Archived - Quarterly Financial Report for the quarter ended September 30, 2015 (Revised)

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, Carry Forward, Capital Carry Forward 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 $8.5 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 totaling $8.5 billion are split between Operating Expenditures, Capital Expenditures and Grants and Contributions as follows:

• Operating Expenditures represents approximately $1.4 billion (16%), this includes $365.2 million (27% of Operating Expenditures) for the Settlement Allotment (Independent Assessment Process and Alternative Dispute Resolution) and $105.2 million (8% of Operating Expenditures) for the assessment, management and remediation of federal contaminated sites.
• Capital represents approximately $53.3 million (1%)
• Grants and Contributions represent approximately $7.0 billion (82%)

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 (Table1)

The Quarterly Financial Report reflects the year over year change in authorities for the period April 1st to September 30th, 2015. Total year-to-date authorities available for use in the second quarter of 2015-2016 were $8,690.5 million compared to $8,486.0 million for the same quarter of the prior year, representing an increase in Departmental authorities of $204.5 million. The total 2015-2016 year-to-date authority increase of $204.5 million over 2014-2015 can be explained as follows:

• As shown in the table above, the $204.5 million increase in total authorities is primarily attributed to the increase of $53.1 million in Operating authority (Vote 1 and 5) and an increase of $151.4 million in Grants and Contributions authority.
• The year over year net increase of $53.1 million in Operating authority (Operating and Vote 5) is due to an increase of funding for claims related activities and settlement of litigation ($253.0M) , Construction of the Canadian High Arctic Research Station Major Crown project ($10.6M in Vote 1 and $36.7M in Vote 5). This increase is 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 deemed appropriation to Polar Knowledge Canada for the Canadian High Arctic Research Station programming ($6.3M Vote 1), the Carry Forward ($8.0M in Vote 1 and $600K in Vote 5), miscellaneous reduction in Vote 1 Operating ($18.8M) and in Statutory Operating ($5.0M).
• The year over year net increase of $151.4 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) , West Coast energy development ($17.3M), Canadian High Arctic Research Station ($12.7M), First Nation infrastructure fund ($15.0M), Urban aboriginal Strategy ($12.4M) and other miscellaneous increase of $19.9M. This increase is offset by the decrease of funding related to Northwest Territories Devolution ($7.1M), Statutory Grants and Contributions authority due to the sunset of statutory funding for the Nisga'a Nation and the Labrador Inuit ($30.0M), reduction of Canadian High Arctic Research Station deemed appropriation ($1.7M) and reduction of targeted funding for initiatives to improve First Nation Education ($133.4M). Reduced funding within First Nation Education is being offset through the renewal of funding that has been accessed within the first quarter and through future Estimates process.

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

Highlights of Fiscal Quarter ended September 30, 2015

The Department is estimating budgetary expenditures of $8.6 billion in 2015-2016. In the second quarter, departmental expenditures were $429 million higher than the same period in 2014-2015. 22% of total available budgetary authorities were expended compared to 17.9% in previous year second quarter. Year-to-date expenditures account for 44.1% of the total available authorities compared to 39.5% in the same period in 2014-15.

As indicated in table 2, the total increase in expenditure of $429.0 million can be attributed to an increase of $222.3 million in Grant and Contribution expenditures, $215.2 million in other subsidies and payments and $15.0 million for Acquisition of lands and offset by reduced spending of $7.3 million in Personnel (Standard Object 01), $1.1 million in Transportation and Communication (Standard Object 02), $1.5 million in Communication (Standard Object 03), $11.4 million in Professional and special services (Standard Object 04), $1.5 million in Rentals (Standard Object 05) and $0.7 million in various Other Operating expenditure (Standard Object 06, 07 and 09).

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 September 30th, 2015. The graph plots the authorities and expenditures by quarter arriving at a year to date total for the fiscal years 2014-2015 and 2015-2016.

The 2014-2015 data shows the Q2 authorities equaling the Main Estimates, the Supplementary Estimates A and Carry Forward authorities arriving at the total authority at the end of Q2 of $8,416M. The 2015-2016 data shows the Q2 authorities equaling the Main Estimates, the Supplementary Estimates A and Carry Forward authorities arriving at the total authority at the end of Q2 of $8,620M.

The net difference in comparing the authorities at the end of Q2 each fiscal year is an increase of $204.5M from 2014-2015 to 2015-2016.

The second column of each section of the graph pertains to expenditures. The 2014-2015 data shows the Q2 expenditures of $1,505M. The 2015-2016 data shows the Q2 expenditures of $1,934M. The net difference in comparing the expenditures at the end of Q2 each fiscal year is an increase of $429M from 2014-15 to 2015-2016.

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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, 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.