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NRCan 2016-2017 Consolidated Financial Statements

Table of Contents

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, 2017, and all information contained in these consolidated statements rests with the management of Natural Resources Canada. 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, 2017 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 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 head of Natural Resources Canada.

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

Original signed by
Christyne Tremblay
Deputy Minister

Ottawa, Canada
August 28, 2017
Original signed by
Cheri Crosby
Chief Financial Officer

Ottawa, Canada
August 17, 2017
 
Natural Resources Canada
Consolidated Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)

 

2017

2016

Liabilities

Accounts payable and accrued liabilities (note 4)

274,842

303,867

Environmental liabilities (note 5)

4,908

4,614

Vacation pay and compensatory leave

22,255

21,278

Deferred revenue

78

174

Lease obligation for tangible capital assets (note 6)

70,036

64,335

Employee future benefits (note 7)

17,251

23,437

Other liabilities (note 8)

16,416

14,587

Total liabilities

405,786

432,292

Financial assets

Due from Consolidated Revenue Fund

241,936

256,351

Accounts receivable and advances (note 9)

66,893

46,614

Total gross financial assets

308,829

302,965

Financial assets held on behalf of Government

Accounts receivable and advances (note 9)

(64,173)

(45,192)

Total financial assets held on behalf of Government

(64,173)

(45,192)

     

Total net financial assets

244,656

257,773

     

Departmental net debt

161,130

174,519

     
Non-financial assets

Prepayments

2,138

1,505

Inventory (note 10)

891

883

Tangible capital assets (note 11)

331,738

270,000

Total non-financial assets

334,767

272,388

     

Departmental net financial position (note 12)

173,637

97,869

 

Contractual obligations (note 13)
Contingent liabilities (note 14)
Contingent recoveries (note 15)

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

Original signed by
Christyne Tremblay
Deputy Minister

Ottawa, Canada
August 28, 2017
Original signed by
Cheri Crosby
Chief Financial Officer

Ottawa, Canada
August 17, 2017
 
Natural Resources Canada
Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31
(in thousands of dollars)
 

2017
Planned Results

2017

2016
Restated
(note 20)

Expenses

Statutory Programs - Atlantic Offshore

739,634

469,166

328,110

Energy-efficient Practices and Lower-carbon Energy Sources

178,905

175,128

202,561

Technology Innovation

140,771

150,052

150,472

Innovation for New Products and Processes

100,456

98,369

94,236

Investment in Natural Resource Sectors

68,874

72,747

67,957

Landmass Information

86,757

72,109

78,120

Protection for Canadians and Natural Resources

65,814

69,596

77,747

Market Access and Diversification

47,347

56,242

55,148

Responsible Natural Resource Management

35,516

34,218

36,691

Internal Services

173,562

152,330

152,575

Total expenses

1,637,636

1,349,957

1,243,617

Revenues

Rights and privileges

638,672

433,032

231,497

Other, such as revenue pursuant to agreements

235,015

178,646

108,713

Revenue from services of a non-regulatory nature

24,113

23,637

21,410

Proceeds from sales of goods and information products

2,880

3,635

2,492

Revenue from services of a regulatory nature

5,749

2,072

2,227

Services to other government departments

170

140

166

Revenues earned on behalf of Government

(867,729)

(611,752)

(335,669)

Total net revenues

38,870

29,410

30,836

Net cost from continuing operations

1,598,766

1,320,547

1,212,781

 

Transferred operations (note 17)

 

 

 

Expenses

-

-

124,470

Net cost of transferred operations

-

-

124,470

Net cost of operations before government funding and transfers

1,598,766

1,320,547

1,337,251

 
Government funding and transfers

Net cash provided by Government

 

1,364,147

1,440,439

Change in due to Consolidated Revenue Fund

 

(14,415)

(119,674)

Services provided without charge by other government departments (note 16a)

 

46,549

46,047

Transfer of the transition payments for implementing salary payments in arrears

 

(4)

(72)

Transfer to a Crown corporation (note 17)

 

-

1,002,651

Transfers of assets from other government departments (note 11)

 

