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Nola Buhr: Hello, thank you for joining us today for the 2015 version of the Ask the Experts Webinar for the First Nations Financial Transparency Act.
I'm Nola Buhr, Professor of Accounting at the Edwards School of Business at the University of Saskatchewan. I have been researching and giving workshops on the topic of Financial Reporting by First Nations for almost 10 years.
2014 was the first year the First Nations Financial Transparency Act was in effect. Since then, questions have been raised over the past year about the requirements of the Act and GAAP for Consolidated Financial Statements. We are here today to ask the experts to answer some of the questions that have been collected.
But, before I introduce our panelists, I would like to turn to Serge Beaudoin from Aboriginal Affairs and Northern Development Canada to provide some background on the FNFTA Act and discuss some points about the implementation of the Act. Serge is the Director General for Sector Operations at AANDC.
Serge Beaudoin: So thank you very much Nola, good afternoon everyone. My purpose today is to provide some background relating to the First Nations Financial Transparency Act, provide an update on the implementation of the legislation, as well as an introduction to the approach the department is taking to work with First Nations communities to promote and support compliance with the legislation. Now this is, we're going into, the second year of implementing the First Nations Financial Transparency Act which came into force March 2013.
Now the purpose of the Act is really to increase accountability and transparency for First Nations citizens by requiring consistent, timely public access to the financial information of their governments.
In 2014, 582 First Nations were subject to the requirements of the legislation. The Act applies the same principles of transparency and accountability to First Nations governments that already exist for other governments in Canada. It does this by requiring First Nations to publish their Audited Consolidated Financial Statements, the Schedule of Remuneration and expenses for Chief and Council, as well as accompanying auditor's reports on their website.
Now the Department is also required to publish these documents on our website as soon as the documents are received. Given that 2014 was the first year of implementation. The Department provided an additional 120 days to work with First Nations before taking any enforcement measures that are provided for by the legislation. That same extension will not apply this year. It's important to note that the vast majority of First Nations met the requirements of the legislation by the end of November 2014. And as of today 97% of First Nations have posted the required documents on their websites.
In both 2014 and 2015 AANDC has supported compliance and will continue to support compliance through the following means. First is finding an online forum on the First Nations Financial Transparency Act and about the reporting requirements whereby one can ask the experts from accounting and auditing firms any types of questions related to that. We work closely with individual First Nations where requested to support them in meeting the requirements of the legislation and we also provide and support information sessions, such as this, both nationally and in regions. Now the Act does provide for court remedies and administrative measures should First Nations not comply with the provisions of the legislation. In 2014 a number of steps were taken in this regard and the plan is to continue with such actions in 2015 for First Nations who remain non-compliant. And this includes, really requiring action plans to address non-compliance, publishing the names of First nations, of non-compliant First Nations on the Department's website; withholding funding for non-essential programs, services and activities; and lastly, applying for court orders in specific cases. But let me stress these measures will not and do not target essential services that support Band members.
Going forward, AANDC will continue to support compliance through the means outlined above. As you can see from the slides that are being presented, a great deal of information regarding the Act is available on the Department's website. In addition, experts are ready to answer questions on an ongoing basis at the Department's Ask the Experts webpage. And you can find this at http://www.fnfta-ask.ca/
I look forward to today's dialogues and the insight from the expert panel. Thank you.
Nola Buhr: Thank you Serge. That brings us up to date with the First Nations Financial Transparency Act. Now we will turn to our external experts. Our role here today is to respond to questions relating to: Audited Consolidated Financial Statements; the Schedule of Remuneration and Expenses; and the Role of Auditors.
Our external experts work for Deloitte and Ernst & Young and they are qualified and experienced professionals. It is important to note that the three panelists that are here today and I are not representatives from the Federal Government, and also that we do not speak on behalf of the Federal Government. So we're here to talk about some interesting auditing and accounting questions.
Let me introduce our panelists.
With me here in Ottawa is Francis Séguin. Francis works in the Ottawa office of Deloitte where he is a Senior Manager in the Assurance and Advisory Services Group, he specializes in the Public Sector. Francis has significant experience with First Nations and AANDC, having provided numerous services over 5 years. He is also a part-time lecturer at the Bachelors' and graduate programs at the University of Ottawa and the Université du Québec en Outaouais, where his lectures include accounting for consolidations, and other complex accounting questions. Welcome Francis.
Francis Séguin: Thank you
Nola Buhr: Now, let's go out to the West coast. And on the West coast we have Shirley Wolff. Shirley is a partner with Deloitte in Vancouver, and she leads the Assurance and Advisory Public Sector practice of Deloitte for British Columbia. On a national level, Shirley leads the National Assurance and Advisory Aboriginal practice for Deloitte in Canada. Shirley's extensive experience includes advising clients such as First Nations, local governments, school boards, and other government organizations.
