Financial Statements for the Year Ended March 31, 2015 (Unaudited)

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Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2015, and all information contained in these statements rests with the management of Aboriginal Affairs and Northern Development Canada (AANDC). These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of AANDC's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in AANDC's Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout AANDC; and through conducting an annual risk-based assessment of the effectiveness of the system of internal control over financial reporting.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of internal control over financial reporting for the year ended March 31, 2015 was completed in accordance with the Treasury Board Policy on Internal Control and the results and action plans are summarized in the annex.

The effectiveness and adequacy of AANDC's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of AANDC's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the financial statements to the Deputy Minister.

The financial statements of AANDC have not been audited.

_________________________________
Colleen Swords
Deputy Minister

_________________________________
Paul Thoppil, CPA, CA
Chief Financial Officer

Gatineau, Canada
August 31, 2015

Statement of Financial Position (Unaudited) as at March 31

(in thousands of dollars) 2015 2014
Liabilities
Accounts payable and accrued liabilities (note 4)
688,212 632,704
Vacation pay and compensatory leave
15,194 16,242
Other liabilities (note 5)
70,606 82,476
Trust accounts (note 6)
892,254 890,472
Settled claims (note 7)
281,854 356,355
Provision for claims and litigation (note 8)
10,635,848 9,755,837
Environmental liabilities (note 8)
3,000,346 2,702,986
Provision for loan guarantees (note 8)
1,405 410
Employee future benefits (note 9)
25,586 21,010
Total liabilities 15,611,305 14,458,492
Financial assets
Due from the Consolidated Revenue Fund
1,638,093 1,587,441
Accounts receivable and advances (note 10)
69,321 68,661
Interest receivable (note 11)
1,462 1,759
Loans receivable (note 12)
858,256 834,970
Total gross financial assets
2,567,132 2,492,831
Financial assets held on behalf of Government
Interest receivable (note 11)
(1,462) (1,759)
Loans receivable (note 12)
(858,256) (834,970)
Total financial assets held on behalf of government
(859,718) (836,729)
Total net financial assets 1,707,414 1,656,102
Departmental net debt 13,903,891 12,802,390
Non-financial assets
Land held for future claims settlements (note 13)
39,570 39,570
Tangible capital assets (note 14)
92,958 67,662
Total non-financial assets
132,528 107,232
Departmental net financial position (note 15) (13,771,363) (12,695,158)
  • Contingent liabilities (note 8)
  • Contractual obligations (note 16)
  • The accompanying notes form an integral part of these financial statements.

_________________________________
Colleen Swords
Deputy Minister

_________________________________
Paul Thoppil, CPA, CA
Chief Financial Officer

Gatineau, Canada
August 31, 2015

Statement of Operations and Departmental Net Financial Position (Unaudited) for the Year Ended March 31

(in thousands of dollars) 2015
Planned Results
2015 2014
Expenses
People
3,615,556 3,786,451 3,389,603
Government
1,811,253 2,400,738 1,336,544
Land and Economy
1,456,886 1,623,181 1,417,535
North
86,256 655,183 595,255
Internal Services
273,305 324,718 402,579
Expenses incurred on behalf of Government
(4,612) (5,883) 8,906
Total expenses
7,238,644 8,784,388 7,150,422
Revenues
Norman Wells project profits
98,268 74,779 83,503
Resource royalties
49,629 59,541 16,283
Interest on loans
5,955 7,761 6,168
Finance and administrative services
710 3,135 690
Miscellaneous
3,777 2,005 5,021
Leases and rentals
724 1,670 2,665
Revenues earned on behalf of Government
(157,351) (143,080) (112,870)
Total revenues
1,712 5,811 1,460
Net cost of operations 7,236,932 8,778,577 7,148,962
Net cost of operations before government funding and transfers 7,236,932 8,778,577 7,148,962
Government funding and transfers
Net cash provided by Government
  7,584,385 7,987,747
Change in due from the Consolidated Revenue Fund
  50,652 (57,834)
Services provided without charge by other government departments (note 17)
  80,629 89,416
Transfer of the transition payments for implementing salary payments in arrears (note 18)
  (13,294)
Net cost of operations after government funding and transfers   1,076,205 (870,367)
Departmental net financial position – Beginning of year   (12,695,158) (13,565,525)
Departmental net financial position – End of year   (13,771,363) (12,695,158)
  • Segmented Information (note 19)
  • The accompanying notes form an integral part of these financial statements.

Statement of Change in Departmental Net Debt (Unaudited) for the Year Ended March 31

(in thousands of dollars) 2015 2014
Net cost of operations after government funding and transfers 1,076,205 (870,367)
Change due to tangible capital assets
Acquisition of tangible capital assets (note 14)
35,852 24,556
Amortization of tangible capital assets (note 14)
(8,020) (8,677)
Proceeds from disposal of tangible capital assets
(2,675) (770)
Gain (loss) on disposal of tangible capital assets
(89) 727
Adjustments to tangible capital assets
228 (13,912)
Total change due to tangible capital assets
25,296 1,924
Change due to land held for future claims settlements
7,935
Net increase (decrease) in departmental net debt 1,101,501 (860,508)
Departmental net debt – Beginning of year 12,802,390 13,662,898
Departmental net debt – End of year 13,903,891 12,802,390
The accompanying notes form an integral part of these financial statements.

Statement of Cash Flow (Unaudited) for the Year Ended March 31

(in thousands of dollars) 2015 2014
Operating activities
Net cost of operations before government funding and transfers 8,778,577 7,148,962
Non-cash items:
Amortization of tangible capital assets (note 14)
(8,020) (8,677)
Gain on disposal of tangible capital assets
(89) 727
Adjustments to tangible capital assets
228 (13,912)
Services provided without charge by other government departments (note 17)
(80,629) (89,416)
Transition payments for implementing salary payments in arrears (note 18) 13,294
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances
660 (11,965)
Increase (decrease) in land held for future claims settlements
7,935
Decrease (increase) in liabilities
(1,152,813) 930,307
Cash used in operating activities 7,551,208 7,963,961
Capital investing activities
Acquisitions of tangible capital assets (note 14)
35,852 24,556
Proceeds from disposal of tangible capital assets
(2,675) (770)
Cash used in capital investing activities 33,177 23,786
Net cash provided by Government of Canada 7,584,385 7,987,747
The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements (Unaudited) for the Year Ended March 31

1.  Authority and objectives

The Department, under its legal name the Department of Indian Affairs and Northern Development, was established by the Government Organization Act, 1966 and continued by the Department of Indian Affairs and Northern Development Act (R.S., 1985, c. I-6). It is named in Schedule I of the Financial Administration Act. However, the Department is more commonly known by its applied title under the Federal Identity Program as Aboriginal Affairs and Northern Development Canada (AANDC).

