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NRCan 2020-2021 Consolidated Financial Statements

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Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2021, and all information contained in these consolidated statements rests with the management of Natural Resources Canada (Department). These consolidated 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 consolidated financial statements. Some of the information in the consolidated 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 the Department’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department’s Departmental Results Report , is consistent with these consolidated financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) 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 consolidated 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 the Department; and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR 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 ICFR for the year ended March 31, 2021 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

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

The consolidated financial statements of Natural Resources Canada have not been audited.

Original signed by

Jean-François Tremblay
Deputy Minister

Ottawa, Canada
August 31, 2021

Original signed by

Shirley Carruthers, CPA CGA
Chief Financial Officer

Ottawa, Canada
August 31, 2021

Natural Resources Canada
Consolidated Statement of Financial Position (Unaudited)
As at March 31

(in thousands of dollars)

2021 2020
Liabilities
    Accounts payable and accrued liabilities Footnote (Note 4) 475,967 408,499
    Vacation pay and compensatory leave 42,870 31,971
    Deferred revenue 405 808
    Environmental liabilities Footnote (Note 5) 1,950 1,867
    Lease obligation for tangible capital assets Footnote (Note 6) 56,746 60,151
    Employee future benefits Footnote (Note 7) 15,141 17,245
    Other liabilities Footnote (Note 8) 25,867 20,062
Total liabilities 618,946 540,603

Financial assets

    Due from Consolidated Revenue Fund 496,951 417,688
    Accounts receivable and advances Footnote (Note 9) 39,168 48,739
    Loans receivable Footnote (Note 10) 19,329 -
Total gross financial assets 555,448 466,427

Financial assets held on behalf of Government

    Accounts receivable and advances Footnote (Note 9) (22,117) (25,828)
    Loans receivable Footnote (Note 10) (19,329) -
    Total financial assets held on behalf of Government (41,446) (25,828)
Total net financial assets 514,002 440,599
Departmental Net debt 104,944 100,004
Non-financial assets
    Prepayments 2,423 1,374
    Inventory Footnote (Note 11) 486 427
    Tangible capital assets Footnote (Note 12) 329,795 344,736
Total non-financial assets 332,704 346,537
Departmental net financial position Footnote (Note 13) 227,760 246,533

Contractual obligations and contractual rights Footnote (Note 14)

Contingent liabilities and contingent assets Footnote (Note 15)

The accompanying notes form an integral part of these consolidated financial statements.

Original signed by

Jean-François Tremblay
Deputy Minister

Ottawa, Canada
August 31, 2021

Original signed by

Shirley Carruthers, CPA CGA
Chief Financial Officer

Ottawa, Canada
August 31, 2021

Natural Resources Canada
Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31

(in thousands of dollars)

2021 Planned Results 2021 2020
Expenses
    Innovative and Sustainable Natural Resources Development 620,895 575,493 588,672
    Globally Competitive Natural Resource Sectors 429,302 476,562 551,220
    Natural Resource Science and Risk Mitigation  235,780 243,446 242,677
    Internal services 133,468 172,229 159,540
Total expenses 1,419,445 1,467,730 1,542,109
Revenues
    Rights and privileges 194,468 173,733 348,773
    Other, such as revenue pursuant to agreements 24,262 18,307 114,840
    Revenue from services of a non-regulatory nature 13,679 16,493 19,052
    Proceeds from sales of goods and information products   994 1,125 1,297
    Revenue from services of a regulatory nature  7,209 1,307 1,798
    Services to other government departments  126 122 159
    Revenues earned on behalf of Government (206,734) (188,461) (458,313)
Total net revenues 34,004 22,626 27,606
Net cost of operations before government funding and transfers  1,385,441 1,445,104 1,514,503

Government funding and transfers

    Net cash provided by Government of Canada       1,295,433 2,449,812
    Change in due from Consolidated Revenue Fund       79,263 (1,497)
    Services provided without charge by other government departments Footnote (Note 16a)       51,682 51,821
    Transfer of the transition payments for implementing salary payments in arrears       - -
    Transfers of capital assets from other government departments       65 40
    Other transfers of assets (to)/from other government departments       (112) 50
Total government funding and transfers       1,426,331 2,500,226
Net cost (revenue) of operations after government funding and transfers       18,773 (985,723)
Departmental net financial position - Beginning of year       246,533 (739,190)
Departmental net financial position - End of year       227,760 246,533

Segmented information Footnote (Note 17)

The accompanying notes form an integral part of these consolidated financial statements.

Natural Resources Canada
Consolidated Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31

(in thousands of dollars)

2021 2020
    

Net cost (revenue) of operations after government funding and transfers

18,773     (985,723)

Change due to tangible capital assets

    Acquisition of tangible capital assets Footnote (Note 12) 12,632 16,155
    Amortization of tangible capital assets Footnote (Note 12) (28,150) (28,818)
    Proceeds from disposal of tangible capital assets (86) (182)
    Net gain (loss) on disposal of tangible capital assets including adjustments 598 (675)
    Transfers of capital assets from other government departments 65 40
Total change due to tangible capital assets (14,941) (13,480)
    Change due to inventory 59 (309)
    Change due to prepayments 1,049 22
Net increase (decrease) in departmental net debt 4,940 (999,490)
    Departmental net debt - Beginning of year 100,004 1,099,494
Departmental net debt - End of year 104,944 100,004

The accompanying notes form an integral part of these consolidated financial statements.

