Archived - Aboriginal Affairs and Northern Development Canada - Quarterly Financial Report - For the Quarter Ended June 30, 2014

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) for the 2014-2015 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.

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 $8.4 billion in budgetary authorities of which $8.2 billion requires approval by Parliament; referred to as voted amounts. The remaining $181.3 million represents statutory authorities that do not require additional approval and are provided for information purposes.

Voted amounts totalling $8.2 billion are split between Operating Expenditures, Capital Expenditures and Grants and Contributions as follows:

• Operating Expenditures represents approximately $1.3 billion (16 percent) - this includes
  $519.4 million (6.3 percent) for the Settlement Allotment (Independent Assessment Process and Alternative Dispute Resolution) and $124.8 million (1.5 percent) for the assessment, management and remediation of federal contaminated sites.
• Capital represents approximately $16.3 million (0.2 percent)
• Grants and Contributions represent approximately $6.9 billion (83.8 percent)

More detailed information about AANDC's financial structure, including information about the fiscal cycle, cost drivers, expenditure trends, etc. can be found in the 2014-15 Financial Overview.

2.1  Statement of Authorities (Table 1)

The Quarterly Financial Report reflects the year over year change in authorities for the period April 1 to June 30, 2014. Total year-to-date authorities available for use in the first quarter of 2014-2015 were $8,440.6 million compared to $8,141.1 million for the same quarter of the prior year, representing an increase in Departmental Authorities of $299.5 million. The total 2014-2015 year-to-date authority increase of $299.5 million over 2013-2014 can be explained as follows:

• As shown in the table above, the $299.5 million increase in total authorities is primarily attributed to the decrease of $105.1 million in Operating expenditures authority and the increase of $379.9 million in Grants and Contributions authority.
• The decrease of $105.1 million in Operating expenditures authority is primarily due to a decrease of funding for the Indian Residential Schools Settlement Agreement ($52.1 million), the assessment, management and remediation of federal contaminated sites ($34.5 million) and the savings identified as part of the Budget 2012 Spending Review ($30.8 million). This decrease is partially offset by the increase in funding for claims activities ($26.2 million).
• The increase of $379.9 million in Grants and Contributions authority is primarily due to an increase in funding for claims activities ($285.5 million), ongoing Indian and Inuit programs providing access to basic services ($102.6 million) and initiatives to support the construction and/or renovation of schools on reserves ($33 million). This increase is partially offset by the savings identified as part of the Budget 2012 Spending Review ($69.7 million).

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

Highlights of Fiscal Quarter ended June 30, 2014

The Department is estimating budgetary expenditures of $8.4 billion in 2014-2015. In the first quarter, 21.7% of total available authorities were expended for which departmental expenditures were $16.6 million lower than the same period in 2013-2014. This net decrease of 1.0% can be attributed mainly to a decrease of $22.5 million in operating expenditures offset by an increase of $5.9 million in transfer payments.

Reduced spending in 2014-2015 is largely attributed to Personnel (standard object 1) by $14.4 million which were related to the savings through the Budget 2012 Spending Review, funds transferred to the Northwest Territories as part of Northwest Territories Devolution on April 1, 2014, and decreases related to collective bargaining, such as severance pay.

Professional and special services (standard object 4) saw a reduction by $5.9 million in 2014-2015 primarily due to contractual obligations transferred to the Northwest Territories as part of Northwest Territories Devolution on April 1, 2014 as well as administrative requirements related to the issuance of contracts with the transition to a new financial management system.

The reduction to Transportation and Communications (standard object 2) by $2.1 million in 2014-2015 is primarily related to additional efficiencies and increased use of technology.

The increase of $5.9 million in Transfer Payments (standard object 10) is mainly related to the advancement of the funding cycle, with 2014-2015 agreements concluded before April 1, 2014, resulting in AANDC's ability to issue funds earlier.

Text description of Year-to-Date Comparison of Budgetary Authorities and Expenditures as of June 30, 2014

This image is of a bar graph of the year-to-date comparison of budgetary authorities and expenditures as of the end of June 30^th, 2014. The graph plots the authorities and expenditures by quarter arriving at a year to date total for the fiscal years 2013-14 and 2014-15.

The 2013-14 data shows the Q1 authorities equaling the Main Estimates and the Supplementary Estimates A authorities arriving at the total authority at the end of Q1 of $8,070M. The 2014-2015 data shows the Q1 authorities equaling the Main Estimates and the Supplementary Estimates A authorities arriving at the total authority at the end of Q1 of $8,370M.

The net difference in comparing the authorities at the end of Q1 each fiscal year is an increase of $300M from 2013-14 to 2014-15.

The second column of each section of the graph pertains to expenditures. The 2013-14 data shows the Q1 expenditures of $1,831M. The 2014-15 data shows the Q1 expenditures of $1,815M. The net difference in comparing the expenditures at the end of Q1 each fiscal year is a decrease of $16M from 2013-14 to 2014-15.

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. Resource allocation decisions are informed by risk and the Department's key corporate risks are discussed systematically by the senior management committee, which contributes to the better allocation of resources and ultimately better results.

In terms of financial risk, the Department is operating in an environment of diminished operating resources in which the ability to reallocate resources internally is reduced. The Department continues to monitor its risk exposure and take action as needed to mitigate the risk of not achieving anticipated outcomes or to deal with emerging pressures. Achievement of AANDC's strategic outcomes and delivery of programs is dependent on timely access to appropriate authorities and funding levels.

In terms of transfer payment program and transfer payment recipient risk, the Department transfers over $6 billion dollars to recipients each year, while balancing program and recipient risks to deliver on its mandate. The Department undertakes risk assessments on new, existing and reformed programs as well as an annual General Assessment of each recipient to identify certain areas at risks as history has substantiated a link between risk level and default prevention.

3.2  Risk Mitigating Strategies

Corporate and financial risk mitigation activities are reflected in the Corporate Business Plan and are monitored by senior management on a quarterly basis and modified as required. 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.

The Department is addressing reduced flexibility to its budget as a result of expenditure restraint measures by aligning resources to needs and is complimented by rigorous monitoring against both financial and human resource targets. Management proactively, systematically and continuously manages and responds to risks to minimize adverse impacts and capitalize on opportunities. For example, cost containment measures and trend monitoring are monitored monthly, including a review and challenge function, through the Financial Status Report.

Established management control frameworks, governance structures and a policy framework mitigate risks throughout the program life-cycle. For example, the Management Control Framework for grants and contributions requires that an audit be performed annually, where results incent the Department through the management action plan. Recipient risks are reviewed and updated annually through General Assessments and addressed through case management approaches and recipient audits which assist AANDC to focus on areas requiring attention.