AANDC is the federal government department primarily responsible for meeting the Government of Canada's obligations and commitments to First Nations, Inuit and Métis, and for fulfilling the federal government's constitutional responsibilities in the North. The mandate of AANDC is derived largely from the Department of Indian Affairs and Northern Development Act, the Indian Act and its amendments, as well as numerous other statutes, negotiated agreements and relevant legal decisions.

To deliver on its mandate, AANDC has structured its operations along four strategic outcomes and one program as follows:

a) People - Activities within this strategic outcome are dedicated to achieving a Canada where there is strengthened individual, family and community well-being for First Nations and Inuit. These programs are designed to:

  • Enable First Nations and Inuit students to achieve levels of education comparable to other Canadians;
  • Engage First Nation men, women and children to advance their participation in the labour market and take advantage of available opportunities;
  • Fulfill legislative, administrative and treaty obligation for which AANDC is responsible; and
  • Support a fair resolution to the legacy of Indian Residential Schools.

b) Land and Economy – This strategic outcome supports the full participation of First Nations, Métis, Non-Status Indians and Inuit individuals and communities in the economy. These programs promote:

  • Viable Aboriginal businesses and opportunity-ready First Nation and Inuit communities;
  • Timely administration of reserve lands and prudent remediation of contaminated sites;
  • Infrastructure which protects the health and safety of First Nation communities; and
  • Urban Aboriginal People's participation in the economy.

c) Government - Activities performed under this strategic outcome enable and support good governance and co-operative relationships for First Nations, Inuit and Northerners. These programs are designed to:

  • Support transparent and accountable First Nation governments and institutions;
  • Build relationships between parties based on trust, respect, understanding, shared responsibilities, accountability, rights and dialogue; and
  • Create and maintain ongoing partnerships to support historical and modern treaty structures.

d) North - Through this strategic outcome, AANDC promotes self-reliance, prosperity and well-being for the people and communities of the North. These programs are designed to:

  • Strengthen northern communities and people;
  • Support scientific research and technology in the North; and
  • Support the management, sustainable development and regulatory oversight of the Northern resources.

e) Internal Services - Under this program, activities are designed to support the effective delivery of AANDC's programs and services and other corporate obligations of the organization. These services include:

  • Governance and management support;
  • Resource management services; and
  • Asset management services.

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:

a) Parliamentary authoritiesAANDC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to AANDC 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 the amounts reported in the future-oriented financial statements included in the 2014-2015 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 2014-2015 Report on Plans and Priorities.

b) Net cash provided by GovernmentAANDC operates within the Consolidated Revenue Fund, which is administered by the Receiver General for Canada. All cash received by AANDC is deposited to the Consolidated Revenue Fund and all cash disbursements made by AANDC are paid from the Consolidated Revenue Fund. The net cash provided by Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the Government.

c) Amounts due from/to the Consolidated Revenue Fund – These amounts are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the Consolidated Revenue Fund. Amounts due from the Consolidated Revenue Fund represent the net amount of cash that AANDC is entitled to draw from the Consolidated Revenue Fund without further authorities to discharge its liabilities.

d) Revenues – 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 AANDC's liabilities. While the Deputy Minister is expected to maintain accounting control, 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 therefore presented in reduction of AANDC's gross revenues.

e) Expenses – Expenses are recorded on the 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.
  • 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.

f) Employee future benefits

  • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. AANDC's contributions to the plan are charged to expenses in the year incurred and represent the total departmental obligation to the plan. AANDC'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.

g) Accounts receivable – Accounts receivable are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for accounts receivables where recovery is considered uncertain.

The amount of the allowance is determined based on an assessment of each account. The collectability of each account is reviewed by regional accounting offices on a semi-annual basis using a standard set of criteria to assess default risk.

h) Loans receivable – Loans receivable are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for loans receivable where recovery is considered uncertain.

The amount of the allowance is determined based on an assessment of each loan. The collectability of each loan is reviewed by program managers on an annual basis using a standard set of criteria to assess default risk.

Interest on loans receivable is calculated in accordance with the terms and conditions of each individual program. Interest is not accrued on loans approved for write-off or forgiveness.

i) 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.

j) Environmental liabilities - Environmental liabilities consist of estimated costs related to the remediation of 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, the government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government'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 Consolidated Revenue Fund 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.

k) 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. AANDC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves or museum collections.

Capital assets which are held for future contribution to First Nations are reported as land held for future claims 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 or 40 years
Works and infrastructure 30 years
Machinery and equipment 5, 10 or 15 years
Informatics hardware and software 3 or 5 years
Ships and boats 10 years
Motor vehicles 5 or 10 years
Other vehicles 5 years
Leasehold improvements Lesser of the remaining term of lease or useful life of the improvement

l) 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

AANDC 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, AANDC 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:

a) Reconciliation of net cost of operations to current year authorities used

  2015 2014
  (in thousands of dollars)
Net cost of operations before government funding and transfers 8,778,577 7,148,962
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets
(8,020) (8,677)
Gain (loss) on disposal of tangible capital assets
(89) 727
Transfer of land held for future claims settlements
(328)
Adjustments to real property
(5,927)
Services provided without charge by other government departments
(80,629) (89,416)
Bad debt expense (not incurred on behalf of government)
(7,237) (37)
Decrease (increase) in vacation pay and compensatory leave
1,048 573
Decrease (increase) in liability for settled claims
74,501 76,571
Decrease (increase) in provision for claims and litigation
(880,011) 959,088
Decrease (increase) in environmental liabilities
(297,360) (172,153)
Decrease (increase) in employee future benefits
(4,576) 9,593
Decrease (increase) in accrued liabilities not charged to authorities
336 3,000
Refunds/adjustments to prior years' expenditures
67,549 72,886
Other
(5,723) (1,726)
Total items affecting net cost of operations but not affecting authorities (1,140,211) 844,174
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisition of tangible capital assets
35,852 24,556
Acquisition of land held for future claims settlements
380
Refund of previous year revenues
3,944 21,387
Transition payments for implementing salary payments in arrears
13,294
Other
197 33
Total items not affecting net cost of operations but affecting authorities 53,287 46,356
Current year authorities used 7,691,653 8,039,492