Natural Resources Canada
Consolidated Statement of Cash Flows (Unaudited)
For the year ended March 31

(in thousands of dollars)

2021 2020
Operating activities
Net cost of operations before government funding and transfers 1,445,104 1,514,503

Non-cash items:

    Amortization of tangible capital assets Footnote (Note 12) (28,150) (28,818)
    Net gain (loss) on disposal of tangible capital assets including adjustments 598 (675)
    Services provided without charge by other government departments Footnote (Note 16a) (51,682) (51,821)
    Other transfers of assets to/(from) other government departments 112 (50)

Variations in Statement of Financial Position:

    (Decrease) increase in accounts receivable and advances (5,860) 4,601
    Increase in prepayments 1,049 22
    Increase (decrease) in inventory 59 (309)
    (Increase) decrease in accounts payable and accrued liabilities (67,468) 998,561
    Increase in vacation pay and compensatory leave (10,899) (7,469)
    Decrease (increase) in deferred revenue 403 (742)
    Decrease (increase) in employee future benefits 2,104 (454)
    Increase in environmental liabilities (83) (66)
    (Increase) decrease in other liabilities (5,805) 3,207
Cash used in operating activities 1,279,482 2,430,490

Capital investing activities

    Acquisitions of tangible capital assets Footnote (Note 12) 12,632 16,155
    Proceeds from disposal of tangible capital assets (86) (182)
Cash used in capital investing activities 12,546 15,973
Financing activities
    Payments on lease obligations for tangible capital assets 3,405 3,349
Cash used in financing activities 3,405 3,349
Net cash provided by Government of Canada 1,295,433 2,449,812

The accompanying notes form an integral part of these consolidated financial statements

Natural Resources Canada
Notes to the Consolidated Financial Statement (Unaudited)
For the year ended March 31

1. Authority and objectives

The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department’s mandate is primarily based on the Department of Natural Resources Act , the Resources and Technical Surveys Ac t and the Forestry Act .

NRCan works to improve the quality of life of Canadians by ensuring that our natural resources are developed sustainably, providing a source of jobs, prosperity and opportunity, while preserving our environment and respecting our communities and Indigenous People.

NRCan fulfills its mandate through the following Core Responsibilities:

Innovative and Sustainable Natural Resources Development: Lead the transformation to a low-carbon economy by improving the environmental performance of Canada’s natural resource sectors through innovation and sustainable development and use.

Globally Competitive Natural Resource Sectors: Advance and promote market access, inclusiveness and competitiveness for Canada’s natural resource sectors, in support of jobs and economic growth.

Natural Resource Science and Risk Mitigation: Lead foundational science and share expertise for managing Canada’s natural resources, reducing the impacts of climate change and mitigating risks from natural disasters and explosives.

Internal Services: Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal Services refers to the activities and resources of the 10 distinct service categories that support Program delivery in the organization, regardless of the Internal Services delivery model in a department. The 10 service categories are : Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services and Acquisition Services.

2. Summary of significant accounting policies

These consolidated financial statements are prepared using the Department’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 authorities

 The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department 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 Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Footnote Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the “Expenses” and “Revenues” sections of the Consolidated Statement of Operations and Departmental Net Financial Position are the amounts reported in the Consolidated Future-oriented Statement of Operations included in the 2020-2021 Departmental Plan. Planned results are not presented in the “Government funding and transfers” section of the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Debt because these amounts were not included in the 2020-2021 Departmental Plan.

b) Consolidation

These consolidated financial statements include the accounts of the sub-entities for which the Deputy Minister is accountable. The accounts of the Geomatics Canada Revolving Fund have been consolidated with those of the Department, and all inter-organizational balances and transactions have been eliminated.

c) Net cash provided by Government

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

d) Amounts due from or to the CRF

Amounts due from or to the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from the CRF without further authorities to discharge its liabilities.

e) Revenues

  • Revenues from regulatory fees are recognized based on the services provided in the year.
  • Funds received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
  • Other revenues are recognized in the period the event giving rise to the revenue occurred.
  • Revenues that are non-respendable are not available to discharge the Department’s liabilities. While the Deputy Minister is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the Department’s gross revenues.

f) Expenses

Expenses are recorded on the accrual basis:

  1. Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
  2. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  3. Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, and workers’ compensation are recorded as operating expenses at their carrying value.

g) Environmental liabilities

An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the Department 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 Department’s best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government’s cost of borrowing, associated with the estimated number of years to complete remediation.

The recorded environmental liabilities are adjusted each year, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

If the likelihood of the Department’s responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated financial statements.

h) Employee future benefits

  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government of Canada. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department’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.
  2. Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government of Canada as a whole.

i) Accounts and loans receivable

Accounts and loans receivable are initially recorded at cost and where necessary, are discounted to reflect their concessionary terms. Concessionary terms of loans include cases where loans are made on a long-term, low interest or interest-free basis. Transfer payments that are unconditionally repayable are recognized as loans receivable. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts and loans receivable to amounts that approximate their net recoverable value.

j) Non-financial assets

  1. Prepayments are disbursements made before the completion of the work, delivery of the goods or rendering of the services. They are accounted for as non-financial assets until the related services are rendered, goods are consumed, or terms of the contractual agreement are fulfilled.
  2. Inventory:
    • Inventory held for consumption consists of parts, materials and supplies held for future program delivery. It is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.
    • Inventory held for resale consists of maps, which is valued at the lower of cost or net realizable value, with cost being determined using the weighted average cost of each title.
  3. Tangible capital assets – The cost of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Footnote (Note 12). All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection, insect collection, and Crown land to which no acquisition cost is attributable; and intangible assets.

k) Contingent liabilities

Contingent liabilities, including the allowance for loan guarantees and an insurance program, are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, a provision is accrued and an expense is recorded to other operating expenses. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the consolidated financial statements.