And if we can now move eastward, our third panelist is Kevin Hamel. Kevin is a partner with Ernst & Young and he works in the Assurance Services Area there. Kevin has a long track record in the area of financial reporting by First Nations. He has worked with various First Nations across Canada over the past 20 years, both in external auditor and advisory roles. Also, he is EY's National Aboriginal Practice leader. Kevin is based out of Ernst & Young's Edmonton office.
Now before we jump into answering the questions we have collected, we are going to cover some of the basic concepts behind Audited Consolidated Financial Statements and also the Schedule of Remuneration and Expenses.
What I'm going to do is ask Francis to discuss the nature of Consolidated Financial Statements and he'll speak to a few points for us here today.
Francis Séguin: Thank you Nola. Good afternoon everyone. On the slide you have, we are talking about the Consolidated Financial Statements that's a requirement under section 5 of the First Nations Financial Transparency Act. It is the basis of financial reporting entities to produce financial statements. And as I mentioned, it is a requirement to produce these statements. The purpose of Consolidated Financial Statements is actually to report on all of the activities of which the First Nation actually has control over or has the capacity to have control over activities. So these would include, for example, control entities, joint ventures, and so on. The standards are established by the Public Sector Accounting Board, which is the governing body which produces accounting rules for all public sector entities. So all levels of government, and entities that are controlled by government. And they're based on specific criteria or characteristics which financial statements would enable user's financial statements to assess. So, for example, relevance. We want financial statements to be relevant, so we want statements that are predictive and timely. Financial statements should be reported on a timely basis, which enhances the usefulness of those statements. Financial statement are also comparable, so by establishing standards that are common to all similar entities, users can compare the financial performance of a First Nation or an organization compared to similar organizations. The purpose of financial statements prepared in accordance with a set of standards also provides understandability. All individuals looking at financial statements and analyzing financial statements can look at these and have a common understanding of how it came about in terms of accounting and disclosing specific information. Lastly, we also consider cost benefits. We need to find a balance between providing detailed information and too much information. So the purpose of the standards provides a balance between the value and the details which would enable individuals to make decisions with regards to loans, investments, and so on. Lastly, it is a requirement that these financial statements be audited, and people ask, well why do they need to be audited, can't they just rely on the numbers? Yes there is value, however the concept of an audit provides independent assurance that the financial statements are fairly presented in all material respects. So from that perspective, the Auditing Standards Board of CPA Canada has enacted a number of rules which are based on international auditing standard. We call those generally accepted auditing standards or Canadian auditing standards. And they provide the basis of principles for statements to be audited. So, for example an approach to materiality, an understanding controls, reporting back on any errors that could be reported, audit procedures to be preformed, communications with third parties and governance bodies and so on. So the audited financial statements combine the accounting part and the auditing part, will provide sufficient and complete information for any potential user of these financial statements.
Nola Buhr: Thank you very much Francis. That takes care of the Consolidated Financial Statements.
Now I'd like to turn to Kevin to talk about the Schedule of Remuneration and Expenses. So over to you Kevin.
Kevin Hamel: Thank you Nola. So first I want to start by talking about what is the Schedule of Remuneration and Expenses. So this is a separate schedule, as the slide shows, its special purpose reporting, so it's a separate report from the financial statements. What needs to be included on this is defined by the First Nations Financial Transparency Act, so in general it would include amounts paid to, or on behalf of the Chief and Council whether directly by First Nation or BY any entity that is consolidated within the financial statements of the First Nation. We'll go into a little bit more detail. So items paid directly to would include salaries, honouraria, perhaps amounts paid for attending meetings, things like that. It could be non-monetary amounts as well, so this report, this schedule, has to have a report on it done by your external auditor, it has to be either a review or an audit, not specified, it can be chosen by each individual Nation. So, what remuneration is included? This is defined by the First Nations Financial Transparency Act, so the Act says any salaries, commission wages, commissions, bonuses, and whatnot, as well as monetary benefits and non-monetary benefits. So monetary benefits could be amounts paid, for example, an allowance for use of an audit. Non-monetary benefits could be using that same example, the use of the Band's automobile. So if the amount is paid by the entity either directly by the First Nation or by an entity that's consolidated in the financial statements, it would have to be included in that schedule.