b) Authorities provided and used

  2015 2014
  (in thousands of dollars)
Authorities provided
Vote 1 – Operating expenditures 1,401,102 1,527,574
Vote 5 – Capital expenditures 46,442 19,166
Vote 10 – Grants and contributions 7,057,149 7,011,939
Statutory amounts 225,904 219,689
Total authorities provided 8,730,597 8,778,368
Less:
Authorities available for future years (34,689) (33,261)
Authorities lapsed
Vote 1 – Operating expenditures (259,694) (190,713)
Vote 5 – Capital expenditures (7,411) (12,533)
Vote 10 – Grants and contributions (737,150) (502,077)
Statutory amounts (292)
Total authorities lapsed and available for future years (1,038,944) (738,876)
Current year authorities used 7,691,653 8,039,492

In addition to the amount for authorities available for future years presented above, some of the other lapsed amounts may become available to AANDC in the 2016 fiscal year, but due to the timing of parliamentary approvals, these amounts had not been approved at March 31, 2015. Additional information on the use of authorities, including explanation of variances and lapsed amounts, can be found in AANDC's Departmental Performance Report.

4.  Accounts payable and accrued liabilities

The following table presents details of AANDC's accounts payable and accrued liabilities:

  2015 2014
  (in thousands of dollars)
Accounts payable – Other government departments and agencies 26,671 29,406
Accounts payable – External parties 164,521 152,800
Total accounts payable 191,192 182,206
Accrued liabilities 497,020 450,498
Total accounts payable and accrued liabilities 688,212 632,704

In the Economic Action Plan 2012, the Government announced savings measures to be implemented by departments over the next three fiscal years starting in 2012-2013. As a result, AANDC has recorded at March 31, 2015 an obligation for termination benefits in the amount of $11,000 ($388,000 in 2013-2014) as part of accrued liabilities to reflect the estimated workforce adjustment costs.

5.  Other liabilities

The following table presents details of other liabilities:

(in thousands of dollars) 2015 2014
  Opening Balance Receipts Interest Disbursements Closing Balance Closing Balance
Cash guarantee deposits 35,070 15   (17,823) 17,262 35,070
Other specified purpose accounts 47,406 31,659 1,132 (26,853) 53,344 47,406
Total 82,476 31,674 1,132 (44,676) 70,606 82,476

Cash guarantee deposits

In fulfilling its duties under various acts that govern the use of federal Crown land, including land use activities, water resources, and water rights, AANDC may issue licences, permits, and other instruments to individuals and organizations that propose to undertake resource exploration and other types of development projects.

In accordance with the terms and conditions of the instrument, AANDC may require security deposits to ensure the lands and waters are returned in a condition acceptable to AANDC. These guarantee deposits are received in the form of cash and are deposited to and held in the Consolidated Revenue Fund.

Other specified purpose accounts

These accounts are established to receive, hold and disburse monies in accordance with relevant statutes, departmental policies and agreements. The most significant of these accounts is the Indian Moneys Suspense Account. This statutory account was established to hold moneys received for individual Indians and bands pending execution of the related lease, permit or licence, settlement of litigation, registration of the Indian or identification of the recipient, and for Indian locatees pursuant to land tenure instruments issued by AANDC. These moneys are eventually disbursed to individual Indians, credited to band fund or individual trust fund accounts, or returned to payers, as appropriate.

6. Trust accounts

The following table shows AANDC's financial obligations in its role as administrator of trust accounts for Indian moneys:

(in thousands of dollars) 2015 2014
  Opening Balance Receipts Interest Disbursements Closing Balance Closing Balance
Indian band funds 833,254 184,552 20,503 (203,612) 834,697 833,254
Indian savings accounts 33,900 2,273 1,013 (4,527) 32,659 33,900
Indian estate accounts 23,318 7,060 418 (5,898) 24,898 23,318
Total trust accounts 890,472 193,885 21,934 (214,037) 892,254 890,472

Indian Moneys

In accordance with the Indian Act, AANDC 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 AANDC: Indian band funds, Indian savings accounts, and Indian estate accounts.

Indian Band Funds

These accounts were established to record moneys belonging to Indian bands throughout Canada pursuant to sections 61 to 69 of the Indian Act.

Indian Moneys of the bands are classified as either capital moneys or revenue moneys. Capital moneys of the band include all moneys derived from the sale of surrendered lands or the sale of band capital assets. Moneys from the sale of surrendered lands can include land sales, timber sales, oil and gas royalties, and sale of gravel. Revenue moneys are all moneys not classified as capital moneys.

Moneys are generally disbursed from these accounts pursuant to an authorized request from a band.

Indian Savings Accounts

These accounts were established to record moneys belonging to certain individual Indians pursuant to sections 52 and 52.1 to 52.5 of the Indian Act.

Sources of moneys include inheritances and per capita distribution of band funds. Moneys are generally disbursed from these accounts pursuant to an authorized request from an individual and upon reaching the age of majority.

Indian Estate Accounts

These accounts were established to record moneys belonging to dependant adults (referred to as mentally incompetent individuals in the Indian Act) and deceased Indians pursuant to sections 42 to 51 of the Indian Act.

Sources of moneys belonging to dependant adults include insurance proceeds, per capita distribution of band funds, and federal and provincial payments. Payments are made from these accounts for the maintenance and care of the individuals.

Estate accounts for deceased Indians include the proceeds of their liquidated assets that are held pending the settlement of the estate. The closing of the account usually corresponds with the final distribution to their heirs.

7.  Settled claims

The liability for settled claims represents AANDC's financial obligation pursuant to agreements related to comprehensive land claims and specific claims.

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.

Specific claims address past grievances arising out of non-fulfilment of Indian treaties and other lawful obligations, the improper administration of lands and other assets under the Indian Act, or formal agreements that are being pursued through negotiations.

An act of Parliament, based on a negotiated agreement, establishes the authority for AANDC 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, 2015, AANDC had 10 outstanding settled claims (11 in 2014). Payments totalled $87,409,000 in 2015 ($86,023,000 in 2014).

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, 2015 is $281,854,000 ($356,355,000 in 2014).