For loan guarantees and the insurance program, an allowance is recorded when it is determined that a loss is likely and the amount of the allowance is estimated taking into consideration the nature of the guarantee and insurance program, loss experience and current conditions. The allowance is reviewed on an ongoing basis and changes in the allowance are recorded as expenses in the year they become known.

l) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the consolidated financial statements.

m) Transactions involving foreign currencies

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the rate of exchange in effect at March 31st. Gains and losses resulting from foreign currency transactions are reported on the Consolidated Statement of Operations and Departmental Net Financial Position and Footnote (Note 17) in other operating expenses according to the activities to which they relate.

n) Measurement uncertainty

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Department's best estimate of the related amount at the end of the reporting period. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee future benefits, the useful life of tangible capital assets, and the allowance for doubtful accounts. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.

o) Related party transactions

  1. Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.
  2. Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:
    • Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
    • Certain services received on a without charge basis are recorded for departmental consolidated financial statement purposes at the carrying amount.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department 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

(in thousands of dollars)

2021 2020
Net cost of operations before government funding and transfers 1,445,104 1,514,503

Adjustments for items affecting net cost of operations but not affecting authorities:

    Amortization of tangible capital assets (28,150) (28,818)
    Net gain (loss) on disposal of tangible capital assets including adjustments 598 (675)
    Services provided without charge by other government departments (51,682) (51,821)
    Increase in prepayments 1,049 22
    Increase (decrease) in inventory 59 (309)
    Decrease in accrued liabilities 6,783 56,919
    Increase in vacation pay and compensatory leave (10,899) (7,469)
    Decrease (increase) in employee future benefits 2,104 (454)
    Increase in environmental liabilities (83) (66)
    Refund of prior years' expenditures 1,169 672
    Revenues and expenses for restricted accounts (1,849) 284
    Year-end accrual — pending Budget Implementation Act - 950,000
    Other adjustments 2,265 2,499
Total items affecting net cost of operations but not affecting authorities (78,636) 920,784

Adjustments for items not affecting net cost of operations but affecting authorities:

    Increase in loans receivable 19,329 -
    Acquisitions of tangible capital assets 12,632 16,155
    Decrease in lease obligation for tangible capital assets 3,405 3,349
Total items not affecting net cost of operations but affecting authorities 35,366 19,504
Current year authorities used 1,401,834 2,454,791

b. Authorities provided and used

(in thousands of dollars)

2021 2020

Authorities provided:

    Vote 1 – Program expenditures 647,088 622,683
    Vote 5 – Capital expenditures 16,560 17,143
    Vote 10 – Grants and contributions 823,664 522,629
    Vote 15 – Encouraging Canadians to use Zero Emission Vehicles - 131
    Vote 20 – Engaging Indigenous communities in Major Resource Projects - 717
    Vote 25 – Ensuring Better Disaster Management Preparation and Response - 3,270
    Vote 35 – Protecting Canada’s Critical Infrastructure from Cyber Threats - 809
    Statutory amounts: 314,991 1,420,120
Less:
    Authorities available for future years (7,875) (6,289)
    Lapsed – Operating expenditures (37,074) (13,357)
    Lapsed – Capital expenditures (4,001) (1,107)
    Lapsed – Grants and contributions (351,467) (107,031)
    Lapsed – Budget Implementation 0 (4,927)
     Lapsed – Statutory (52) 0
Current year authorities used 1,401,834 2,454,791

4. Accounts payable and accrued liabilities

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

(in thousands of dollars)

2021 2020
Accounts payable - Other government departments and agencies 14,500 8,141
Accounts payable - External parties 179,771 176,353
Total accounts payable 194,271 184,494
Accrued liabilities 281,696 224,005
Total accounts payable and accrued liabilities 475,967 408,499

5. Environmental liabilities

With respect to environmental liabilities for the remediation of contaminated sites, the Government’s “Federal Approach to Contaminated Sites” sets out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried the contaminated sites identified on federal lands, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to human health and the environment.

The Department has identified 11 sites (11 sites in 2020) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 7 sites (7 sites in 2020) where action is required and for which a gross liability of $630 thousand ($719 thousand in 2020) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

There is 1 site that has not been assessed by environmental experts (1 site in 2020) for which the department has estimated and recorded a liability of $1,320 thousand ($1,148 thousand in 2020).

These two estimates combined, totaling $1,950 ($1,867 in 2020) represents management’s best estimate of the costs required to remediate sites to the current minimum standard for its use prior to contamination, based on information available at the consolidated financial statement date.

For the remaining 3 sites (3 sites in 2020), no liability for remediation has been recognized. These sites are at early stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as  a reasonable estimate can be determined.

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, 2021, and March 31, 2020. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast Consumer Price Index (CPI) rate of 2.0% (2.0% in 2020). Inflation is included in the undiscounted amount. The Government of Canada’s cost of borrowing by reference to the actual zero-coupon yield curve for Government of Canada bonds has been used to discount the estimated future expenditures. The March 2021 rates range from 1.13% for a 6 year term to 1.63% for a 10 year term.

  (in thousands of dollars)
Nature and Source Total number of Sites 2021 Number of Sites with a liability 2021 Estimated Liability 2021 Estimated Total Undiscounted Expenditures 2021 Estimated Recoveries 2021
    Fuel Related Practices Footnote (1) 1 1 1,320 1,320 -
    Office/Commercial/Industrial Operations Footnote (2) 10 7 630 729 -<
Totals 11 8 1,950 2,049 -
  (in thousands of dollars)
Nature and Source Total number of Sites 2020 Number of Sites with a liability 2020 Estimated Liability 2020 Estimated Total Undiscounted Expenditures 2020 Estimated Recoveries 2020
    Fuel Related Practices Footnote (1) 1 1 1,148 1,148 -
    Office/Commercial/Industrial Operations Footnote (2) 10 7 719 729 -
Totals 11 8 1,867 1,877 -

(Return to footnote1) 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 hydrocarbons, polyaromatic hydrocarbons and BTEX (benzene, toluene, ethylbenzene and xylenes).

(Return to footnote2) Contamination associated with the 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, polyaromatic hydrocarbons, BTEX, etc. These sites often have multiple sources of contamination.

