Archived - Financial Statements for the Year Ended March 31, 2017 (Unaudited)

1.  Authority and objectives

The mandate for Indigenous and Northern Affairs (INAC) is derived from a number of sources, including the following: the Canadian Constitution; the Department of Indian Affairs and Northern Development Act; the Indian Act (as amended over the years); statutes dealing with environmental and resource management, such as the Nunavut Planning and Project Assessment Act; the Nunavut Waters and Nunavut Surface Rights Tribunal Act, the Canada Petroleum Resources Act, and the Territorial Lands Act.

INAC has a mandate to support Canada's Indigenous peoples (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.

To deliver on its mandate, INAC has structured its operations along four strategic outcomes as follows:

• a) People - Individual, family and community well-being for First Nations and Inuit.
• b) Land and Economy – Full participation of First Nations, Métis, Non-Status Indians and Inuit individuals and communities in the economy.
• c) Government - Support good governance, rights and interests of Indigenous peoples.
• d) North - Self-reliance, prosperity and well-being for the people and communities of the North.

2.  Summary of significant accounting policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

1. Parliamentary authorities – INAC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to INAC do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting.
   
   The planned results amounts in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are consistent with the amounts reported in the Future-Oriented Statement of Operations included in the 2016-2017 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2016-2017 Report on Plans and Priorities.
2. Net cash provided by Government – INAC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by INAC is deposited to the CRF and all cash disbursements made by INAC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.
3. Amounts due from/to the Consolidated Revenue Fund (CRF) – These are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that INAC is entitled to draw from the CRF without further authorities to discharge its liabilities.
4. Revenues – Revenues are recorded on an accrual basis:
   • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
   • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
   • Revenues that are non-respendable are not available to discharge INAC's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of INAC's gross revenues. INAC's revenues earned on behalf of government include revenues related to resource royalties, guarantees deposits, interest on loans and leases and rentals.
5. Expenses – Expenses are recorded on an accrual basis:
   • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
   • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
   • Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, legal services, and workers' compensation are recorded as operating expenses at their estimated cost.
6. Employee future benefits
   • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. INAC's contributions to the plan are charged to expenses in the year incurred and represent the total departmental obligation to the plan. INAC's responsibility with regard to the plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the plan's sponsor.
   • Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
7. Accounts and loans receivable – Accounts and loans receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts and loans receivable where recovery is considered uncertain.
   
   The amount of allowance on loans receivable is determined on an assessment of collectability of each loan on an annual basis using a standard set of criteria to assess the default risk. Interest on loans receivable is calculated in accordance with the terms and conditions of each individual program.
   
   If loans and interest receivables cannot be used to discharge INAC's liabilities or to issue new loans, they are considered to be held on behalf of government and are therefore presented as an offsetting amount to INAC's financial position.
8. Contingent liabilities – Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
9. Environmental liabilities – Environmental liabilities consist of estimated costs related to the remediation of environmentally contaminated sites. A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied:
   • an environmental standard exists,
   • contamination exceeds the environmental standard,
   • INAC is directly responsible or accepts responsibility, and
   • it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made.
   The liability reflects INAC's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the cash flows required to settle or otherwise extinguish a liability are expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the Government's CRF monthly lending rates for periods of one year and over. The discount rates used are based on the term rate associated with the estimated number of years to complete remediation. For remediation costs with estimated future cash flows spanning more than 25 years, the 25 year Government of Canada lending rate is used as the discount rate.
10. Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. INAC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.
    
    Capital assets include lands held for future claim settlements which are to be transferred to First Nations upon settlements.
    
    Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the assets as follows:

    Asset Class	Amortization Period
    Buildings	20 to 40 years
    Works and infrastructure	25 to 30 years
    Machinery and equipment	5 to 15 years
    Informatics hardware and software	3 to 10 years
    Ships and boats	10 years
    Motor vehicles	4 to 10 years
    Other vehicles	5 to 10 years
    Leasehold improvements	Lesser of the remaining term of lease or useful life of the improvement

    Assets under construction are recorded in the applicable capital asset class and are amortized in the year that they become available for use.
11. Measurement uncertainty – The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, the allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could differ significantly from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3.  Parliamentary authorities

INAC receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, INAC has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

4.  Accounts payable and accrued liabilities

The following table presents a detail of INAC's accounts payable and accrued liabilities:

5.  Other liabilities

The following table presents details of other liabilities:

6.  Trust accounts

In accordance with the Indian Act, INAC has responsibility to administer Indian moneys of bands and certain individual Indians, including minors, dependant adults and deceased Indians.

Moneys collected or received for the use and benefit of these groups are deposited to the Consolidated Revenue Fund. Pursuant to Section 61(2) of the Indian Act, interest on Indian moneys held in the Consolidated Revenue Fund is allowed at a rate fixed from time to time by the Governor-in-Council. Interest accumulated in the accounts is compounded semi-annually.

There are three categories of Indian moneys administered by INAC: Indian band funds, Indian savings accounts, and Indian estate accounts. The following table shows INAC's financial obligations in its role as administrator of trust accounts for Indian moneys:

7.  Settled claims

The liability for settled claims represents INAC's financial obligation pursuant to agreements related to comprehensive land claims which INAC has settled with the First Nations.

Comprehensive land claims are negotiated in areas where Aboriginal title has not been dealt with by treaty or by other legal methods. In such cases, the claim is based on an Aboriginal group's traditional use and occupancy of that land. Comprehensive land claim settlements result in agreement on special rights Aboriginal peoples will have in the future with respect to lands and resources.

An act of Parliament, based on a negotiated agreement, establishes the authority for INAC to make claim payments. The interest rate attached to these claim payments is set out in the act, along with a claim payment schedule. Claim payments are generally made over a number of years.

At March 31, 2017, INAC had 10 outstanding settled claims (9 in 2016). Settlement payments made during 2017 totalled $55,828,000 in 2017 ($57,412,000 in 2016).

The present value of the liability for outstanding settled claims, calculated using the appropriate Consolidated Revenue Fund Monthly Lending Rate as published by the Department of Finance, at March 31, 2017 is $203,950,000 ($228,117,000 in 2016). Future scheduled claim payments (on a cash basis) are as follows:

8.  Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into three categories: claims and litigation, loan guarantees and environmental liabilities for contaminated sites.

13.  Land held for future claims settlements

Land held for future claims settlements in the amount of $38,847,000 (no change from 2016) is segregated from other tangible capital assets as these assets are not acquired with the intention of being used on a continuous basis in government operations. Rather, these assets are properties acquired and held by INAC for the purpose of future settlements of Aboriginal land claims. Following the ratification of a negotiated agreement, these assets are transferred to the Aboriginal group.

14.  Tangible capital assets

The following table presents details of the cost of tangible capital assets:

(in thousands of dollars)

The following table presents details of the amortization of tangible capital assets and its net book value:

(in thousands of dollars)

15.  Departmental net financial position

A portion of INAC's net financial position is restricted to be used for a specific purpose. Related revenues and expenses are included in the Statement of Operations and Departmental Net Financial Position.

The Environmental Studies Research Fund account was established pursuant to the Canada Petroleum Resources Act and related regulations to record levies stipulated under the Act. The balance of the account is to be used to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration, development and production activities on frontier lands authorized under this Act or any other Act of Parliament should be conducted.

The Bowater Environmental Remediation Fund account was established to finance the remediation of environmental damage caused by Bowater Canadian Forest Products Inc. relative to a land lease issued by INAC. During the year, the cleanup was completed and the outstanding balance has been transferred to the Indian band funds revenue account (Note 6).