Future scheduled claim payments are as follows:

(in thousands of dollars) 2016 2017 2018 2019 2020 and thereafter Total
Scheduled payments 57,000 56,000 58,000 51,000 67,000 289,000

8. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are classified into three categories; claims and litigation, environmental liabilities and loan guarantees.

Claims and litigation

Claims and pending or threatened litigation cases outstanding against AANDC 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, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

There are four significant types of claims faced by AANDC: comprehensive land claims, specific claims, general litigation claims, and claims arising from the legacy of Indian residential schoolsFootnote 1.

Comprehensive land claims arise in areas of the country where Aboriginal rights and title have not been resolved by treaty or by other legal means. There are currently 80 (81 in 2014) comprehensive land claims under negotiation, accepted for negotiation or under review.

Specific claims deal with the past grievances of First Nations related to Canada's obligations under historic treaties or the way it managed First Nations' funds or other assets. The Government of Canada will pursue a settlement agreement with the First Nation when a claim demonstrates an outstanding lawful obligation. There are currently 461 (441 in 2014) specific claims under negotiation, accepted for negotiation or under review.

There are legal proceedings for 554 (538 in 2014) general litigation claims being pursued through the courts still pending at March 31, 2015. There are also thousands of claims being managed through AANDC with respect to the legacy of Indian residential schools, including class action claims, as well as claims submitted under its Alternative Dispute Resolution process and its Independent Assessment Process.

AANDC has recorded a provision of $10,635,848,000 ($9,755,837,000 in 2014) as an estimate of the likely liability that will result from the above claims. This estimate includes projections based on historical rates and costs of settlement of similar claims. Exposure to liability in excess of the amount accrued is $15,344,000 ($105,720,000 in 2014) and an additional amount of $4,688,785,000 ($4,800,633,000 in 2014) is considered uncertain as the probability of the occurrence or non-occurrence of the future event confirming that a liability existed at the financial statements date cannot be determined.

Environmental liabilities

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where AANDC is obligated to incur such costsFootnote2.

AANDC has disclosed a contingent liability in the amount of $742,000 for two sites ($722,000 in 2014 for two sites) where the department has determined that it is not directly responsible, nor does it accept responsibility; however, there is uncertainty as to whether the department may be responsible.

Remediation of contaminated sites

The government has developed a "Federal Approach to Contaminated Sites", which incorporates a risk-based approach to the management of contaminated sites. Under this approach AANDC has inventoried the contaminated sites on federal lands that have been identified, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aides in the identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to the environment and human health.

AANDC has identified approximately 2,473 sites (2,817 sites in 2014) where contamination may exist and assessment, remediation and monitoring may be required. Of these, AANDC has identified 815 sites (893 sites in 2014) where action is possible and for which a net liability of $3,000,346,000 ($2,702,986,000 in 2014) has been recorded. This liability represents management's best estimate of the amount required to complete the remediation of the sites to the current minimum standard for its use prior to contamination, based on information available at the financial statement date. A net present value technique has been used for sites where the cash flows are expected to occur over extended future periods.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2015, and March 31, 2014. When the liability estimate is based on a future cash requirement, the Consolidated Revenue Fund Monthly Lending Rates has been used to discount the estimated future expenditures. The March 2015 rates range from 0.61% for a 2 year term to 2.12% for a 25 or greater year term.

Nature and Source of Liability
(in thousands of dollars)
Nature & Source Total Number of Sites 2015 Estimated Liability 2015 Estimated Total Undiscounted Expenditures 2015 Estimated Recoveries 2015 Total Number of Sites 2014 Estimated Liability 2014 Estimated Total Undiscounted Expenditures 2014 Estimated Recoveries 2014
Radioactive Material 1 1 7,852 76 - 1 6,979 - -
Former Mineral Exploration Sites 2 73 2,474,591 135,852 17,321 72 2,141,546 130,401 17,321
Military & Former Military Sites 3 48 167,030 23,351 - 49 173,299 16,080 -
Fuel Related Practices 4 398 227,202 17,303 - 447 255,324 19,869 -
Land Fill/ Waste Sites 5 263 65,863 5,417 - 285 57,602 2,266 -
Land Fill/Waste Sites (Yukon Devolution) 5 1 11,182 813 - 1 11,995 928 -
Engineering Assets/ Air and Land Transportation 6 2 1,524 - - 4 1,356 - -
Marine Facilities / Aquatic Sites 7 1 245 - - 1 245 - -
Office/ Commercial/ Industrial Operations 8 15 17,510 261 - 21 17,294 225 -
Others 9 13 27,347 1,835 - 12 37,346 276 -
Totals 815 3,000,346 184,908 17,321 893 2,702,986 170,045 17,321
  1. Contamination associated with former nuclear operations, e.g. low-level radioactive waste, radioactive isotopes.
  2. Contamination associated with former mine activities, e.g. heavy metals, petroleum hydrocarbons, etc. Sites often have multiple sources of contamination.
  3. Contamination associated with the operations of military and former military sites where activities such as fuel handling and storage activities, waste sites, metals/PCB-based paint used on buildings resulted in former or accidental contamination, e.g. petroleum hydrocarbons, PCBs, heavy metals. Sites often have multiple sources of contamination.
  4. Contamination primarily associated with fuel storage and handling. E.g. accidental spills related to fuel storage tanks or former fuel handling practices, e.g. petroleum hydrocarbon, polyromantic hydrocarbons and BTEX.
  5. Contamination associated with former landfill/waste site or leaching from materials deposited in the landfill/waste site, e.g. metals, petroleum hydrocarbons, polyromantic hydrocarbons, BTEX, other organic contaminants, etc.
  6. Contamination associated with the operations of engineered assets such as airports, railways and roads where activities such as, fuel storage/handling, waste sites, firefighting training facilities and chemical storage areas resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyromantic hydrocarbons, BTEX and other organic contaminants. Sites often have multiple sources of contamination.
  7. Contamination associated with the operations of marine assets, e.g., port facilities, harbours, navigation systems, light stations, hydrometric stations, where activities such as fuel storage/handling, use of metal based paint (e.g., on light stations) resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyromantic hydrocarbons and other organic contaminants. Sites often have multiple sources of contamination.
  8. Contamination associated with operations of the office/commercial/industrial facilities where activities such as fuel storage/handling, waste sites and use of metal based paint resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyromantic hydrocarbons, BTEX, etc. Sites often have multiple sources of contamination.
  9. Contamination from other sources, e.g. use of pesticides, herbicides, fertilizers at agricultural sites; use of PCBs, firefighting training areas, firing ranges and training facilities, etc.