6. Lease obligation for tangible capital assets

The Department has entered into an agreement to lease a building under a capital lease with a cost of $95,993 thousand as at March 31, 2021 ($95,993 thousand in 2020) and accumulated amortization of $38,797 thousand as at March 31, 2021 ($34,853 thousand in 2020). Interest on this obligation of $967 thousand ($1,022 thousand in 2020) is reported in the Consolidated Statement of Operations and Departmental Net Financial Position as part of Innovative and Sustainable Natural Resources Development expenses. The obligation related to the upcoming years includes the following:

(in thousands of dollars)

     2021
2022 4,372
2023 4,372
2024 4,372
2025 4,372
2026 4,372
2027 and subsequent 42,043
Total future minimum lease payment 63,903
    Less: imputed interest (1.65%) 7,157
Lease obligation for tangible capital assets 56,746

7. Employee future benefits

a. Pension benefits

The Department’s employees participate in the Public Service Pension Plan (“the 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 they are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada’s 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 Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2021 expense amounts to $42,303 thousand ($42,139 thousand in 2020). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2020) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2020) the employee contributions.

The Department’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

Severance benefits provided to the Department’s employees were previously based on an employee’s eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2021, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities. The change in the obligation during the year is as follows:

(in thousands of dollars)

2021 2020
Accrued benefit obligation - Beginning of year 17,245 16,791
Expense for the year (89) 3,000
Benefits paid during the year (2,015) (2,546)
Accrued benefit obligation - End of year 15,141 17,245

8. Other liabilities

The following table presents a detail of the Department’s other liabilities:

(in thousands of dollars)

2021 2020
Contractor security deposits - Cash 8 13
Guarantee deposits - Oil and gas 14,225 13,511
Shared costs projects 4,965 377
Market development and incentive payments – Alberta 46 207
Shared costs agreements – Research 6,623 5,954
Total other liabilities 25,867 20,062

Contractor security deposits – Cash: This account was established to record contractor security deposits that are required for the satisfactory performance of work in accordance with Government Contracts Regulations.

Guarantee deposits – Oil and gas: This account was established to record securities in the form of cash, which are required to be issued to, and held by the Government of Canada pursuant to an Exploration License in accordance with section 24 of the Canada Petroleum Resources Act. These securities are a performance guarantee that the agreed exploration will be performed in the manner and time frame specified. Interest is not paid on these deposits.

Shared-cost projects: This account was established to facilitate the retention and disbursement of funds received from private organizations and other governments for cost-sharing scientific non-research projects.

Market development incentive payments – Alberta: This account records funds received from the Government of Alberta to encourage the expansion of natural gas markets in Alberta and provinces to the East, in accordance with an agreement between the Government of Canada and the Government of Alberta dated September 1, 1981, and pursuant to section 39 of the Energy Administration Act. The original term of the agreement was from November 1, 1981 to January 31, 1987. As a result of the Western Accord of March 25, 1985, payments from the Government of Alberta terminated as of April 30, 1986; however, payments continued to be made from the account for selected programs, which encouraged the use of natural gas for vehicles.

In 2009‒2010, a strategy for the expenditure of these funds was agreed upon. This strategy consists of expending the remaining funds in support of expanding the use of natural gas in transportation and combined heat and power applications across Canada. All remaining funds have been allocated by March 31, 2021, and will be disbursed by August 31, 2021.

Shared-cost agreements – Research: This account was established to facilitate the retention and disbursement of funds received from private industry and other governments for joint research projects or shared-cost research agreements.

9. Accounts receivable and advances

The following presents details of the Department’s accounts receivable and advances balances:

(in thousands of dollars)

2021 2020
Receivables - Other government departments and agencies 4,430 10,220
Receivables - External parties 34,170 37,938
Employee advances 795 841
Subtotal 39,395 48,999
Allowance for doubtful accounts on receivables from external parties (227) (260)
Gross accounts receivable and advances 39,168 48,739
Accounts receivable held on behalf of Government (22,117) (25,828)
Net accounts receivable and advances 17,051 22,911

10. Loans receivable

The following table presents details of the Department's loans receivable and unconditionally repayable contribution balances:

(in thousands of dollars)

2021 2020
Unconditionally repayable contributions 19,329 -
Subtotal 19,329 -
Gross loans receivable 19,329 -
Loans receivable held on behalf of Government (19,329) -
Net loans receivable - -

(a) Unconditionally repayable contributions

These loans relate to unconditionally repayable contributions made to outside parties that must be repaid without qualification.

11. Inventory

The following table presents details of the inventory:

(in thousands of dollars)

2021 2020
Inventories held for consumption 438 379
Inventories held for re-sale 48 48
Total inventory 486 427

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $22 thousand in 2021 ($395 thousand in 2020).

12. Tangible capital assets

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:

Asset Class Amortization Period
Buildings 15 to 40 years
Works and infrastructure 20 to 40 years
Machinery and equipment 5 to 15 years
Vehicles 3 to 10 years
Leasehold improvements Lesser of the remaining term of lease or useful life of the improvement
Leased tangible capital assets Over term of lease/useful life
Assets under construction Once in service, in accordance with asset class

Assets under construction are recorded in the applicable capital asset class in the year they are put into service and are not amortized until they are put into service.

