Archived - Aboriginal Affairs and Northern Development Canada - Quarterly Financial Report (Revised) - For the quarter ended September 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) as well as the Operating Budget Carry Forward and the Capital Budget Carry Forward 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 $1.4 billion (16.4 percent) - which 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 $18.9 million (0.2 percent).
• Grants and Contributions represent approximately $6.9 billion (83.4 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 - July 2014.

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

Highlights of Fiscal Quarter ended September 30, 2014

The Department is estimating budgetary expenditures of $8.4 billion in 2014-2015. In the second quarter, 17.9% of total available authorities were expended for which departmental expenditures were $100.5 million lower than the same period in 2013-2014. Year to date expenditures account for 39.5% of the total available authorities. The decrease in expenditure activity can be attributed mainly to a decrease of $99.9 million in Grant and contribution expenditures, $7.7 million in Operating expenditures, and offset by an increase of $5.1 million in Capital expenditures as indicated in table one.

Reduced spending in the second quarter of 2014-2015 is largely attributed to a decrease in Transfer payments (standard object 10) of $95.8 million which is mainly related to timing of payments. The Department was able to advance the funding cycle in 2014-2015 and finalize agreements and issue more funds to recipients earlier in the first quarter of the fiscal year. There was also a reduction of contribution expenditures under Emergency Management Assistance in the second quarter of 2014-2015.

Personnel (standard object 1) saw a reduction by $7.9 million in 2014-2015 which is primarily related to funds transfered to the Northwest Territories as part of Northwest Territories Devolution on April 1, 2014, and decreases related to the employer’s contribution to the Public Service Pension Plan.

Other subsidies and payments (standard object 12) were reduced by $3.8 million in 2014-2015 which is related to various items such as the timing of Indian Residential School settlements, including associated legal fees and disbursements.

Professional and special services (standard object 4) saw an increase by $6.4 million in 2014-2015 primarily due to contracts related to the construction of the Canadian High Arctic Research Station.

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 risk 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 Department’s 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 through rigorous monitoring against both financial and human resource targets. Management proactively and systematically manages and responds to risks to minimize adverse impacts and capitalize on opportunities. For example, cost containment measures and expenditure trends are monitored monthly, including a review and challenge function, through the monthly Financial Status Report.

In order to ensure effective controls, transparency and accountability, a risk-based approach is used to confirm that recipients have met planned program outcomes and results; that they are in compliance with funding agreements; and, that the funds were used to the intended purposes. In addition, the ability to conduct audits of recipients, under the terms of their funding agreements; provide a further opportunity to ensure that First Nations have appropriate management, financial and administrative controls in place.