Of the remaining 1,658 sites for which no liability is recorded, 204 sites were closed and 11 sites are pending closure, as they were either remediated or assessed and found not to be contaminated, and there are 1,443 sites for which an estimated liability has not been determined, primarily due to the fact the sites are not yet fully assessed and contamination has not yet been determined or they have not developed a detailed remediation plan. As the sites are assessed, if contamination is found, and it exceeds the environmental standard, a liability will be recognized as soon as a reasonable estimate can be made.

Of the 1,443 sites that do not have liabilities, 55 sites are considered high priority for action because they present a higher risk to human health and the environment. These sites are at various stages of testing and evaluation in order to develop a remediation or risk management strategy. Liabilities will be reported as soon as a reasonable estimate can be determined. 207 sites are considered a medium to low priority based on the low level of risk to human health or the environment. Assessment and remediation will be done on these sites as resources become available. 1,120 sites are not yet classified because they are only at the initial testing stages and contamination has not yet been determined. 37 sites are not considered a priority for action because information indicates there is likely no significant environmental impact or human health threats and there is likely no need for action unless new information becomes available indicating greater concerns, in which case, the site will be re-examined. 24 sites currently have insufficient information in order to classify. Additional information is required to classify the site but is not available at this time. As additional information becomes available the sites will be re-examined.

A measurement uncertainty exists for three sites for which a management option will be selected within the next fiscal year which could have a significant impact on the amount reported. Depending on the management option selected for these sites, a range in the liability is possible from the lowest estimate of $144,581,000 to the highest estimate of $194,182,000 ($125,000 to $3,359,000 in 2014 for one site).

Loan guarantees

(in thousands of dollars) Authorized Limit Loan Guarantees Provision for Losses
2015 2014 2015 2014
On-Reserve Housing Guarantee program 2,200,000 1,715,281 1,810,445 1,330 320
Indian Economic Development Guarantee program 60,000 928 1,008 75 90
Total 2,260,000 1,716,209 1,811,453 1,405 410

AANDC issues loan guarantees under two programs: On-Reserve Housing Guarantee program and Indian Economic Development Guarantee program.

On-Reserve Housing Guarantee Program

This program authorizes AANDC to guarantee loans to individuals and Indian bands to assist in the purchase of housing on reserves because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. These loan guarantees enable status Indians residing on reserves, Band councils, or their delegated authorities, to secure housing loans without giving the lending institution rights to the property. The authorized limit is $2.2 billion.

Indian Economic Development Guarantee Program

This program authorizes AANDC to guarantee loans for non-incorporated Indian businesses on a risk-sharing basis with commercial lenders because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. Guarantees are provided for various types of borrowers whose activities contribute to the economic development of Indians and enable them to develop long-term credit relationships with mainstream financial institutions. The authorized limit is $60 million.

Provision for losses

A provision for losses on loan guarantees is recorded when it is likely that a payment will be made in the future to honour a guarantee and when the amount of the loss can be reasonably estimated. The provision is determined by applying the weighted average historical percentage of default to total outstanding loan guarantees, less expected recoveries. The provision is reviewed on at least an annual basis with any changes being charged or credited to current year expenses.

9. Employee future benefits

a) Pension benefits

AANDC's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plan benefits and are indexed to inflation.

Both the employees and AANDC contribute to the cost of the Public Service Pension Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to the Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Public Service Pension Plan as of January 1, 2013. Each group has a distinct contribution rate.

For the year ended March 31, 2015, the expense amounts to $41,514,000 ($47,729,000 in 2014). For Group 1 members, the expense represents approximately 1.4 times (1.6 times in 2014) the employee contributions and, for Group 2 members, approximately 1.4 times (1.5 times in 2014) the employee contributions.

AANDC'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.

b) Severance benefits

AANDC provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

As part of collective agreement negotiations with certain employee groups and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.

Information about the severance benefits, measured as at March 31, is as follows:

  2015 2014
  (in thousands of dollars)
Accrued benefit obligation - Beginning of year 21,010 30,603
Expense for the year 12,036 9,793
Benefits paid during the year (7,460) (19,386)
Accrued benefit obligation - End of year 25,586 21,010

10. Accounts receivable and advances

The following table presents details of AANDC's accounts receivables and advances:

  2015 2014
  (in thousands of dollars)
Receivables – Other government departments and agencies 12,971 19,576
Receivables – External parties 77,203 64,240
Advances to Employee and Other 1,742 204
Gross accounts receivable and advances 91,916 84,020
Less: Allowance for doubtful accounts on receivables from external parties (22,595) (15,359)
Net accounts receivable and advances 69,321 68,661

11. Interest receivable

The following table presents details of accrued interest receivable on loans:

  2015 2014
  (in thousands of dollars)
Direct loans 1,312 1,502
Defaulted guaranteed loans 2,653 1,685
Gross interest receivable 3,965 3,187
Less: Allowance for doubtful accounts (2,503) (1,428)
Net interest receivable (held on behalf of Government) 1,462 1,759

12. Loans receivable

The following table presents details of loans receivable:

  2015 2014
  (in thousands of dollars)
Direct loans portfolio
Native claimants
447,126 441,678
First Nations in British Columbia
505,896 485,710
Other direct loans
504 504
Subtotal: Direct loans portfolio
953,526 927,892
Add: Capitalized interest
4,545 4,405
Less: Allowance for doubtful loans
(109,856) (108,028)
Net recoverable value: Direct loans portfolio
848,215 824,269
Defaulted guaranteed loans portfolio
On-reserve housing guarantees
9,263 10,612
Indian economic development guarantees
422 522
Other defaulted guaranteed loans
104 104
Subtotal: Defaulted guaranteed loans portfolio
9,789 11,238
Add: Capitalized interest
24,221 20,647
Less: Allowance for doubtful loans
(23,969) (21,184)
Net recoverable value: Defaulted guaranteed loans portfolio
10,041 10,701
Loans receivable, net recoverable value (held on behalf of Government) 858,256 834,970

Direct loans portfolio

The objective of direct loans is to support active participation by First Nations and First Nations organizations and to promote a balanced exchange of ideas in negotiating the settlement of comprehensive land claims, specific claims, and treaties.