Cost

(in thousands of dollars)

Opening Balance Amortization Adjustments Footnote (1) Disposals and Write-offs Closing Balance

Capital asset class

    Land 7,800 - - - 7,800
    Buildings 301,341 83 1,402 44 302,782
    Works and Infrastructure 10,401 - 11,251 - 21,652
    Machinery and equipment 268,318 4,509 1,961 2,394 272,394
    Vehicles 11,125 518 202 272 11,573
    Leasehold improvements 69,086 - 226 - 69,312
    Leased tangible capital assets 95,993 - - - 95,993
    Assets under construction 12,125 7,522 (14,218) 9 5,420
Total 776,189 12,632 824 2,719 786,926

Accumulated Amortization

(in thousands of dollars)

Opening Balance Amortization Adjustments Footnote (1) Disposals and Write-offs Closing Balance

Capital asset class

    Buildings 153,817 6,936 215 44 160,924
    Works and Infrastructure 548 413 - - 961
    Machinery and equipment 209,415 11,616 - 2,365 218,666
    Vehicles 7,641 614 (11) 267 7,977
    Leasehold improvements 25,179 4,627 - - 29,806
    Leased tangible capital assets 34,853 3,944 - - 38,797
    Assets under construction - - - - -
Total 431,453 28,150 204 2,676 457,131

Net book value

(in thousands of dollars)

2021 2020

Capital asset class

    Land 7,800 7,800
    Buildings 141,858 147,524
    Works and Infrastructure 20,691 9,853
    Machinery and equipment 53,728 58,903
    Vehicles 3,596 3,484
    Leasehold improvements 39,506 43,907
    Leased tangible capital assets 57,196 61,140
    Assets under construction 5,420 12,125
Total 329,795 344,736

(1) Adjustments include assets under construction of $14,217 thousand that were transferred to the other categories upon completion of the assets. It also includes transfers of tangible capital assets with other government departments with a net effect of $65 thousand on the departmental net financial position.

13. Departmental net financial position

A portion of the Department’s net financial position is used for a specific purpose. Related revenues and expenses are included in the Consolidated Statement of Operations and Departmental Net Financial Position.

The Environmental Studies Research Fund account was established pursuant to subsection 76(1) of the Canada Petroleum Resources Act . The purpose of the Fund is 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 Nuclear Liability Account is a continuation of the Nuclear Liability Reinsurance Account under the previous Nuclear Liability Act . It is established pursuant to sub-section 32(1) of the Nuclear Liability and Compensation Act , to record indemnity fees paid by operators and to provide for payment of any claims arising under the indemnity agreements entered into between the Government and nuclear installation operators.

Legislation requires that the revenues of these accounts to be earmarked and that related payments and expenses be charged against such revenues. The transactions do not represent liabilities to third parties but are internally restricted for specified purposes.

(in thousands of dollars)

2021 2020

Environmental Studies Research Fund - Restricted

    Balance - Beginning of year 5,874 5,734
    Revenues 127 1,729
    Expenses (2,121) (1,589)
    Balance - End of year 3,880 5,874

Nuclear Liability Account - Restricted

    Balance - Beginning of year 4,583 4,439
    Revenues 145 144
    Expenses - -
    Balance - End of year 4,728 4,583
Subtotal - Restricted 8,608 10,457
Unrestricted 219,152 236,076
Departmental net financial position - End of year 227,760 246,533

14. Contractual obligations and contractual rights

a. Contractual obligations

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

(in thousands of dollars)

2022 2023 2024 2025 2026 2027 and subsequent Total
Other Transfer Payments 236,784 84,452 23,543 11,197 3,341 - 359,317
Total 236,784 84,452 23,543 11,197 3,341 - 359,317

b. Contractual rights

The activities of the Department sometimes involve the negotiation of contracts or agreements with outside parties that result in the department having rights to both assets and revenues in the future. They principally involve leases of property, royalties, and sales of goods and services. The major contractual rights that will generate revenues in future years are the Loan Guarantee Agreements. The agreements that underpin the federal loan guarantee require the beneficiaries to pay Canada an annual fee of 0.5% of the net amount of guaranteed debt outstanding.

These major contractual rights that will generate revenues in future years and that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

2022 2023 2024 2025 2026 2027 and subsequent Total
Loan Guarantee Fees 14,424 14,195 13,889 13,579 13,266 227,548 296,901
Total 14,424 14,195 13,889 13,579 13,266 227,548 296,901

15. Contingent liabilities and contingent assets

a. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into these categories as follows:

i) Claims and litigation:

Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department records an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $14,470 thousand in 2021 ($14,470 thousand in 2020).

ii) Loan guarantees

(in thousands of dollars)

Authorized Limit Outstanding guarantees
  2021 2020
Lower Churchill Hydroelectric Projects 9,200,000 9,149,590 9,173,519

The Government of Canada provided loan guarantee support for the construction of the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ([1] Muskrat Falls and Labrador Transmission Assets and [2] Labrador-Island Link) and one project sponsored by Emera Inc. (Maritime Link).

In 2013, the financing was completed for the Nalcor-led projects, raising $5,000,000,000 of guaranteed debt in the form of a bond financing. These bonds have a life varying from about 15 years to 40 years, with interest being paid every six months from issuance to maturity, and the entire principal of each bond being repaid on that bond's maturity date. Beginning on December 1, 2021, funds will be gradually set aside every six months to ensure that the full principal amounts can be paid on the maturity date.

In 2014, the bond financing was completed for the Maritime Link, raising $1,300,000,000 of guaranteed debt for a life of about 39 years. As per the terms of the loan guarantee agreements, interest payments are being made every six months from issuance to maturity. Principal repayments began on December 1, 2020. These principal and interest payments will be made on a semi-annual basis until maturity date of December 1, 2052.

Further to an announcement made by the Minister of Natural Resources in November 2016, in May 2017, the Minister of Natural Resources signed two additional Guarantee Agreements to provide additional loan guarantee support to the Nalcor-sponsored projects. On May 25, 2017, the financing was completed, raising $2,900,000,000 of guaranteed debt in the form of a bond financing. These bonds have terms varying from 3½ years to 40 years. As per the terms of the loan guarantee agreements, interest payments are being made every six months from issuance to maturity. Principal repayments began on December 1, 2020, with the last principal amount scheduled to be paid on June 1, 2057.

Among the many safeguards put in place to protect Canada's interests, all of the project entities' shares, assets and agreements have been pledged as security to Canada.

As of March 31, 2021, $9.15 billions of guaranteed debt remains outstanding.