The balance of the accounts at the end of the year is included in Departmental Net Financial Position. Activity in the accounts is as follows:

16.  Contractual obligations

The nature of INAC's activities can result in many multi-year contracts and obligations whereby INAC will be obligated to make future payments in order to carry out its transfer payment programs. Significant contractual obligations that can be reasonably estimated are summarized as follows:

17.  Related party transactions

INAC is related as a result of common ownership to all Government departments, agencies, and Crown corporations. INAC enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, INAC has agreements with the Canadian Northern Economic Development Agency, Health Canada and the Public Health Agency of Canada related to the provision of finance and administrative services. During the year, INAC received common services which were obtained without charge from other government departments as disclosed below.

18.  Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of INAC. However, it did result in the use of additional spending authorities by the Department. Prior to year-end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.

19.  Transfer to other government departments

a) Transfer to Canadian High Arctic Research Station

Effective June 1, 2015, the Department transferred responsibility for the Arctic Science and Technology program to Polar Knowledge Canada in accordance with Order in Council P.C 2015-0581, including the stewardship responsibility for the assets and liabilities related to the program. Accordingly, INAC transferred tangible capital assets in the amount of $1,293,000 related to the Arctic Science and Technology program to Canadian High Arctic Research Station during 2017.

The management of the construction of the Canadian High Artic Research Station will remain within INAC until completion of this major crown project, which is expected to be in 2017-2018, at which time the transfer of the station will be reflected in INAC's financial statements. Until then, the asset under construction will continue to be included in INAC's financial statements.

b) Transfer from Truth and Reconciliation Commission

Effective June 30, 2015, pursuant to Order-in-council P.C. 2015-1042, the mandate of the Truth and Reconciliation commission (TRC) was extended to December 31, 2015 when it was amalgamated and combined with INAC under the Minister of INAC. TRC was wound down its operations as of December 31, 2015 and its residual assets and liabilities in the amount of $244,000 and $29,000 respectively were transferred to INAC.

Leases and rentals

The major source of lease and rental revenues is lease fees prescribed in the Northwest Territories and Nunavut Mining Regulations. After a waiting period of 10 years, companies may lease land in the North for purposes of exploration and extraction of minerals. Leases are for a period of 21 years and are renewable. Lease fees are set out in the Northwest Territories and Nunavut Mining Regulations and are payable annually on the anniversary date of the signing of the lease.

Resource royalties

The most significant sources of resource royalty revenues are those earned pursuant to the Northwest Territories and Nunavut Mining Regulations and the Frontier Lands Petroleum Royalty Regulations.

The Northwest Territories and Nunavut Mining Regulations prescribe a profit-sharing formula upon which royalty revenues are based. INAC receives a percentage of the profits companies earn from the sale of minerals extracted from land leased by these companies pursuant to the Mining Regulations. The Northwest Territories and Nunavut Mining Regulations prescribe that royalties are generally payable four months after the fiscal year-end of the company.

The Frontier Lands Petroleum Royalty Regulations also prescribe a profit-sharing formula upon which royalty revenues are based. INAC receives a percentage of the profits companies earn from the sale of oil and gas extracted from the land, which the company has the right to use pursuant to a production licence issued under the authority of the Canada Petroleum Resources Act. The Frontier Lands Petroleum Royalty Regulations prescribe that royalties are generally payable on the last day of the month following the month of production.

Norman Wells project profits

This project is a source of revenues earned pursuant to an agreement between INAC and Imperial Oil. This agreement prescribes a profit-sharing formula and sets out a payment schedule, whereby payments are made annually to INAC no later than March 20 of each year.

Contingent Liabilities - Claims and Litigation

Subsequent to year-end, INAC has settled claims amounting to $306,000,000 for specific claims, comprehensive native land claims, litigation claims and Indian Residential School claims.

22.  Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

1.0  Introduction

This document provides summary information on the measures taken by Indigenous and Northern Affairs Canada (INAC) to maintain an effective system of internal control over financial reporting including information on internal control management and assessment results and related action plans.

Detailed information on INAC's authority, mandate and program activities can be found in the 2016-17 Departmental Result Report and the Archived: 2017-18 Departmental Plan.