AANDC's direct loans portfolio has two active programs in support of this objective.

Native claimants

These are loans made to Native claimants to defray the costs related to the research, development and negotiation of comprehensive land claims and specific claims.

The significant terms and conditions of loans to Native claimants are as follows:

  • Loans made before an agreement-in-principle for the settlement of a claim is reached are non-interest bearing;
  • Loans made after the date on which an agreement-in-principle has been reached, bear interest at a rate equal to the rate established by the Minister of Finance in respect of borrowings for equivalent terms by Crown corporations;
  • Loans are due and payable, as to principal and interest, on the date on which the claim is settled, or on a date fixed in the loan agreement;
  • Loans may be restructured, including forgiveness of a portion of the principal or interest in arrears, when the borrower cannot meet the term of the original loan agreement; and
  • AANDC may seek security for loans when deemed appropriate.

When an agreement-in-principle is reached for the settlement of a claim, any accrued interest receivable is capitalized semi-annually as part of the principal amount owing on the loan. After a final agreement is reached, any accrued interest receivable outstanding is capitalized annually as part of the principal amount owing on the loan.

The interest bearing and non-interest bearing portions of direct loans for Native claimants outstanding at March 31 are as follows:

  2015 2014
  (in thousands of dollars)
Interest bearing 65,068 72,382
Non-interest bearing 382,058 369,296
Total 447,126 441,678
First Nations in British Columbia

These are loans made to First Nations in British Columbia to support their participation in the British Columbia Treaty Commission and to defray the costs related to the research, development and negotiation of treaties.

The significant terms and conditions of direct loans to First Nations in British Columbia are the same as those for loans to Native claimants, except as follows:

  • Loans made between April 1, 2004 and March 31, 2015, and after the date on which an agreement-in-principle for the settlement of a treaty has been reached shall be non-interest bearing unless the loans become due and payable during this period.

The interest bearing and non-interest bearing portions of direct loans for First Nations in British Columbia outstanding at March 31 are as follows:

  2015 2014
  (in thousands of dollars)
Interest bearing 16,426 18,189
Non-interest bearing 489,470 467,521
Total 505,896 485,710
Other direct loans

AANDC also has various legacy programs that are no longer active. These legacy programs will continue to operate under their existing arrangements until the land claims are settled, at which point the loans will become repayable and the respective programs closed.

All loans outstanding at year-end under the various legacy programs both for the current and prior year are interest bearing.

Defaulted guaranteed loans portfolio

The objective of loan guarantees is to encourage lending institutions to make loans for properties located on First Nations lands and to support access to credit markets for First Nations and First Nations organizations. Since properties located on First Nations lands cannot be used as collateral to secure the loans and lending institutions are prevented from foreclosing on these properties in the event of borrower default as prescribed by the Indian Act, lending institutions can be exposed to greater business risk in issuing loans for properties located on First Nations lands.

As guarantor, loan guarantees issued under the various programs may become receivables of the Department when, at the request of a lending institution, AANDC is required to honour these loan guarantees. As a result, AANDC makes payment to the lending institution and establishes a receivable from the First Nation or First Nation organization.

AANDC has access to an annual $2 million statutory authority for funding payments to lending institutions to honour loan guarantees. Payments made in excess of the $2 million authority limit are charged to program expenses and funded by budgetary authorities.

There were two loan defaults in 2015 (0 in 2014) which resulted in a charge of $90,000 to AANDC's reserve for payments to cover defaults ($0 in 2014).

The significant terms and conditions of the two loan guarantee programs are as follows:

On-Reserve Housing Guarantee program
  • Payments of principal and interest for loans issued under this program are amortized over a period of 25 years. The interest rates on the guaranteed loans are consistent with conventional mortgage interest rates offered by the major banks. On a semi-annual basis, any accrued interest receivable outstanding is capitalized as part of the principal amount owing on the loan.
  • To control the occurrence of defaulted loans in this program, the Department restricts the eligibility of recipients for further loans until such time as a recovery plan has been reached and has been in operation in accordance with its terms and conditions for a period of six months.
Indian Economic Development Guarantee program
  • Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Accrued interest on loans issued under this program is not capitalized. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of AANDC.
Other defaulted guaranteed loans

AANDC also has a legacy program that is no longer active. This legacy program will continue to operate under its existing arrangements until the defaulted guaranteed loans are paid and the program closed.

13. Land held for future claims settlements

Land held for future claims settlements 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 AANDC 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.

Changes in this account are summarized in the following table:

(in thousands of dollars) 2015 2014
Opening Balance Acquisitions Adjustments Transfers Closing Balance Closing Balance
Land held for future claims settlements 39,570 39,570 39,570

14. Tangible capital assets

(in thousands of dollars) Cost Accumulated Amortization Net Book Value
Capital Asset Class Opening Balance Acquisitions Adjustments ¹ Disposals and
Write-offs
Closing Balance Opening Balance Amortization Adjustments ¹ Disposals and
Write-offs
Closing balance 2015 2014
Land 1,407 58 1,349 1,349 1,407
Buildings 18,465 4,859 13,606 8,691 351 2,458 6,584 7,022 9,774
Works and infrastructure 1,409 1,409 1,409 1,409
Machinery and equipment 5,428 84 3,200 124 8,588 4,331 715 1,494 56 6,484 2,104 1,097
Informatics hardware 17,797 12 (3,393) 14,416 16,160 110 (1,900) 14,370 46 1,637
Informatics software 57,883 9,031 66,914 28,824 5,646 34,470 32,444 29,059
Other equipment 24 421 445 4 406 410 35
Ships and boats 113 23 99 37 78 2 65 15 22 35
Motor vehicles 3,727 285 (288) 1,142 2,582 2,872 310 (278) 1,117 1,787 795 855
Other vehicles 391 23 289 120 583 345 9 278 84 548 35 46
Leasehold improvements 4,049 1,711 5,760 1,304 873 2,177 3,583 2,745
Assets under construction 21,007 35,401 (10,743) 142 45,523 45,523 21,007
Total 131,676 35,852 228 6,544 161,212 64,014 8,020 3,780 68,254 92,958 67,662
¹ Adjustments include assets under construction of $10,743,000 that were transferred to the other categories upon completion of the assets. Net adjustments of $228,000 are as a result of previously unrecorded assets which were identified during the fiscal year.