No allowance for losses has been recorded for these loan guarantees as, at this time, no costs are likely to occur. An allowance will be recorded if it becomes likely that Canada will incur costs under the guarantee and when the amount of the loss can be reasonably estimated.

iii) Insurance program:

Under the Nuclear Liability and Compensation Act (NLCA), which entered into force on January 1, 2017, and replaced the Nuclear Liability Act (NLA), operators of designated nuclear installations are required to maintain financial security against the liability imposed on them by the NLCA.

The NLCA establishes that the operator’s liability for damages resulting from a nuclear incident is limited to $1 billion. This amount applies to the “Power Reactor Class” of nuclear installations prescribed in the Nuclear Liability and Compensation Regulations (NLCR). Lower liability amounts for lower-risk installations, based on their commensurate risk, are prescribed in the NLCR. The Minister of Natural Resources is required to review the operator’s liability limit at least once every five years, and the government may increase the limit by regulation.

Financial security covers all the categories of damage that are compensable under the NLCA, with the exception of damage arising from routine emissions, and bodily injury occurring 10 to 30 years after a nuclear incident. Through the indemnity agreement, entered into with 10 operators, the federal government covers the liability associated with the two exceptions. It also covers the difference between the lower liability amount prescribed in NLCR for lower-risk installations and, as applicable, the $1 billion liability assigned in the NLCA. The federal government charges each operator an annual fee for providing this indemnity coverage.

The Department of Natural Resources administers the Nuclear Liability Account (Account) on behalf of the federal government through a consolidated specified purpose account. This Account is a continuation of the Nuclear Liability Reinsurance Account under the previous NLA. All fees paid by the operators of nuclear installations are credited to this Account. The closing balance of this Account as at March 31 2021, is $4,727,829. Any claims under an indemnity agreement could be up to the level of the liability amount assigned in the NLCA; however, there is no limit to the number of incidents to which the indemnity could apply. There have been no claims against – or payments out of – the Account since its creation under the NLA.

b. Contingent assets

The Department issued conditionally repayable contributions with proponents for early stage research and development (R&D) activities. Repayments are determined upon the successful commercialization of products generated by the R&D. There are no amounts estimated to be repaid as at March 31, 2021 ($0 in 2020).

16. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

The department enters into transactions with these entities in the normal course of business and on normal trade terms.

a) Common services provided without charge by other government departments

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

(in thousands of dollars)

2021 2020
    Employer's contribution to the health and dental insurance plans 34,120 34,298
    Accommodation 17,391 17,328
    Workers' compensation 171 195
Total common services provided without charge 51,682 51,821

The Government of Canada has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government of Canada 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 payroll and cheque issuance services provided by Public Services and Procurement Canada and audit services provided by the Office of the Auditor General, are not included in the Department’s Consolidated Statement of Operations and Departmental Net Financial Position.

b) Administration of programs on behalf of other government departments

The Department has a number of Memoranda of Understanding with other government departments for the administration of their programs. The Department issued approximately $22,197 thousand ($21,419 thousand in 2020) in payments on behalf of the other government departments. These expenses are not reflected in the Departmental Consolidated Financial Statements, but rather in the Financial Statements of the respective government departments.

c) Other transactions with other government departments and agencies

(in thousands of dollars)

2021 2020
    Expenses 135,119 126,409
    Revenues 6,387 6,166

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

17. Segmented Information

Presentation by segment is based on Core responsibilities. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in Footnote (Note 2). The following table presents the expenses incurred and revenues generated for the core responsibilities, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars)

Natural Resource Science and Risk Mitigation Innovative and Sustainable Natural Resources Development Globally Competitive Natural Resource Sectors Internal Services 2021 2020

Transfer payments

    Industry 7,631 180,664 25,374 - 213,669 219,537
    International 259 1,488 3,407 - 5,154 3,085
    Non-profit organizations 5,028 49,108 65,867 - 120,003 102,653
    Other levels of government 10,381 23,001 262,912 - 296,294 409,340
    Individuals 155 13,629 41,898 - 55,682 53,260
Total transfer payments 23,454 267,890 399,458 - 690,802 787,875

Operating expenses

    Salaries and employee benefits 150,777 211,051 63,280 119,978 545,086 530,227
    Information 1,156 9,196 1,635 4,145 16,132 13,621
    Professional and special services 24,572 43,173 6,492 30,099 104,336 105,505
    Rentals 10,588 10,099 2,219 5,833 28,739 31,741
    Transportation and communication 1,826 636 107 4,654 7,223 16,930
    Utilities, material and supplies 8,237 9,632 618 1,867 20,354 24,639
    Purchased repairs and upkeep 3,055 2,834 128 578 6,595 6,408
    Acquisitions of non-capital assets 4,430 3,727 805 5,118 14,080 13,333
    Amortization 12,553 12,501 819 2,277 28,150 28,818
    Other 2,798 4,754 1,001 (2,320) 6,233 (16,988)
Total Operating expenses 219,992 307,603 77,104 172,229 776,928 754,234
Total expenses 243,446 575,493 476,562 172,229 1,467,730 1,542,109

Revenues

    Rights and privileges 1,674 33 172,026 - 173,733 348,773
    Other, such as revenue pursuant to agreements 1,252 16,763 261 31 18,307 114,840
    Revenue from services of a non-regulatory nature 7,093 9,365 35 - 16,493 19,052
    Proceeds from sales of goods and information products 531 594 - - 1,125 1,297
    Revenue from services of a regulatory nature - 1,307 - - 1,307 1,798
    Services to other government departments - - - 122 122 159
    Revenues earned on behalf of Government (351) (15,792) (172,287) (31) (188,461) (458,313)
Total net revenues 10,199 12,270 35 122 22,626 27,606
Net cost of operations 233,247 563,223 476,527 172,107 1,445,104 1,514,503

18. COVID-19 pandemic

In March 2020, the World Health Organization officially declared the outbreak of COVID-19 as a global pandemic. The COVID-19 pandemic continues to have a significant adverse impact on the global economy. The overall economy continues to navigate the pandemic with continuing uncertainty. As this pandemic is ongoing and the government response is continuing to evolve, the impact on the department's financial results is subject to considerable uncertainty. The financial statements for the fiscal year end March 31, 2021, reflects the impacts resulting from the COVID-19 pandemic to the extent known and estimable at the reporting date.