38

15

Net revenue of operations after government funding and transfers

 

(75,768)

(1,032,155)

Departmental net financial position - Beginning of year

 

97,869

(934,286)

Departmental net financial position - End of year

 

173,637

97,869 

Segmented information (note 19)

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)

 

2017

2016

Net revenue of operations after government funding and transfers

(75,768)

(1,032,155)

Change due to tangible capital assets

Acquisition of tangible capital assets (note 11)

83,742

49,663

Amortization of tangible capital assets (note 11)

(21,657)

(21,154)

Proceeds from disposal of tangible capital assets

(254)

(5,300)

Net (loss) gain on disposal of tangible capital assets, including adjustments

(131)

2,444

Transfer to a Crown corporation (note 17)

-

(4,431)

Transfers of assets from other government departments (note 11)

38

15

Total change due to tangible capital assets

61,738

21,237

Change due to inventories

8

77

Change due to prepayment

633

(16,281)

Net decrease in departmental net debt

(13,389)

(1,027,122)

Departmental net debt - Beginning of year

174,519

1,201,641

Departmental net debt - End of year

161,130

174,519

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)
 

2017

2016
Restated
(note 20)

Operating activities

Net cost of operations before government funding and transfers:

1,320,547

1,337,251

Non-cash items:

Amortization of tangible capital assets (note 11)

(21,657)

(21,154)

Net gain (loss) on disposal of tangible capital assets, including adjustments

(131)

2,444

Services provided without charge by other government departments (note 16a)

(46,549)

(46,047)

Transition payments for implementing salary payments in arrears

4

72

Variations in Statement of financial position:

Increase (decrease) in net accounts receivable and advances

1,298

(735)

Increase (decrease) in prepayments

633

(16,281)

Increase in inventory

8

77

Decrease in accounts payable and accrued liabilities

29,025

159,716

Increase in vacation pay and compensatory leave

(977)

(717)

Decrease in deferred revenue

96

90

Decrease in employee future benefits

6,186

1,275

Increase in environmental liabilities, excluding the adjustment related to the transfer to a Crown corporation

(294)

(22,865)

(Increase) decrease in other liabilities

(1,829)

693

Cash used in operating activities

1,286,360

1,393,819

Capital investing activities

Acquisitions of tangible capital assets (note 11)

75,355

49,663

Proceeds from disposal of tangible capital assets

(254)

(5,300)

Cash used in capital investing activities

75,101

44,363

Financing activities

Lease obligation for tangible capital assets

(1,770)

(2,261)

Lease payments for tangible capital assets

4,456

4,518

Cash used in financing activities

2,686

2,257

Net cash provided by Government of Canada

1,364,147

1,440,439

The accompanying notes form an integral part of these financial statements

Natural Resources Canada
Notes to the Consolidated Financial Statements (Unaudited)
For the year ended March 31, 2017

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 Act 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 programs:

Market Access and Diversification

Canada’s natural resource sectors face two key barriers to market access and diversification: 1) trade and policy barriers, and 2) lack of awareness of Canada’s natural resource products. The objectives of this Program are to break down those barriers and support the development and expansion of markets for Canadian natural resource products by making information available to Canadians, supporting negotiations to reduce trade barriers, and ensuring that regulations are up to date. This helps maintain natural resource sectors’ access to existing markets and increases their access to new market segments.

Innovation for New Products and Processes

Optimizing the use of Canada’s natural resources and the processes by which they are developed would improve the productivity and competitiveness of natural resource sectors. The objective of this Program is to maximize productivity and competitiveness by encouraging the adoption of new technologies and processes and the development of new products. These objectives are achieved by conducting and supporting research and development and by delivering frameworks and policies for, and demonstrations of, new applications, technologies, processes, and products.

Investment in Natural Resource Sectors

Investing in the development of natural resources is costly and risky due to inherent uncertainties in the potential economic viability of natural resource projects. Many factors must be considered when deciding whether to develop a natural resource project. In some cases, limited information may make it difficult for investors and/or companies to assess potential opportunities. The objective of this Program is to encourage investment in the natural resource sectors by increasing industry’s knowledge of opportunities, regulations and obligations. This ensures that a more accurate assessment of the expected benefits of an investment can be made and subsequently compared to its costs and risks, thereby allowing for a more comprehensive investment decision. This objective is achieved by providing funding and information on the factors that determine the potential economic viability of natural resource projects.