15. Departmental net financial position

A portion of AANDC'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 pursuant to a decision of the Commercial Division of the Superior Court in the Province of Quebec. The balance in the account is to be used to finance the remediation of environmental damage caused by Bowater Canadian Forest Products Inc. relative to a land lease issued by AANDC.

Activity in the accounts is as follows:

  2015 2014
  (in thousands of dollars)
Environmental Studies Research Fund – Restricted
Balance – Beginning of year – Restricted 3,555 1,243
Revenues 1,323 3,555
Expenses (3,555) (1,243)
Balance – End of year – Restricted 1,323 3,555
Bowater Environmental Remediation Fund – Restricted
Balance – Beginning of year – Restricted 2,238 2,284
Expenses (111) (46)
Balance – End of year – Restricted 2,127 2,238
Total restricted 3,450 5,793
Unrestricted (13,774,813) (12,700,951)
Departmental net financial position – End of year (13,771,363) (12,695,158)

16. Contractual obligations

The nature of AANDC's activities can result in some multi-year contracts and obligations whereby AANDC will be obligated to make future payments in order to carry out its transfer payment programs or when the goods or services are received. Contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars) 2016 2017 2018 2019 2020 and thereafter Total
Transfer payments 4,468,708 2,331,742 1,705,829 1,194,238 529,007 10,229,524

17.  Related party transactions

AANDC is related as a result of common ownership to all Government departments, agencies, and Crown corporations. AANDC enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, AANDC 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, AANDC received common services which were obtained without charge from other government departments as disclosed below.

a) Common services provided without charge by other government departments

During the year, AANDC received services without charge from certain common service organizations, related to accommodation, the employer's contribution to the health and dental insurance plans, legal services and workers' compensation coverage. These services provided without charge have been recorded in AANDC's Statement of Operations and Departmental Net Financial Position as follows:

  2015 2014
  (in thousands of dollars)
Accommodation 37,570 41,836
Employer's contribution to the health and dental insurance plans 31,757 34,994
Legal services 10,942 12,091
Workers' compensation 360 495
Total 80,629 89,416

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economical delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included in AANDC's Statement of Operations and Departmental Net Financial Position.

b) Other transactions with related parties

  2015 2014
  (in thousands of dollars)
Expenses – Other Government departments and agencies 297,615 279,770
Revenues – Other Government departments and agencies 4,459 4,245

Expenses and revenues disclosed in (b) exclude common services provided without charge which are already disclosed in (a).

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 AANDC. 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 Works and Government Services Canada, who is responsible for the administration of the Government pay system.

19. Segmented information

Presentation by segment is based on AANDC's program alignment architecture. The presentation by segment is based on the same accounting policies as described in the summary of significant accounting policies in note 2. The following table presents the expenses incurred and revenues generated for each of AANDC's strategic outcomes, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars) People Land and Economy Government North Internal Services 2015 Total 2014 Total
Transfer Payments
First Nations
2,929,120 1,421,930 959,110 12,879 5,323,039 5,511,630
Claims and litigation (note 8)
1,120,521 1,120,521 (264,251)
Provincial/territorial governments and institutions
497,782 69,301 214,598 116,015 897,696 857,128
Environmental liabilities (note 8)
14,484 88,735 103,219 40,358
Industry
9,804 1,270 65,500 76,574 104,795
Non-profit organizations
40,732 20,010 192 4,452 65,386 41,473
Other
646 646 547
Refunds/adjustments to prior years' expenditures
(26,121) (20,327) (2,693) (812) (49,953) (53,895)
Total Transfer Payments 3,451,963 1,506,668 2,291,728 286,769 7,537,128 6,237,785
Operating Expenses
Salaries and employee future benefits
108,029 86,467 92,387 46,138 146,400 479,421 507,813
Court awards and other settlements
377,432 7,998 385,430 517,872
Professional and special services
54,445 11,306 5,799 115,620 42,364 229,534 204,785
Environmental liabilities (note 8)
(933) 195,074 194,141 131,795
Legal services
3,755 30 47 80,475 84,307 117,880
Accommodations
9,480 6,442 7,015 2,922 11,711 37,570 41,836
Travel and relocation
11,905 2,485 3,908 3,361 2,858 24,517 22,791
Rentals of buildings and machinery
1,894 221 250 1,201 11,399 14,965 12,631
Other
352 2,277 296 7,274 3,649 13,848 8,971
Information services
9,186 247 442 479 1,704 12,058 12,727
Bad debt
981 10,052 (2) 168 111 11,310 2,479
Amortization
1,938 26 17 264 5,776 8,021 8,677
Machinery and equipment
243 247 48 739 5,214 6,491 16,762
Utilities, materials and supplies
744 329 322 522 2,119 4,036 5,134
Repairs and maintenance
29 103 91 587 2,330 3,140 2,616
Transportation and telecommunications
482 48 32 311 1,587 2,460 2,790
Expenses incurred on behalf of Government
(4,039) (1,844) (5,883) 8,906
Refunds/adjustments to prior years' expenditures
(5,897) (2,834) (1,642) (6,246) (977) (17,596) (18,991)
Claims and litigation (note 8)
(240,510) (240,510) (694,837)
Total Operating Expenses 334,488 112,474 107,166 368,414 324,718 1,247,260 912,637
Total Expenses 3,786,451 1,619,142 2,398,894 655,183 324,718 8,784,388 7,150,422
Revenues
Norman Wells project profits
74,779 74,779 83,503
Resource royalties
5 59,536 59,541 16,283
Interest on loans
5,056 2,705 7,761 6,168
Miscellaneous
2,684 (676) (3) 2,005 5,021
Leases and rentals
2 1,668 1,670 2,665
Finance and administrative services
3,135 3,135 690
Revenues earned on behalf of Government
(5,121) (2,705) (135,307) 53 (143,080) (112,870)
Total Revenues 2,626 3,185 5,811 1,460
Net cost from continuing operations 3,786,451 1,616,516 2,398,894 655,183 321,533 8,778,577 7,148,962

The major categories of revenue are described below.

Norman Wells project profits

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

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. AANDC 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. AANDC 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.

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.

20. Subsequent Events

Polar Knowledge Canada

Polar Knowledge Canada was established effective June 1, 2015, pursuant to subsections 170(1) and 170(2) of the Economic Action Plan 2014 Act, No.2 which received Royal Assent on December 16, 2014, and Order in Council P.C 2015-0582 dated May 12, 2015. Polar Knowledge Canada merges the mandate and functions of the Canadian Polar Commission with those of the Arctic Science and Technology Directorate within AANDC to form one organization.