So, what expenses are included? Again, this is defined by the First Nations Financial Transparency Act, so it includes things like transportation, accommodation, meals, could be things paid directly to the Chief and Council . So you've got a situation where perhaps you're going to a meeting in a different centre, and you're planning on travelling amount directly to it, or let's assume that they're going to another meeting and you're paying a travel directly on behalf of them. So you're paying directly to the airline or paying it directly to the travel provider. Those amounts are all included in the expenses. So if also it's paid by an entity that is consolidated within the financial statements it must be included. So if you've got an entity that is paying Chief and council to attend a meeting or paying a travel amount, that's included as well.
Thank you Nola.
Nola Buhr: Okay, thank you Kevin. That was really helpful. I think it's time to get to our questions. And we're going to start with Shirley, and our first question is about impact benefit agreements. So let me read out the question for you. It says:
We get money from an Impact Benefit Agreement. This is a private agreement and our Chief doesn't want to disclose any information. What will our auditor say if we don't include this money in our financial statements?
Shirley Wolff: Thank you Nola and good afternoon.
First we look at the question, let's consider first here, the requirements of the Public Sector Accounting Standards which is the framework that is applicable to the financial statements of First Nations. So these standards require that all revenues of a First Nation be presented in the statement of operations. However, when looking at very specific year at the revenues under an impact benefit agreement there isn't a requirement in the standards to present these revenues in a separate financial statement line item, nor are there any specific disclosure requirements such as the nature of the agreement and any counterparties to the agreement. So these revenues could be grouped with other revenues in a line item in the financial statement and in such a manner their confidentiality is maintained.
Nola Buhr: Okay, thank you Shirley. Now I have a long question, so pay attention Francis, this one is for you.
The First Nation's audited financial statements are prepared and ready on time however we cannot submit them to the Department as we are waiting for business entities to provide their statements for consolidation into the First Nation's statements. Okay, so there's a hold up here, we've got a number of statements coming in. Why is the First Nation being held accountable for other business entities and corporations over which we have little or no control?
Francis Séguin: That's an interesting question. I like the portion of your question that relates to little or no control. If you're actually consolidating those entities' financial information into your financial statements, that means that you in fact have control from an accounting perspective, and the Public Sector Accounting Board has defined control as the capacity to define the operational and financial matters of an organization. So perhaps in theory or in practice you're not exercising your control, but you do have the capacity to do so. So for example, if we have a for example, a control entity that provides services to First Nations members, well if they have a separate board, that's okay the standards are not there to determine what are the business implications. However, the First Nation, if it deems to have control, it can direct that entity to provide information in a timely manner. So from that perspective, that argument, while I can understand in practice is not valid, there could be a change to their practice to get that information on time. So what I would recommend personally is to have a discussion with the director of Finance of that entity or the board of directors as case may be to get information in a timely manner. And going back to my previous comment, the characteristics we're looking for is timeliness. So the delay in the financial statements actually reduces the usefulness. So that's a process that a First Nation and control entities need to work together.
Nola Buhr: Okay, thank you Francis. So essentially the person preparing the financial statements feels like they're not in control. In getting the statements from the other entities, they should seek help from management that can sort of enforce the practice.
Francis Séguin: Correct
Nola Buhr: Kay. Kevin, this looks like a question for you. It says: From time to time we give loans to certain Councillors.
Some of them have been Councillors for a long time and have not repaid their loans. Does this count as remuneration?
Kevin Hamel: So a loan in and of itself wouldn't be consider remuneration, because the expectation of a loan is that it would be repaid. However, if there comes a point in time where that loan is going to be written off or allowed for because it appears that the loan won't be repaid, at that point in time that would become remuneration that would have to be recorded.
Nola Buhr: Okay, that's a good answer right to the point. We're going to go back to Francis here. Okay, this is a question about an audit opinion in the management letter. Okay it says:
We usually get an unqualified audit opinion but then the auditor gives us a really long management Letter. Isn't an unqualified audit opinion like a clean bill of health that everything is fine?
Francis Séguin: It's a good question again. The unqualified opinion basically states that there's no significant errors in the financial statements, and I'm sure that's correct. There is a concept of materiality, so there could be some small errors, but all in all the numbers are correct. The purpose of a management letter is to actually provide extra value to the First Nation and its' Chief and Council and it's actually a standard practice by auditors to provide a recommendation in most or all cases. The purpose of the management letter, it may address financial matters or the financial information itself, but it can also address other situations, so for example, governance issues. It can look at control aspects, the design, implementation, operating effectiveness of controls. It can look at for example, human resources issues. So the management letter should not be seen as something that's negative, but should be seen as something that's constructive to further assist First Nations and the overall management of funding received from both AANDC and funding that's managed by the First Nation themselves, the revenue, the expenses, the assets, and the liabilities.
