 2012 that are being implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office.

Aboriginal Affairs and Northern Development Canada achieved savings of $24.4 million in the first year (2012-13). Savings increased to $55.1 million in 2013-14 and will result in ongoing savings of $160.6 million by 2014-15.

For the year-to-date ending December 31, 2013, Budget 2012 impacts on the Department's authorities as approved in the Main Estimates resulted in a reduction of $55.1 million.

There are no significant financial risks related to Budget 2012 savings for this quarterly financial report. AANDC continues to manage the implementation of Budget 2012 savings through its financial management and monitoring processes.

In the first, second and third quarters, the Department continued to focus on decreasing the costs of internal operations. Several internal operational changes continued to be implemented in order to deliver efficient, effective and accountable programs for Aboriginal people and Northerners.

AANDC's Implementation Committee, chaired by the Associate Deputy Minister and comprising the Assistant Deputy Ministers and direct reports to the Deputy Minister, continued to provide overall direction, coordination and oversight to all departmental deficit reduction savings implementation activities. The Workforce Management Board also continued to provide oversight on workforce management mechanisms and to ensure consistency and fairness in human resource decisions across the department.

6. Approval by Senior Officials

Approved, as required by the Treasury Board Policy on Financial Resource Management, Information and Reporting:

Statement of Authorities (unaudited) - Table 1

(thousands of dollars)

Departmental Budgetary Expenditures by Standard Object (unaudited) - Table 2

(thousands of dollars)