Statutory Programs – Atlantic Offshore

Through this Program, NRCan monitors and facilitates payment disbursal agreements and transfer payments under the Atlantic Offshore Accord Acts. The Program includes the following programs: Canada Newfoundland Offshore Petroleum Board; Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund; Payments to the Nova Scotia Offshore Revenue Account; Nova Scotia Crown Share Adjustment Payment; and Canada-Nova Scotia Offshore Petroleum Board.

Energy-Efficient Practices and Lower-Carbon Energy Sources

Canada’s energy markets are defined by the decisions of consumers and producers. However, there are multiple barriers to the adoption of energy efficient practices and implementation of lower-carbon energy sources, including a lack of awareness of available options and their benefits, insufficient capacity for adoption (e.g., regulatory frameworks, codes and standards), and financial risk. The objectives of this Program are to address these barriers by encouraging and enabling energy consumers and producers to adopt cleaner and more efficient technologies, products, services and practices. These objectives are achieved through education and outreach activities, targeted incentives, and regulatory interventions that keep pace with technological changes.

Technology Innovation

Science and technology is key to overcoming challenges confronted by natural resource sectors in pursuing responsible development. Through this Program, NRCan encourages academia, industry and the public sector to research, develop and demonstrate innovative solutions.  This objective is achieved through the generation and dissemination of scientific knowledge, and the development and demonstration of new technologies.

Responsible Natural Resource Management

Greater knowledge of environmental risks and environmentally responsible practices help prevent and reduce the environmental impacts of past, present and future natural resource development. The objectives of this Program are to enable government departments, regulatory bodies and industry to assess these impacts, and to develop, monitor and maintain resources or clean up wastes responsibly. These objectives are achieved through the provision of assessments and knowledge rooted in sound science, and through waste management efforts that are undertaken in collaboration with provinces, federal agencies and municipalities.

Protection for Canadians and Natural Resources

Natural resource development and changes in the environment pose risks to human, natural resource and infrastructure health. The objective of this Program is to enable other government departments, communities, and the private sector to manage these risks and to ensure the appropriate capacity is in place. NRCan achieves this objective by providing regulation, knowledge, tools and services and by fulfilling legislated responsibilities.

Landmass Information

Public, academic and private sectors as well as Canadians rely on up-to-date, comprehensive and accessible landmass information to make sound socio-economic and environmental decisions. This Program provides open access to Canada’s fundamental geomatics framework and information system, including accurate three-dimensional positioning, high-resolution satellite imagery and other remote sensing products, legal (boundary) surveys, mapping and other analysis applications. In addition, it delivers logistics support in the North and regulatory oversight for a robust property system framework on Canada Lands. 

Internal Services

Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. Internal services include only those activities and resources that apply across an organization, and not those provided to a specific program. These groups of activities 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 have been prepared using the Government’s accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

  1. Parliamentary authorities – 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. 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 2016-2017 Report on Plans and Priorities. 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 Statement of Change in Departmental Net Debt because these amounts were not included in the 2016-2017 Report on Plans and Priorities.

  2. Consolidation – These consolidated financial statements include the accounts of the sub-entities that the deputy head is accountable for.  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.

  3. 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.

  4. 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.

  5. Revenues:

    • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.

    • Funds that have been 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 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 the Department’s liabilities.  While the Deputy Head 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 are therefore presented in reduction of the department’s gross revenues.
       
  6. Expenses – Expenses are recorded on the accrual basis

    1. 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 consolidated financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.

    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, legal services and workers’ compensation are recorded as operating expenses at their estimated cost.

  7. 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 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 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 which is based on the Government’s cost of borrowing.  The discount rates used are based on the term rate associated with the estimated number of years to complete remediation. For remediation costs with estimated future cash flows spanning more than 25 years, the Government of Canada’s 25-year Consolidated Revenue Fund lending rate is used as the discount rate.