Nola Buhr: So are you saying basically then a management letter is a chance to improve our operations and how we're managing our information systems and collecting data?
Francis Séguin: Absolutely, it's not again something negative, it's something that should be seen as a positive.
20:42 - Nola Buhr: Okay great, this is a question that looks like came in for Shirley, and it's another one about putting own source revenue on the financial statements. Pretty simple question, it says:
Why do we have to include own source revenue in our financial statements? Making this information public puts us at a competitive disadvantage. So I think, Shirley maybe if you would speak especially to the competitive disadvantage part?
Shirley Wolff: Okay, so as I mentioned earlier, the Public Sector Accounting Standards require that all revenues be included in the statement of operations in your financial statements. So this would include not only revenues that are earned directly by the First Nation, but it will also include those revenues of any entities that are consolidated into the financial statements because they're controlled by the First Nation, or any equity income of government-business enterprises. So again, as I mentioned earlier the Public Sector Accounting Standards are not very specific in terms of the level of detail of information that's presented in the statement of operations. Except for the government-business enterprises that we'll come to a little bit later. So there may be a way in which a First Nation can limit the level of detail that is provided in the financial statements related to competitively sensitive information.
Nola Buhr: Okay, thank you Shirley. This is an expense question, so this one's for Kevin and the question says:
We give our Chief and Councillor a fixed amount each month because they use their personal vehicle on Band business. I am pretty sure that the allowance is more than the actual cost. What do I do about this?
Kevin Hamel: Thanks Nola, so the amount that's paid is going to have to be included in the Schedule of Remuneration and Expenses because it is an amount paid to them as a part of their role in their capacity of being on Chief and Council. The full amount that's paid to them will more than likely have to be included as part of their remuneration because it is a reimbursement for expenses, but that's a situation where I would work with a First Nations auditor, talk to them about where that needs to be included, but in general that amount should be included.
Nola Buhr: Okay, thanks Kevin. Is there going to be an issue about materiality here?
Kevin Hamel: The schedule doesn't talk about materiality, that's a situation where again the auditor themselves are going to have to take a look at it, evaluate what the amounts are, and the auditor has the ability, they have to provide a report on the schedule. So what that means is that they would have to evaluate the amounts if it's not included in the reports they would have to determine if that affects the report they would give on that schedule.
Nola Buhr: Okay, thank you Kevin, that's helpful. We've got a question here, I'm going to take it because the answer is both yes and no, and I always like those questions. Okay, and it's about the Act, it says:
We have a newly elected Chief and she says that all we have to do is post our Consolidated Financial Statements and the Schedule of Remuneration and Expenses on our First Nation community website, and then she says that we don't need to provide any paper copies to anyone. Is this right?
Well there's the yes part and the no part. The yes part is that the Act says that you have to publish your audited Consolidated Financial Statements and the Schedule of Remuneration and Expenses and this has to be published on an internet site within 120 days of the financial year end, so the Chief is right there. But, the no part of my answer is that if a member of the First Nation community says "I want a copy of the financial statements", then the requirement of the Act says that the member has to be provided with a copy of the statements.
Okay, Shirley, I think we're back to you and this is a question here about black flies. But I'm sure there's an accounting link. Okay. Question says:
We are a fly-in community and our auditor doesn't usually come until August – after the black fly season. Our auditor says that being later than the 120 days doesn't really matter. Is this right?
Shirley Wolff: Well Nola, as we're aware the Act includes specific timeframes by which the audited financial statements of a First Nation need to be publishED on both the First Nation and the AANDC websites, and this is 120 days after year end which takes one almost until the end of July, so of course if the audit is only completed in August, the First Nation would not be in compliance with the Act. And under the Act there are certain remedies that Serge mentioned earlier that are available to the Minister of Indian Affairs, should the Act not be complied with, and this could include the withholding of funding to the First Nation and also obtaining a court order. So of course this could have serious consequences for a First Nation. So in this situation, I would recommend that the First Nations work with their auditor to ensure that the audit is completed in a timely manner.
Nola Buhr: Okay so it sounds then like we need to get the auditor to reschedule.
We're going to turn this one over to Francis, and this is a partnership question. And it says:
Our First Nation is a partner with another First Nation in a wild rice harvesting business. Won't it be double counting if both First Nations include this business in their financial statements?