During the year, the department led various transfer payment programs to support Canada’s COVID-19 Economic Response Plan, which are included within the expenses on the Consolidated Statement of Operations and Departmental Net Financial Position, the most significant of which include:

  1. $14.5 million for the Youth Employment and Skills Strategy Enhancement;
  2. $28.6 million for the Emissions Reduction Fund; and
  3. $29.4 million for the COVID-19 Safety Measures in the Forest Sector Operations.

The effects of the pandemic will continue into the foreseeable future, and the department continues to assess and monitor the effects on its financial condition.

19. Comparative information

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

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Natural Resources Canada for fiscal year 2020-21 (unaudited)

Summary of the assessment of effectiveness of the system of internal control over financial reporting and the action plan

1. Introduction

This document summarizes the measures taken by Natural Resources Canada (NRCan) to maintain an effective system of internal control over financial management (ICFM), including internal control over financial reporting (a subset of the system of ICFM), as well as information on internal control management, assessment results, and related action plans.

Detailed information on NRCan’s authority, mandate and core responsibilities can be found in the 2021- 22 Departmental Planand the 2020-21 Departmental Results Reports.

2. Departmental system of internal control over financial management

2.1 Internal control management

NRCan has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. The NRCan Framework for ICFM, approved by the Deputy Minister (DM), is in place and comprises:

  • organizational accountability structures relating to internal control management that support sound financial management, including roles and responsibilities of senior departmental managers for internal control management in their areas of responsibility;
  • values and ethics that describes the expected behaviors that guide employees in all activities related to their professional duties;
  • ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
  • at least semi-annual monitoring of, and regular updates to, internal control management, with related assessment results and action plans provided to the DM and senior departmental management, and as applicable, the Departmental Audit Committee (DAC).

The DAC provides advice to the DM 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

NRCan relies on other organizations for processing certain transactions that are recorded in its financial statements, as follows.

Common service arrangements

  • Public Services and Procurement Canada (PSPC), which administers the payment of salaries and the procurement of goods and services, and provides accommodation services.
  • Shared Services Canada, which provides information technology (IT) infrastructure services.
  • Department of Justice Canada, which provides legal services.
  • Treasury Board (TB) of Canada Secretariat, which provides information on public service insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans.

Specific arrangements

NRCan relies on another department for the processing of certain information or transactions that are recorded in its financial statements, as follows:

  • Agriculture and Agri-Food Canada provides NRCan with a SAP financial system platform to capture and report all financial transactions.

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of internal control over financial reporting (ICFR) related to these specific services.

3. Departmental internal control assessment results for fiscal year 2020-21

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.

3.1 Progress during fiscal year 2020-21

Previous fiscal year’s rotational ongoing monitoring plan for current fiscal year Status
  • Entity level controls (ELC) - Control environment
    • Governance and oversight
  • Grants and contributions (G&C) – Covid 19 - Flexibility Measures (see section 3.1.2)
  • Offshore royalty revenues/statutory transfers
  • Pay and benefits.

Performed by the Audit and Evaluation Branch (AEB) through advisory, audit and evaluation projects.

Design effectiveness (DE) and operating effectiveness (OE) testing completed as planned for each key control area; remedial actions required for Governance and Pay and benefits.

Results are disclosed on NRCan’s Website at links below:

  • Pay and benefits
  • Chief Financial Officer (CFO) attestation (included in TB submissions), and related costing
  • Repayable contributions
  • IT general controls (ITGCs) - Agreement Module Interface (AMI) - G&C Financial System

Performed by the Financial Management Internal Control (FMIC) unit through internal control assessments.

DE and OE testing completed as planned for each key control area; remedial actions started.
The key findings and remedial actions are summarized in Section 3.2.

3.2 New or significantly amended key controls

Governance structure

A new DM approved governance structure was established in 2020-21 to enable more strategic, horizontal discussions that will enhance planning and priority setting, resource allocation, and risk management.

Managing Grants and Contributions under Covid-19 - Flexibility Measures

In the context of Covid-19, flexibilities (i.e. cash management and recipient reporting) in accordance with the TB Policy and Directive on Transfer Payments were exercised to ensure timely payments to recipients and efficient and effective delivery of new priorities. Controls and risk mitigating strategies were documented by the AEB through an advisory project.

3.3 Ongoing monitoring program

As per the previous year’s rotational ongoing monitoring plan (OMP), the FMIC completed the DE and OE testing of the key control areas listed below; review of the results with business process owners is underway. In general, key controls were effective, with remediation required as follows:

Pay and benefits

  • Review and update the Delegation of Authority Instrument for Human Resources (HR) to include the delegated authority requirements for various pay actions, as applicable.
  • Perform a periodic access review to the generic Trusted Source email box.
  • Explore with PSPC the feasibility of updating Phoenix with the listing of individuals who have been delegated the financial authority pursuant to s.34 of the Financial Administration Act from a weekly basis to a daily basis and to obtain a confirmation that the file was successfully uploaded.
  • Establish an escalation process to strengthen the completion of the annual salary forecasting reconciliation exercise.
  • Formalize and communicate the electronic approval requirements by email or using “MyKey” to authenticate financial and HR delegated authorities.

CFO attestation (included in TB submissions)

  • Strengthen the documentation of the evidence to substantiate the performance of key challenge functions, mainly over the corporate costing model.
  • Strengthen the consultation process with key stakeholders to support the six fundamental CFO assertions.
  • Further restrict and review user access to the costing spreadsheet based on job duties.

Repayable contributions

  • Strengthen the monitoring of repayment conditions for repayable contributions.