    The recorded environmental liabilities are adjusted each year, as required, 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. If measurement uncertainty exists, it is also disclosed in the notes to the consolidated financial statements.

  8. Employee future benefits

    1. Pension benefits:  Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government.  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 consolidated financial statements of the Government of Canada, as the Plan’s sponsor.

    2. Severance benefits:  Employees entitled to severance benefits under labour contracts or conditions of employment earn those 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 employee severance benefits for the Government as a whole.

  9. Accounts receivables and advances are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

  10. 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.

  11. Inventory

    1. Inventory held for consumption: Inventory not intended for resale 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.
    2. Inventory held for resale: Inventory 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.
  12. Foreign currency transactions - 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 a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year end. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statement of Operations and Departmental Net Financial Position and note 19 in the operating expenses – other.

  13. Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more ($1,000 or more for the Geomatics Canada Revolving Fund) are recorded at their acquisition cost.  The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian reserves and museum collections.

    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

    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 and are amortized in the year they become available for use.

  14. 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 consolidated financial statements.

  15. 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.  At the time of preparation of these consolidated 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 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.

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

 

2017

2016
Restated
(note 20)

 

(in thousands of dollars)

Net cost of operations before government funding and transfers

1,320,547

1,337,251

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

 

 

Amortization of tangible capital assets

(21,657)

(21,154)

Net (loss) gain on disposal of tangible capital assets

(131)

2,444

Services provided without charge by other government departments

(46,549)

(46,047)

Increase (decrease) in prepayments

633

(16,281)

Increase in inventory

8

77

Decrease in accrued liabilities

18,611

49,935

Increase in vacation pay and compensatory leave

(977)

(717)

Decrease in employee future benefits

6,186

1,275

Increase in environmental liabilities, excluding the adjustment related to the transfer to a Crown Corporation

(294)

(22,865)

Refunds of prior years' expenditures

4,780

7,983

Expenses restricted under the Environmental Studies Research Fund

(3,723)

(3,687)

Other adjustments

2,520

(5,027)

Total items affecting net cost of operations but not affecting authorities

(40,593)

(54,064)

   

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

 

 

Acquisitions of tangible capital assets

75,355

49,663

Decrease in lease obligation for tangible capital assets, excluding capital lease adjustment due to an amendment

2,686

2,257

Transition payments for implementing salary payments in arrears

4

72

Total items not affecting net cost of operations but affecting authorities

78,045

51,992

Current year authorities used

1,357,999

1,335,179

b) Authorities provided and used

 

2017

2016

 

(in thousands of dollars)

Authorities Provided:

Vote 1 – Operating expenditures

565,245

945,618

Vote 5 – Capital expenditures

87,738

54,422

Vote 10 – Grants and contributions

287,577

306,909

Statutory amounts

534,414

408,685

Less:

Authorities available for future years

(7,551)

(7,164)

Lapsed – Operating

(43,239)

(314,876)

Lapsed – Capital

(12,678)

(4,833)

Lapsed – Grants and contributions

(53,507)

(53,582)

Current year authorities used

1,357,999

1,335,179

4. Accounts payable and accrued liabilities

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

 

2017

2016

 

(in thousands of dollars)

Accounts payable – Other government departments and agencies

8,226

11,382

Accounts payable – External parties

115,859

127,450

Total accounts payable

124,085

138,832

Accrued liabilities

150,757

165,035

Total accounts payable and accrued liabilities

274,842

303,867

In Canada’s Economic Action Plan 2012, the Government announced savings measures to be implemented by departments starting in 2013 and extending over the three subsequent fiscal years. To this effect, the Department has recorded an obligation for termination benefits as part of accrued liabilities to reflect the estimated workforce adjustment costs. The remaining balance of these measurements as of March 31, 2017, is nil ($76 thousand in 2016).

5.  Environmental liabilities

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, the Government 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.