Francis Séguin: That's a good question, I like the term partner in this case, so there seems to be an agreement between two First Nations to provide a commercial activity. What's not overly clear in the question is what type of a partnership is it; is it a 50/50 partnership, a 60/40 partnership, and so on. The Public Sector Accounting Board actually covers off a number of situations. So for example, if it's a 50/50 agreement, it would be considered a joint venture, so there is specific criteria on that, and the criteria for your joint ventures is each party accounts for its share of revenue, expenses, and their related assets and liabilities. So there's no double counting from that perspective. If the ratios would be different so for example, 60/40 or 70/30 and depending on the agreement and the types of decisions that can be made, there could be a situation where one entity would actually consolidate the information, while the other would not. But we would in that case create what's called the non-controlling interest. So ultimately the Public Sector Accounting Board has foreseen various scenarios and the result would not actually create double counting by both First Nations.
Nola Buhr: Okay thank you Francis, so it sounds like you'd only include the part that relates to your ownership share.
Francis Séguin: In essence, that's what would happen.
Nola Buhr: We're going to go back to Shirley now in Vancouver. And another consolidation question, it says:
Our First Nation only has one business enterprise so if we include this company in the financial statements, it's pretty obvious how well the company is doing. Can't we just keep that information private and leave it out of the financial statements? Shirley.
Shirley Wolff: Thank you Nola, and again the Public Sector Accounting Standards include specific requirements related to both the presentation and disclosure of information for government-business enterprises. In your statement of financial position, the investment in a government-business enterprise needs to be presented on a separate line item, and similarly in the statement of operations, any equity income from the government-business enterprise needs to be presented in a separate line item. And in addition to that, there are a number of disclosures that are required including condensed summary financial information for both the assets and liabilities, as well as the revenues and expenses of that operation. So I can understand the concerns if there's only one government-business enterprise. However, a First Nation is required to comply with the standards and so should be presenting this information in their financial statements. However, the First Nation and the auditor may wish to consider how material this information is in the financial statements and may consider the financial statements not to be materially misstated if for example certain disclosures are omitted from the financial statements or presented perhaps at a more summary level of information then might otherwise be presented in accordance with the standards. So I recommend that you discuss these matters at an early stage with your auditor.
Nola Buhr: Great, thanks Shirley. Next question. This one is for Kevin, and it's about Band Councillors and contracts, and it's a little bit long so please bear with me. It says here:
A Councillor has a fleet of school buses and has the contract to provide transportation services to the local school. This is a contract which he was awarded following a competitive bidding process. If this contract were awarded to another business the amount wouldn't be revealed. So the question is I think essentially: revealing the amount of the bid may impact future contracts. Is the entire value of the contract included in the schedule or just his salary portion? I hope that's clear enough for you Kevin.
Kevin Hamel: Yeah that is, that's a good one. So if the amount is paid directly to the Chief or to the Councillor by the Band, the amount has to be included in the schedule. There's no way around it. However, I would suggest again, we keep saying this, but talk to the auditor about the information doesn't have to be broken up separately, you don't have to have on the schedule, it doesn't have to say "paid to the Councillor or the Chief for a bus contract". But it does have to be included. Its amounts paid to the Act specifically says whether it's to the them in their capacity as Chief and Council or in a personal capacity.
Nola Buhr: Okay, I'm going to ask you a quick follow up question. So let's say the Councillor then is getting twice as much as of any other Councillors, won't people wonder why that Councillor's getting so much more?
Kevin Hamel: Yeah, people may wonder that, and that information is being shared as part of the legislation.
Nola Buhr: Okay, or maybe you could put a little star and say relates to other business beyond Councillor's salary. Is that possible as well?
Kevin Hamel: Yeah, correct. There's the guidance outlines the minimal requirements that have to be disclosed on the schedule, but there's no reason that additional information couldn't be disclosed if so desired. And we have seen that, a couple of my own clients have done that.
Nola Buhr: Okay, so there's some leeway, some discretion, but I think the key message is talk to your auditor. The question here I'm going to answer cause this is an interesting one. And this is about the Act, so, it says:
It has been noted that remuneration of Councillors varies between communities across the country. Will the First Nation Transparency Act, so First Nations Financial Transparency Act, give minimum and maximum guidelines to help communities determine reasonableness? So we just talked about comparing one Councillor to the other and I guess this question is what if Councillors across the country are getting different money?
Well, as far as the Act goes, there's nothing in the Act that specifies how much salary Councillors should get, but if you were interested, so if you said, hmm, I wonder if our Councillors are being paid fairly, because this information is public, there'd be nothing to prevent you from benchmarking Councillor remuneration against similar size communities. So you might want to use the information to inform you, but the Act certainly doesn't require it.
