Archived - Quarterly Financial Report for the quarter ended December 31st, 2016 - Revised

1.1 Authority, Mandate and Program Activities

Indigenous and Northern Affairs Canada (INAC) supports Indigenous 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 INAC's authority, mandate and program activities can be found in Part II of the Main Estimates and the Report on Plan 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 INAC'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 budget adjustments approved by Treasury board for fiscal year 2016-2017.

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 INAC's (Indigenous and Northern Affairs Canada) Financial Structure

The parliamentary vote structure of INAC is made up of $9.4 billion in budgetary authorities of which $9.2 billion requires approval by Parliament; referred to as voted amounts. The remaining $165.5 million represents statutory authorities that do not require additional approval and are provided for information purposes.

Voted amounts totaling $9.2 billion are split between Operating Expenditures, Capital Expenditures and Grants and Contributions as follows:

• Operating Expenditures represents approximately $1.0 billion (11%) which includes regular operating funding for salary and non-salary expenditures as well as $218.3 million (22% of Operating Expenditures) for the Settlement Allotment (Independent Assessment Process and Alternative Dispute Resolution), $140.8 million (14% of Operating Expenditures) for the assessment, management and remediation of federal contaminated sites,  and  $110.1 million of comprehensive, specific and other claims (11% of Operating Expenditures), $68.6 million of Infrastructure funds (7% of Operating Expenditures)
• Capital represents approximately $55.4 million (1%)
• Grants and Contributions represent approximately $8.2 billion (88%)

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

2.1 Statement of Authorities (Table 1a and Table 1b)

The Quarterly Financial Report reflects the year over year change in authorities for the period April 1st to December 31st, 2016. Total year-to-date authorities available for use in the third quarter of 2016-17 were $9,442.1 million compared to $8,695.1 million for the same quarter of the prior year, representing a net increase in Departmental authorities of $747.0 million. This increase over 2015-2016 can be explained as follows:

As shown in the table above, the $747.0 million increase in total authorities is primarily attributed to the net effect of the increase of $1,110.1 million in Grants and Contributions authority and $5.2 million for Statutory and Non-Budgetary Items to the decrease of $368.3 million in Operating and Capital. The high variance could be explained by two major factors; the Department has received a significant amount of funds related to Budget 2016 and there was no Supplementary Estimates B in 2015-16.

• The net increase of $1,110.1 million in Grants and Contributions authority is primarily due to an increase in funding for Infrastructure  ($638.6M), the funding to support Education programs ($321.8M), the funding of an allowance for inflation and population growth ($106.7M),  the funding to support Social programs ($75.2M), the funding  for the assessment, management and remediation of federal contaminated sites ($41.8M),  the funding of Urban Aboriginal Strategy ($23.7M), the funding to support Métis Aboriginal Rights and economic development for the Métis Nation plus the management of Métis and non-status Indian Litigation ($16.0M), the funding to support engagement with indigenous peoples through Indigenous Representative Organizations ($16.0M), the funding to expand the Nutrition North Canada program ($12.1M), the funding to support First Nations' access to capital markets ($10.0M), the funding to support northern program for clean growth and climate change ($5.0M) and other various initiatives ($16.9M).  This is offset by the decrease of the cash flow for the negotiation, settlement and implementation of specific and comprehensive claims ($108.3M), the funding for the Operation Return Home Manitoba Interlake Flood ($40.6M), the transfer of funding for Aboriginal Friendship Centers, Cultural Connections for Aboriginal Youth, and Young Canada Works for Urban Aboriginal Youth ($22.7M) and the construction of the Canadian High Arctic Research Station ($2.1M).
• The $5.2 million increase in Statutory and Non budgetary items consists of a net effect of the decrease for the negotiation, implementation of specific, comprehensive and land claims ($2.3M)  and the increase of miscellaneous items such as the employee benefits plan ($7.5M).
• The net decrease of $368.3 million in Operating and Capital authority (Vote 1 and Vote 5) is primarily due to the decrease of funding for cash flow for the negotiation, settlement and implementation of specific, comprehensive and land claims ($249.7M), the decrease in funding for the Indian Residential Schools Settlement Agreement and related funding for the Indian Residential Schools Truth and Reconciliation Commission ($239.0), for the Operating and Capital Budget Carry forward ($7.1M).  This is offset by the increase of the funding for Indigenous Childhood Claims Litigations ($53.0M), funding to support Infrastructure ($35.9M), the funding for the assessment, management and remediation of federal contaminated sites ($27.0M) and other initiatives ($11.6M).

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

Highlights of Fiscal Quarter ended September 30th, 2016

The Department is estimating budgetary expenditures of $9.4 billion in 2016-2017. In the third quarter, budgetary authorities were $761.0 million higher and departmental expenditures were $752.2 million higher than the same period in 2015-2016. 67% of total available budgetary authorities were expended which is similar to previous year third quarter with 65%.

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 December 31st, 2016. The graph plots the authorities and expenditures by quarter arriving at a year to date total for the fiscal years 2015-16 and 2016-17.

Authorities include the Main Estimates, Supplementary Estimates A and B plus items from the Allotment listings such as the Operating and Capital budget carry forward as of December 31st, 2016. Authorities for 2015-16 are $8,624.8 million and $9,385.8 million for 2016-17. The net difference is an increase of $761.0 million.

Expenditures for 2015-16 Q3 are $1,760.9 million and $2,448.6 million for 2016-17. At the end of Q3, total expenditures are at $5,564.0 million in 2015-16 compared to $6,316.3 million in 2016-17. The result is a net increase of $752.2 million.

In table 2, the net increase of $752.2 million in expenditures is mainly due to funds expended for Transfer payments ($687.7M) (Standard Object 10). The largest increases were observed under Infrastructure projects, Education programs, such as Elementary and Secondary Services, and Social programs, such as Child and Family Services. This increase can be explained by the fact that the Department has received substantial funding related to Budget 2016 for these programs. Finally, there is also an increase in Other subsidies and payments (Standard Object 12) which is offset by the decrease of Professional and special services (Standard Object 4) and Acquisition of land, building and works (Standard Object 8).

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.

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 INAC'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 in excess of $8 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 managing its budget 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. Budget and expenditure trends are monitored regularly, including a review and challenge function, through the Financial Status Report.

Budget 2016 announced $8.4 billion over five years to improve the socio-economic conditions of Indigenous peoples and their communities. In 2016-17 INAC will receive $1.2 billion, and a large portion of these funds, $732 million, are for infrastructure programming and represents a 64 % percent increase in the infrastructure budget. In order to strengthen controls in this area, a review of the management control framework for the Capital Facilities and Maintenance Program (CFMP) was conducted and improvements made such as the introduction of a new due diligence checklist which focuses management's attention on key management controls and the development of an infrastructure-focused project audit regime. The Program is also currently undergoing a comprehensive risk assessment to ensure current and future risks are identified, assessed and mitigated.  Findings resulting from ongoing departmental audits, evaluations and reviews, are being identified as actions within the infrastructure compliance framework.

Following an assessment of fraud risk conducted in 2014, the Department is implementing a fraud risk mitigation plan to address the identified risks.