Archived - Quarterly Financial Report for the quarter ended June 30, 2015

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 2015-2016 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 $8.6 billion in budgetary authorities of which $8.4 billion requires approval by Parliament; referred to as voted amounts. The remaining $146.3 million represents statutory authorities that do not require additional approval and are provided for information purposes.

Voted amounts totalling $8.4 billion are split between Operating Expenditures, Capital Expenditures and Grants and Contributions as follows:

• Operating Expenditures represents approximately $1.3 billion (16.0%), this includes $365.2 million (27.1% of Operating Expenditures) for the Settlement Allotment (Independent Assessment Process and Alternative Dispute Resolution) and $105.2 million (7.8% of Operating Expenditures) for the assessment, management and remediation of federal contaminated sites.
• Capital represents approximately $40.4 million (0.5%)
• Grants and Contributions represent approximately $7.0 billion (83.5%)

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

2.1 Statement of Authorities (Table 1)

The Quarterly Financial Report reflects the year over year change in authorities for the period April 1st to June 30th, 2015. Total year-to-date authorities available for use in the first quarter of 2015-2016 were $8,649.9 million compared to $8,440.6 million for the same quarter of the prior year, representing an increase in Departmental authorities of $209.3 million. The total 2015-2016 year-to-date authority increase of $209.3 million over 2014-2015 can be explained as follows:

• As shown in the table above, the $209.3 million year over year net increase in total authorities is primarily attributed to the increase of $38.1 million in Operating expenditures authority and $182.1 million in Grants and Contributions authority. This increase is partially offset by the decrease of $30 million in Statutory Grants and Contributions authority which is primarily due to the sunset of statutory funding for the Nisga’a Nation and the Labrador Inuit.
• The year over year net increase of $38.1 million in Operating expenditures authority is primarily due to an increase of funding for claims related activities and settlement of litigation ($253.0M). This increase is partially offset by the decrease in funding for the Indian Residential Schools Settlement Agreement and related funding for the Indian Residential Schools Truth and Reconciliation Commission ($180.6M), Northwest Territories Land and Resources Devolution Agreement ($27.9M), the assessment, management and remediation of federal contaminated sites ($10.7M).
• The year over year net increase of $182.1 million in Grants and Contributions authority is primarily due to an increase in funding for ongoing Indian and Inuit programs providing access to basic services ($104.6M), the renovation and construction of schools on reserve across the country ($50M), Operation Return Home ($40.6M) and Emergency Management on reserve ($32.3M), claim activities ($18.8M) and West Coast energy development ($17.3M). This increase is partially offset by the decrease in funding primarily reflecting the sunset of targeted funding for initiatives to improve First Nation Education ($133.4M). Funding has been renewed and will be accessed in future Estimates.

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

Highlights of Fiscal Quarter ended June 30, 2015

The Department is estimating budgetary expenditures of $8.6 billion in 2015-2016. In the first quarter, 22% of total available budgetary authorities were expended for which departmental expenditures were $54 million higher than the same period in 2014-2015. As indicated in table one, the increase in expenditure activity can be attributed mainly to an increase of $62 million in Operating expenditures, $14 million in Grant and contribution expenditures, and offset by reduced spending in statutory grants for claims related activities.

Increased spending in the first quarter of 2015-2016 is largely attributed to Other subsidies and payments (standard object 12) where a net increase of $48.6 million in 2015-2016 is related to the payment of an out-of-court settlement.

Professional and special services (standard object 4) saw an increase of $7.0 million in 2015-2016 primarily due to contracts related to boundary survey work in the northern mining districts, and timing of issuing contracts in 2014-15 with the transition to a new financial management system.

Increased spending of $2.6 million in Acquisition of land, building and works (standard object 8) is directly related to the construction of the Canadian High Arctic Research Station.

Transportation and Communications (standard object 2) saw an increase of $2.5 million in 2015-2016 which is a result of the timing of payments in 2014-2015 with the transition the new government-wide travel system.

Reduced spending in 2015-2016 in Transfer payments (standard object 10) of $7.7 million is mainly related to the timing of Specific Claims settlement payments.

Personnel (standard object 1) saw a reduction by $1.2 million in 2015-2016 which is primarily related to the reduction of salary costs and the associated Employee Benefits package.

Text description of the above chart

This image is of a bar graph of the year-to-date comparison of budgetary authorities and expenditures as of the end of June 30th, 2015. The graph plots the authorities and expenditures by quarter arriving at a year to date total for the fiscal years 2014-15 and 2015-16.

The 2014-15 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 2015-2016 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 $8,579M.

The net difference in comparing the authorities at the end of Q1 each fiscal year is an increase of $209M from 2014-15 to 2015-16.

The second column of each section of the graph pertains to expenditures. The 2014-15 data shows the Q1 expenditures of $1,815M. The 2015-16 data shows the Q1 expenditures of $1,869M. The net difference in comparing the expenditures at the end of Q1 each fiscal year is an increase of $54M from 2014-15 to 2015-16.

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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 fiscal restraint 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 approximately $7 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 Risk Profile are monitored by senior management on a semi-annual 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 regularly, including a review and challenge function, through the 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.