Okay, I might have talked long enough so I'm going to give Shirley a question, and this is about auditor qualified opinions, and it's a bit of a long question. Kay, so get ready Shirley. What does AANDC do with auditor qualified opinions in general, and the ones that keep recurring year after year such as the departure from Public Sector Accounting Standards for accounting for capital assets. I have heard that it doesn't matter if you get a qualified opinion. No one does anything with it, and it has no consequences. What do you think Shirley?
Shirley Wolff: Well of course, I'm not part of the AANDC, but certainly my understanding is that a First Nation would not be not in compliance with the Act if a qualified opinion was issued on those financial statements. I did recently have a conversation with someone from the AANDC, raising some concerns about long-term qualifications on financial statements, and my understanding is that there is an expectation that over time the recourses of qualifications should be addressed. I would certainly encourage First Nations to consider the needs of not only the current users of the financial statements, but also future users of the financial statements, such as perhaps a new lender because this could impact the impressions that those users of the financial statements have of a particular First Nation. I would also encourage you to work with your auditors who may be able to assist in dealing with some of the recourses of the qualifications, such as the accounting for capital assets to ensure that there's a plan in place and way in which that qualification could be removed in future financial statements.
Nola Buhr: Okay, thank you Shirley. Now what do I have here is the Chief expense question, or expenses for the Chief question. So I'm going to turn this one over to Kevin, and it says:
Our Chief is on the volunteer board of a national not-for-profit Aboriginal arts organization. The Band office files, all the travel claims for the Chief, and the NPO (not-for-profit organization) reimburses the Chief directly. Should these amounts be included in the travel expenses for the Chief? Now, my interpretation is that this is a separate organization, but I'll turn it over to you Kevin.
Kevin Hamel: Yeah, thanks Nola. That would be my interpretation as well, it sounds like they're acting on another board. But I think the red herring in the question is that the fact that the Nation itself is building this board for the work that he's doing, but it sounds like that's an administrative function more than anything else. So what the Act says is that amounts paid to or on behalf of them act in their capacity as the Chief in Council, but it has to be paid by the First Nation or it has to be consolidated. So in this case, the not-for-profit is not consolidated, I would assume it's not consolidated, therefore that amount would not be included on the schedule.
Nola Buhr: So it sounds just like maybe the Band office is doing the paperwork for the Chief and then that would reinforce that interpretation. Okay, Francis you've been quiet for a while so I've got a question for you, and this is another question about Band Councillors. Okay, it says:
Two of our Councillors sit on the management committee of a trucking business, and the trucking business is owned by a couple of Band members. So Councillors Band members. Does this trucking business have to be included in the Consolidated Financial Statements?
Francis Séguin: I would say potentially, it depends on the circumstances. The fact that it's owned by two current Councillors, I think that was the question.
Nola Buhr: So no, the Councillors are on the management committee, but it just says the trucking business is owned by Band members, and I'm presuming they're not Councillors, just Band members.
Francis Séguin: Okay, so the answer is still potentially, the guidance doesn't provide any quantitative criteria in terms of what an entity controls or not, and going back to the original discussion we had on Consolidated Financial Statements. Controlled is defined as the capacity to define the operational and financial matters of an organization. So based on the question, I don't have enough information to say yes there is control, or no there is not control, we need to look at the facts. And there's actually specific guidance in the Public Sector Accounting Handbook, and I've looked at this about a hundred times, I know exactly which paragraphs it is. It's public sector section 1300, government reporting entity, paragraphs 18 and 19. So we actually have four primary indicators of control, and seven secondary ones. And it's not a tick mark; I meet one, I control, not at all. It's a question of judgement. So we need to look at the complete facts and exercise the judgement to say there is control or there is not control. So in this particular case I don't have an exact answer I would need more information to resolve. But ultimately, going back to what I said earlier, you need to assess, you need to do an analysis and I would strongly recommend to have that discussion with your auditors before the end of the fiscal year to assess the impact on the financial reporting process and the auditing process to meet the 120 day requirement.
Nola Buhr: Okay, so I'm thinking it mainly depends then on the role these Councillors play and the relationship and all of those details will need to be worked out.
Francis Séguin: Correct, so for example, the number of members on the management committee, who has veto power if there is one, who decides the budget, is there an approval process of the budget, and so on. So there are multiple factors to consider.
Nola Buhr: Okay thank you. I've got another question here I think I'll take, and Serge has already spoken to this at the very beginning of our webinar, but the question says: We are scrambling to get ready for our auditor and would like to re-schedule the audit to a later date. Will there be another extension past the original 120 days this year?
Well we can't speak for the Department or the Minister. But if you recall, Serge Beaudoin already said that there is no intention to give another extension this year. So 120 day deadline is firm and it will be necessary to meet that deadline to comply with the Act. So, can't reschedule the audit, get the auditor in as soon as possible.