This reorganization will result in an adjustment to AANDC's equity in the 2015-2016 fiscal year as the assets and liabilities held by AANDC on June 1, 2015 and the funding and authorities associated with the program will be transferred to Polar Knowledge Canada. For the year ended March 31, 2015, total net cost of operations related to the Arctic Science and Technology Directorate was approximately $5 million. At March 31, 2015, the net assets of the Arctic Science and Technology Directorate were less than $100 thousand.

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

Contingent Liabilities- Claims and Litigation

Subsequent to year-end, AANDC issued settlement payments amounting to $400 million for specific claims, litigation claims, and Indian Residential School claims.

21. Comparative information

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


Summary of the assessment of effectiveness of the system of Internal Control over Financial Reporting and the action plan of Aboriginal Affairs and Northern Development Canada For Fiscal Year 2014-2015

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting

1.0 Introduction

This document provides summary information on the measures taken by Aboriginal Affairs and Northern Development Canada (AANDC) 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 AANDC's authority, mandate and program activities can be found in the Departmental Performance Report and the Report on Plans and Priorities.

2.0 Departmental system of internal control over financial reporting

2.1 Internal control management

AANDC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control management framework, approved by the Deputy Head, is in place and includes:

  • Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers in their areas of responsibility for control management.

The Departmental Audit Committee provides advice to the Deputy Head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

AANDC relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

Common arrangements:
  • Public Works and Government Services Canada centrally administers the payments of salaries and benefits, the procurement of some goods and services, as well as the provision of accommodations on behalf of AANDC.
  • The department of Justice Canada provides legal services.
  • Treasury Board Secretariat provides AANDC with a) a percentage ratio to be used when calculating the severance pay liability for purposes of its financial statements and b) an annual dollar figure for the services it provides without charge for the health and dental care insurance plans, which are funded centrally.
  • Shared Services Canada provides information technology infrastructure services to AANDC in the areas of data centre and network services.
Specific Arrangements
  • Health Canada provides the AANDC with a SAP financial system platform to capture and report all financial transactions.

3.0 AANDC's assessment results during fiscal year 2014-2015

As of Fiscal Year 2014-2015, AANDC has completed both its Design Effectiveness Assessment and Operational Effectiveness Assessment for all Control Levels including the Tangible Capital Assets which has been completed in January 2015 as scheduled in the Internal Control Action Plan.

3.1 Design effectiveness of key controls

In 2014-2015, AANDC reviewed and updated the design effectiveness documentation of the Tangible Capital Assets prior to proceeding with its operating effectiveness key control testing of the process.

3.2 Operating effectiveness testing of key controls

Business Process Controls

During 2014-2015, the department completed operating effectiveness testing of its Tangible Capital Assets process key controls.

As a result of the operational effectiveness assessment, the overall conclusion is that AANDC maintained an effective internal control in the majority of the key activities of financial reporting. However, certain areas required corrective action and management action plans have been developed in order to further strengthen overall accountability, and to improve the management of AANDC's processes. Pertinent corrective action is described as follow:

Tangible Capital Assets
  • To plan the review of asset management policies instruments to reflect the implementation of organization changes and the April 1, 2014 implementation of SAP financial system.
  • To strengthen and update the procedures over write-offs and write-downs transactions.
  • To strengthen and update the procedures over the physical count exercise.

3.3 Ongoing monitoring of key controls

  • An ongoing Monitoring Plan has been developed based on AANDC's ongoing monitoring framework. Ongoing internal control monitoring assessment activities will start in 2015-2016.

4.0 AANDC's action plan

4.1 Progress during fiscal year 2013-2014

During 2014-2015, AANDC continued to make significant progress by assessing the operational effectiveness of key controls of the Tangible Capital assets process. It completes the first full assessment of the department system of internal control over financial reporting. The following table summarizes the department's progress based on the plans identified in the previous fiscal year's annex.

Summary of progress during fiscal year 2013-2014
Elements in action plan Plan 2014-2015 Actual 2014-2015
Assessment of design effectiveness of key controls:
Review and update of design effectiveness documentation Tangible Capital Assets Completed as planned
Assessment of operating effectiveness of key controls:
Testing of operating effectiveness of key controls Tangible Capital Assets Completed as planned
Remediation of operating effectiveness of key control deficiencies Tangible Capital Assets Completed as planned
To schedule the testing of operating effectiveness of medium risk control objective elements Entity Level Controls (ELC) Integrated in the ELC of the 2015-2016 ongoing Monitoring Plan
Review of the Policy on Accounting for Environmental Liabilities:
Review and update the departmental policy to reflect the current environment Environmental Liabilities policy Deferred in 2015-2016
  • AANDC's ongoing Monitoring Plan has been launched.

4.2 Action plan for the next fiscal year and subsequent years

AANDC's rotational ongoing monitoring plan over the next five years, based on an annual validation of the high-risk processes and controls and related adjustments to the ongoing monitoring plan as required, is shown in the following table.

Process areas Risk Rating 2015–2016 2016–2017 2017–2018 2018–2019 2019–2020
Entity Level Controls High C C C C C
Environmental Liabilities* High     C C C
Purchases, Payables and Payments Medium C     C  
Grants & Contributions Medium   C     C
Payroll Medium     C    
Information Technology General Controls Medium       C  
Specific Claims Low   C      
Revenue Management & Guarantee Deposits Low       C  
Tangible Capital Assets Low         C
General Litigation Liabilities Low         C
Trust Accounts Low     C    
Direct Loans Low   C      
Comprehensive Claims Low   C      
Guaranteed Loans Low C        
Financial Reporting Low     C    

* The Environmental Liability departmental policy revision and update is scheduled for 2015-2016 for implementation in 2016-2017. The process assessment control work is consequently planned for 2017-2018.

C: Continuous Monitoring

The monitoring activities and plan will be reviewed, re-validated and adjusted as necessary based on an annual risk assessment.

By end of 2015–2016 AANDC plans to have as per the AANDC's 5 year rotational ongoing Monitoring Plan:

  • conducted the testing of Entity Level Controls operational effectiveness.
  • conducted the testing of Purchases, Payables and Payments design effectiveness.
  • conducted the testing of Guaranteed Loans design effectiveness.

Additional Information

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