The Department has identified a total of 9 sites (8 sites in 2016) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has assessed 8 sites (7 sites in 2016) where action is possible and for which a liability of $3,760 thousand ($3,466 thousand in 2016) has been recorded. This liability estimate has been determined after the sites are assessed and is based on environmental experts reviewing the results of site assessments, and proposing possible remediation solutions.

In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there is 1 unassessed site (1 site in 2016) where a liability estimate of $1,148 thousand ($1,148 thousand in 2016) has been recorded using this model.

These two estimates combined, totaling $4,908 thousand ($4,614 thousand in 2016), represent management’s best estimate of the costs required to remediate the sites to the current minimum standard for its use prior to contamination, based on information available at the consolidated financial statement date.

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, 2017, and March 31, 2016. 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%.  Inflation is included in the undiscounted amount. The Government of Canada lending rate applicable to loans with similar terms to maturity has been used to discount the estimated future expenditures. The March 2017 rate is 2.25% for 14 year term.

Nature and Source of Liability

2017

2016

(in thousands of dollars)

(in thousands of dollars)

Number of Sites

Estimated Liability

Estimated Total Undiscounted Expenditures

Estimated Recoveries

Number of Sites

Estimated Liability

Estimated Total Undiscounted Expenditures

Estimated Recoveries

Fuel Practices (1)

1

1,148

1,148

-

1

1,148

1,148

-

Office/Commercial/Industrial Operations(2)

8

3,760

3,925

-

7

3,466

3,657

-

Total

9

4,908

5,073

-

8

4,614

4,805

-

(1) 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.

 

(2) 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.  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, 2017 ($87,606 thousand in 2016) and accumulated amortization of $23,021 thousand as at March 31, 2017 ($19,334 thousand in 2016). Interest on this obligation of $1,770 thousand ($2,261 thousand in 2016) is reported in the Consolidated Statement of Operations and Departmental Net Financial Position as part of Technology Innovation and Protection for Canadian and Natural Resources expenses.  The lease agreement was amended on November 1, 2016, reducing the monthly payment and decreasing the imputed interest rate from 3.45% to 1.65%, resulting in an $8,387 thousand increase of the lease obligation. The obligation related to the upcoming years includes the following:

 

2017

2016

 

(in thousands of dollars)

2017

-

4,518

2018

4,372

4,518

2019

4,372

4,518

2020

4,372

4,518

2021

4,372

4,518

2022 and thereafter

63,902

66,042

Total future minimum lease payments

81,390

88,632

Less: imputed interest (1.65%-2017, 3.45%-2016)

11,354

24,297

Lease obligation for tangible capital assets

70,036

64,335

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 2017 expense amounts to $35,764 thousand ($36,779 thousand in 2016 - restated). For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2016) 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, 2017, 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:

 

2017

2016

 

(in thousands of dollars)

Accrued benefit obligation - Beginning of year

23,437

24,712

Expense for the year

(3,078)

3,248

Benefits paid during the year

(3,108)

(4,523)

Accrued benefit obligation - End of year

17,251

23,437

8. Other liabilities

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

 

2017

2016

 

(in thousands of dollars)

Guarantee deposits - Oil and gas

9,961

7,970

Shared costs projects

288

182

Market development and incentive payments – Alberta

1,556

1,787

Shared costs agreements - Research

4,611

4,648

Total other liabilities

16,416

14,587

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 projects.

Market development incentive payments – Alberta: This account records funds received from the Government of Alberta to encourage the expansion of natural gas market 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 at 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 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.

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

9.  Accounts receivable and advances

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

 

2017

2016

 

(in thousands of dollars)

Receivables - Other government departments and agencies

9,139

9,416

Receivables - External parties

57,495

37,130

Employee advances

738

364

Subtotal

67,372

49,910

Allowance for doubtful accounts on receivables from external parties

(479)

(296)

Gross accounts receivable and advances

66,893

46,614

Accounts receivable held on behalf of Government

(64,173)

(45,192)

Net accounts receivable and advances

2,720

1,422

10.  Inventory

The following table presents details of the inventory:

 

2017

2016

 

(in thousands of dollars)

Inventories held for consumption

843

859

Inventories held for re-sale

48

24

Total inventory

891

883

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $177 thousand in 2017 ($95 thousand in 2016).