Now, Kevin, these Band Councillor questions seem to popular, so I've got one here for you, it says:
One of our Councillors manages the Gas Bar owned by the Band. Do we have to include their salary from the Gas Bar in with their salary as a Councillor?
Kevin Hamel: Again, going back to what the legislation says, it outlines that amounts paid to them by the Nation directly or by entities that are consolidated in the financial statements, those would have to be included. So assuming that this entity is consolidated into the financial statements, then those amounts paid will be included as part of their salaries and honouraria.
Nola Buhr: Okay, so pretty straight forward. If it's included in the consolidated entity, it's included in the schedule. Okay, Shirley, I'm going to give you two questions back to back. And some of these may be sounding familiar, but I' think it's important to take the questions that we have and respond to them so that people can see what relates to their own circumstances. So the first question for you Shirley is about the schedules to the financial statements. And it says:
We have a lot of schedules to our financial statements. Does the auditor have to audit these? So Shirley, what do you think?
Shirley Wolff: Thank you, so I believe the schedules that are being referred to are those detailed schedules of program revenues and expenses. And I'd firstly like to point out that the Public Sector Accounting Standards don't specifically require that the schedules be included with the Consolidated Financial Statements of the First Nation. These schedules typically include a level of detail that is well beyond the requirements of the standards. So I'd like to recommend that First Nations reconsider whether they should include those schedules with the financial statements, which of course are publically available information. An alternative is to exclude them and then to provide those schedules to the various parties that require them separately to the financial statements. And in the context of whether an auditor needs to audit those schedules, these schedules are typically not referred to in the auditor's report. The auditor's report will refer to those specific elements of the financial statements that are required of the Public Sector Accounting Standards, such as the statement of financial position, statement of operations, the notes to the financial statements, etc. But of course this financial information all forms a part of the general ledger of the First Nation, and of course is subject to audit as part of the auditor of the financial statements as a whole.
42:33 - Nola Buhr: Okay thanks Shirley, I'm going to give you a follow-up question and this is similar to the other ones you've answered, it all comes down to the detail, and this is about own source revenue, and it says:
How detailed does the information have to be that we provide about our own-source revenue?
Shirley Wolff: So as I respond to that question, I'm thinking particularly of the information that's required to be disclosed in the financial statements for government-business enterprises. And as I mentioned earlier, there is condensed supplementary financial information that's required. So in terms of the assets and liabilities of government-business enterprises, these need to be presented by main classification. I've seen financial statements for example with classifications being either current assets, long term assets, or perhaps going into a further level of detail such as line items of cash and accounts receivable, etc. In addition to those assets and liabilities total revenues and expenses also need to be disclosed, as well as the net income or loss for the government-business enterprises. Something to bear in mind though is that this information doesn't necessarily need to be presented by government-business enterprise. So for example, if a First Nation has two or three government-business enterprises that operate in a particular industry sector, these could be presented in total for that industry sector. If there are any adjustments that may be required to the net assets or net income of a government-business enterprise in order to arrive at the amounts that are included in the Consolidated Financial Statements of the First Nation, those adjustments also need to be disclosed. Of course related party transactions and balances are also important and required as well as any contractual obligations and contingencies related to the government-business enterprises. The percentage ownership of the government-business enterprises should also be included in the note, as well as if a First Nation has issued any guarantees of a government-business enterprise estate. So these are the key elements of the disclosures of the government-business enterprises.
Nola Buhr: Great, thank you very much Shirley. I've got a question here for you Kevin. Because it's got to do with the Schedule for Remuneration or Expenses, and it says: What if we incorporate Band-owned businesses does that change what we have to include in remunerations or expenses? So I'm interpreting Band-owned business unincorporated, if we incorporate it, does that change what gets included in the schedule?
Kevin Hamel: So again it comes down to whether or not that entity needs to be consolidated into the financial statements. So if it's an entity that's incorporated, owned by the First Nation, controlled by the First Nation, consolidated by the First Nation, then amounts paid to any of the Chief and Councillors would be included in that schedule. But if it's an entity that's incorporated and owned by somebody other than the Band, or it does not need to be consolidated, then we've got a different situation. Amounts that are paid to Chief and Councillors from entities that are not consolidated are not included.
Nola Buhr: Okay, that's great. So incorporation doesn't necessarily change that we've got to look at the other factors of whether it's included in the Consolidated Financial Statements or not.
Okay Francis, okay, this is a question about auditor opinions:
Are there any other opinions the auditor can give us besides qualified and unqualified?