4. Departmental action plan for the next fiscal year and subsequent fiscal years

NRCan’s rotational OMP for the next five fiscal years, based on an annual validation of the high-risk key control areas and related adjustments, as required, is shown in the following table. Note that the OMP includes planned projects as per the NRCan 2021-26 Integrated Audit Evaluation Plan (IAEP) that provide additional assurance over the effectiveness of risk management, control, and governance processes related to the system of ICFM.

4.1 Rotational ongoing monitoring plan

Key control areas

2021-22

2022-23

2023-24

2024-25

2025-26

Entity level controls (ELCs)
  1. Control environment
  2. Risk assessment
  3. Control activities
  4. Information and communication
  5. Monitoring activities
Yes - FMIC (1 to
5)
No Yes – AEB (2) No Yes – FMIC (1 to
5)
IT general controls (ITGCs) under departmental management
  1. Specimen Signature Record (SSR) and Etools (e.g. e-procurement, epar, epayment, and epaye)
  2. IM/IT Security
  3. Business Continuity
  4. Cyber Security
  5. SAP, PeopleSoft, and Phoenix (under NRCan’s responsibility)
Yes – FMIC (1)
and AEB (2,3)
Yes – AEB (4) Yes - AEB (4) Yes – FMIC (5) Yes – FMIC (1)
Financial close and reporting No Yes - FMIC No No No
Grants and contributions (G&C), including repayable contributions No No Yes – FMIC No Yes - AEB
Payroll (Pay) and benefits Yes - AEB No No Yes – FMIC No
Procure to pay (P2P)
  • Acquisition Cards
  • Management of Procurement Services
Yes – AEB (1,2) Yes - FMIC No No No
Offshore royalty revenues/statutory transfers Yes - AEB No Yes – FMIC No No
Revenue and accounts receivable,
including costing for charging agreements
Yes - FMIC Yes – AEB No No Yes - FMIC
Environmental liabilities No Yes- FMIC No No No

Key control areas

2021-22

2022-23

2023-24

2024-25

2025-26

Contingent liabilities
  • Lower Churchill Projects Loan Guarantees and
  • Nuclear Liability Account
No No Yes – FMIC (1) No No
Capital assets Yes - FMIC Yes - AEB No Yes - FMIC No
Budgeting and forecasting (B&F) No No Yes - FMIC No No
Investment planning (IP) No Yes – FMIC Yes - AEB No Yes - FMIC
Chief financial officer attestation (included in TB submissions), and related costing No No No Yes - FMIC No

The OMP was amended as follows:

  • Consolidated the ELC assessment in 2021-22 across all five components given interlinkages.
  • Deferred the ITGC assessment for SAP, PeopleSoft, and Phoenix (under NRCan’s responsibility) from 2023-24 to 2024-25 given minimal findings identified in 2019-20.
  • Deferred the Pay and benefits assessment from 2023-24 to 2024-25 given recent coverage by FMIC (2020-21 internal control assessment), AEB (Continuous Audit of Pay and Benefits in 2020-21 and 2021-22), and the Office of the Auditor General of Canada (Government-wide HR- to-Pay Audit in 2019-20).
  • Added the assessment of the Offshore royalty revenues/statutory transfers in 2023-24.
  • Deferred the revenue and accounts receivables assessment from 2024-25 to 2025-26 given planned coverage by FMIC and AEB in 2021-22 and 2022-23 respectively.
  • Consolidated the revenue and accounts receivables assessments planned for 2021-22 and 2022- 23, which will now include revenue and receivables, and costing for charging agreements.
  • Advanced the P2P assessment from 2024-25 to 2022-23 given cancellation of various related audit projects that would have been leveraged.
  • Updated the OMP to align with the planned AEB audit projects as per the NRCan 2021-26 IAEP.

5. Departmental status and action plan for the next fiscal year and subsequent fiscal years

Building on progress to date, NRCan is well positioned to complete the full assessment of its system of ICFM, including ICFR by 2021-22, with the exception of IP which will take an additional year. At that time, NRCan will fully meet the requirements of the TB Policy on Financial Management and will continue to apply its rotational ongoing monitoring plan to reassess control performance on a risk basis across all key control areas. The status and action plan for the completion of the identified key control areas for the next fiscal year and for subsequent years are shown in the following table.

5.1 Status and action plan for the next fiscal year and subsequent fiscal years

Key control areas Design effectiveness testing and remediation Operational effectiveness testing and remediation Ongoing monitoring rotation Footnote *
Entity-level controls Complete Complete 2021-22, 2023-24, and
2025-26
IT general controls under departmental management Complete Complete 2021-22, 2022-23, 2023-
24, 2024-25, and 2025-
26
Financial close and reporting Complete Complete 2022-23
Grants and contributions, including repayable contributions Complete Complete 2023-24 and 2025-26
Payroll and benefits Complete Complete 2021-22 and 2024-25
Procure to pay Complete Complete 2021-22 and 2022-23
Offshore royalty revenues/statutory transfers Complete Complete 2021-22 and 2023-24
Revenue and accounts receivable Complete Complete 2021-22 and 2025-26
Environmental liabilities Complete Complete 2022-23
Contingent liabilities Complete Complete 2023-24
Capital assets Complete Complete 2021-22 and 2024-25
Budgeting and forecasting Complete Complete 2023-24
Investment planning 2022-23 2022-23 2025-26
Costing for charging agreements (included in Revenue and receivables process, but presented separately until ongoing monitoring achieved) 2021-22 2021-22 2025-26
Chief financial officer attestation (included in TB submissions), and related costing. Complete Complete 2024-25

* Ongoing monitoring rotation means that key controls have been documented, assessed for DE and OE, and are now subject to ongoing monitoring to ensure continued effectiveness. Once an organization reaches the ongoing monitoring stage, it will continue to remain at this stage, even when new processes are implemented, or the scope of the program is adjusted to reflect changes in the department’s operations or to incorporate new elements of ICFM.

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