11. Tangible capital assets

 

Cost

 

Accumulated amortization

 

Net book value

Capital asset class

Opening balance

Acquisitions (1)

Adjustments (2)

Disposals and write-offs

Closing balance

 

Opening balance

Amortization

Adjustments (2)

Disposals and write-offs

Closing balance

 

2017

2016

 

(in thousands of dollars)

Land

7,939

-

61

200

7,800

 

-

-

-

-

-

 

7,800

7,939

Buildings

183,126

49

21,273

196

204,252

 

133,714

2,791

(49)

176

136,280

 

67,972

49,412

Machinery and equipment

255,923

7,173

6,355

13,481

255,970

 

187,322

12,229

1,039

13,191

187,399

 

68,571

68,601

Vehicles

8,938

451

9

468

8,930

 

6,876

575

(9)

447

6,995

 

1,935

2,062

Leasehold improvements

39,517

-

10,300

-

49,817

 

11,342

2,375

125

-

13,842

 

35,975

28,175

Leased tangible capital assets

87,606

8,387

-

-

95,993

 

19,334

3,687

-

-

23,021

 

72,972

68,272

Assets under construction

45,539

67,682

(36,599)

109

76,513

 

-

-

-

-

-

 

76,513

45,539

Total

628,588

83,742

1,399

14,454

699,275

 

358,588

21,657

1,106

13,814

367,537

 

331,738

270,000

(1) Acquisitions of $83,742 thousand include an increase to the leased tangible capital assets for $8,387 thousand resulting from the amendment of the capital lease, which does not involve the use of cash and is therefore excluded from acquisitions of tangible of capital assets of $75,355 thousand reported in Consolidated Statement of Cash Flow.

(2) Adjustments include assets under construction of $36,608 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 $38 thousand on the departmental net financial position. 

12. 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 required 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. 

 

2017

2016

 

(in thousands of dollars)

Environmental Studies Research Fund - Restricted

Balance - Beginning of year

3,247

3,534

Revenues

6,039

3,399

Expenses

(3,723)

(3,686)

Balance - End of year

5,563

3,247

Nuclear Liability Account - Restricted

Transfer from Canadian Nuclear Safety Commission (Note 18)

4,025

-

Revenues

-

-

Expenses

-

-

Balance – End of year

4,025

-

Subtotal - Restricted

9,588

3,247

Unrestricted

164,049

94,622

Departmental net financial position - End of year

173,637

97,869

13. Contractual obligations

The nature of the Department’s activities can 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)

2018

2019

2020

2021

2022 and thereafter

TOTAL

Transfer Payments to International Organizations

1,183

1,129

-

-

-

2,312

Other Transfer Payments

191,749

113,885

95,218

62,540

1,043

464,435

Total

192,932

115,014

95,218

62,540

1,043

466,747

14. Contingent liabilities

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

(a) Claims and litigation: Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and other for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded 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 $3,300 thousands (nil in 2016). 

(b) Loan guarantees:

 

Authorized Limit

Outstanding guarantees

2017

2016

(in thousands of dollars)

Lower Churchill Hydroelectric Projects

6,300,000

5,396,676

3,549,839

Under the Lower Churchill Projects, $6.3 billion was raised through the issuance of bonds guaranteed by Canada for the following projects: Muskrat Falls and Labrador Transmission Assets; Labrador-Island Link; and Maritime Link.  As of March 31, 2017, $5,396,676 thousand ($3,549,839 thousand in 2016) has been advanced to the project entities for construction costs.  As per the terms of the bonds that were issued, initially, only interest payments are being made on the guaranteed debt. The commencement of principal payments on the guaranteed debt has been scheduled to coincide with the expected commissioning dates of the projects, with the schedule of these payments depending on the specific terms and conditions of each of the guaranteed bonds. Among the many safeguards put in place to protect Canada’s interest, all of the project entities’ shares, assets and agreements have been pledged as security to Canada.

No allowance for losses on this guarantee has been recorded for this loan guarantee 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.