Francis Séguin: The short answer is yes, a number of them that can be issued. The first one, as you mentioned is unqualified, which states in essence that financial statements are fairly presented in all material respects. So either no errors or very minimal errors. The second one is, you mentioned, qualified, so there's a specific area that would cause concern to use the financial statements. I'll take an example, let's say capital assets were not capitalized, well the balance sheet is off, so you don't have enough assets to meet your liabilities, you need those capital assets on your books. So an auditor can focus on a specific area of the financial statements and quantify that impact. So that would be an example of a qualified opinion. I guess the third possibility now is what we call an adverse opinion. So in that case, the auditor would conclude the financial statements are unfortunately not fairly stated. So there's too many issues in the financial statements, there's problems in capital assets, accounts payable, there's disclosure missing, and so on. So numerous errors, and you should not rely on those statements, in essence, that's what it means. The last option, it's I would say the worst case scenario, it's a disclaimer of an opinion where the auditor cannot conclude as to whether or the financial statements are fairly presented or not. So I'll take an example of something that happened a few years ago. There were floods in Manitoba, and a number of organizations actually lost their paperwork so the auditor came in and wanted to vouch some expenses, the auditor could not, the invoices were not available, and the auditor could not, by what we call alternate means, so for example, calling the suppliers, looking back at bank statements, the information was not available. So the auditor couldn't say whether the statements were incorrect or correct, the only option in that case was a disclaimer of opinion. So in essence, to conclude, we have four options: we have the unqualified, which is the best case scenario; qualified, which are specific errors, which are roughly significant; the adverse opinion, which is there's too many issues; and disclaimer, where unfortunately there's no way of giving any type of opinion.
Nola Buhr: Okay, thank you Francis. We have time for one last closing question, and I'm going to ask each one of our panelists to answer it. And I'm going to start with Shirley in Vancouver and work my way east. Basically a question of advice you would give:
So, what advice do you have for those getting ready for their audit this year? So Shirley?
Shirley Wolff: My advice would be to engage with your auditors at a very early stage. I would be encouraging the auditors to complete an interim audit and also to complete the audit of any significant transactions that may have occurred during the course of the year at a very early stage. Those discussions should also include any new standards that may be applicable or any changes in existing standards that are required to be adopted for the particular fiscal year-end audit. So that preparations can be made well ahead of time.
Nola Buhr: Okay, thank you Shirley. Kevin, what advice do you have?
Kevin Hamel: Yeah, I would concur with that. Another thing is make sure you bring everything to your auditor's attention early. I can tell you stories of July 20th finding out about new business and it's like "oh by the way we found out we've got this business". It's not the right time because it could really hold up the audit. The auditor really wants to have all the information, the full story earlier on so they can plan to make sure that's done on time. Again, 120 days is the limit.
Nola Buhr: Thanks Kevin. And Francis, do you have any advice we haven't got yet?
Francis Séguin: I'll go a little bit of what Kevin and Shirley just mentioned. I would say that probably project management is the key to success. So Shirley mentioned talking to the auditor early, I would concur. I would also set milestones throughout the process. So let's say you meet your auditors in let's say October well we need to produce the statements by the end of July. That means that the statement needs to be approved mid-July, and working your way backwards, providing information, getting the approval process in place, file reviews, transactions, new businesses and so on. So by establishing those milestones you have a much better chance of meeting the 120 day deadline and ultimately have a smoother audit as well which both management and the auditors would appreciate.
Nola Buhr: Great, thank you very much Francis.
Our time is up but I want to remind you about the 120 day deadline. So the First Nations Financial Transparency Act requires that each First Nation within 120 days after the year end of the financial year has to post Audited Consolidated Financial Statements as well as the Schedule of Remuneration and Expenses, and along with that schedule you need an auditor's report or a review engagement report. So remember, the deadline is July 29, 2015.
I also want to remind you about resources on the AANDC website. And Serge Beaudoin from AANDC spoke about that at the beginning of our session earlier today, but there's four key references I want to draw your attention to: The Reporting Guide; the Consistent Consolidated Financial Statements, which is the template for preparing financial statements; there are also Frequently Asked Questions on the FNFTA; and finally, and this is an ongoing website, Ask the Experts. The Ask the Experts site is active all year so please send in your questions to that site and your questions will be answered by one of our experts. Then, both the questions and the answers will be posted to the web site so everyone can benefit.
Finally, and most importantly, I want to thank the panelists who participated in the webinar today and have given their time without payment. We certainly appreciate their participation and professional advice. We have Francis Séguin from Deloitte Ottawa, Shirley Wolff from Deloitte Vancouver, and Kevin Hamel from Ernst & Young Edmonton.
Thank you and goodbye