(c) Insurance Program: Nuclear Liability Account

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, an amount to be phased in over four years with $650 million applying in 2017, and $1 billion in 2020. 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 normal emissions, and bodily injury occurring 10 to 30 years after a nuclear incident. Through the indemnity agreement, entered into with 17 operators, the federal government covers the liability associated with the two exceptions. It also covers the difference between the lower liability amount prescribed in the NLCR for lower-risk installations and the $650 million liability amount prescribed in the NLCA. The federal government charges each operator an annual fee for providing this indemnity coverage.

Natural Resources Canada 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, 2017 is $4,025 thousand. Any claims under an indemnity agreement could be up to the level of the liability amount of $650 million prescribed 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.

15. Contingent recoveries

NRCan issues conditionally repayable contributions that become repayable if conditions specified in the contribution agreement come into effect. 

The Department has estimated the contingent recoverable amounts as $1,200 thousand ($1,200 thousand in 2016). These contingent recoveries relate to agreements entered into with proponents for early stage research and development (R&D) activities.  Recoveries are contingent upon the successful commercialization of products generated by the R&D activities. Contingent recoveries are not recorded in the consolidated financial statements.

16. Related party transactions

The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations.  The Department enters into transactions with these entities in the normal course of business and on normal trade terms.  Also, during the year, the Department received common services which were obtained without charge from other Government departments as presented in part (a).

(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, legal services, the employer’s contribution to the health and dental insurance plans, and workers’ compensation coverage.  These services received without charge have been recorded in the Department’s Consolidated Statement of Operations and Departmental Net Financial Position as follows:

 

2017

2016
Restated
(note 20)

(in thousands of dollars)

Employer’s contribution to the health and dental insurance plans

29,171

27,931

Accommodation

17,167

16,372

Legal services

-

1,521

Workers' compensation

211

223

Total common services provided without charge

46,549

46,047

The Government has centralized some of its administrative activities for efficiency and cost-effectiveness purposes and economic 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, which include payroll and check issuance services provided by Public Services and Procurement Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the Department’s Consolidated Statement of Operations and Departmental Net Financial Position.

(b) Other transactions with related parties:

 

2017

2016

(in thousands of dollars)

Expenses - Other government departments and agencies

141,249

143,100

Revenues - Other government departments and agencies

6,062

3,805

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

17. Transfer to a Crown corporation

Effective September 13, 2015, the Department transferred the responsibilities of the Nuclear Legacy Liabilities Program and the Historic Waste Program to Atomic Energy of Canada Limited (AECL) including the stewardship responsibilities for tangible capital assets and the environmental liabilities related to these programs. Accordingly, the Department transferred $1,002,651 thousand of net liabilities to AECL on September 13, 2015.

 

2016

In thousands of dollars

Assets:

Tangible capital assets (net book value)

4,431

Total assets transferred

4,431

Liabilities:

Remediation liabilities

1,007,082

Total liabilities transferred

1,007,082

Adjustment to the departmental net financial position

(1,002,651)

During fiscal year 2016, expenses prior to the effective date of the transfer of $124,470 thousand have been presented after Net cost from continuing operations on the Consolidated Statement of Operations and Departmental Net Financial Position.

18. Transfer from a Departmental Corporation

Effective January 1, 2017, the responsibilities to administer the Nuclear Liability Account, a continuation of the Nuclear Liability Reinsurance Account, were transferred from Canadian Nuclear Safety Commission to the Department, including a consolidated specified purpose account for $4,025 thousand presented as restricted departmental net financial position in note 12 and a contingent liability associated with an insurance program in note 14.

19. Segmented information

Presentation by segment is based on the Department’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 the main program, by major object of expense and by major type of revenue.  The segment results for the period are as follows:

(in thousands of dollars)

 

Statutory Programs - Atlantic Offshore

Energy-efficient Practices and Lower-carbon Energy Sources

Technology Innovation

Innovation for New Products and Processes

Investment in Natural Resource Sectors

Landmass Information

Protection for Canadians and Natural Resources

Market Access and Diversification

Responsible Natural Resource Management

Internal Services

2017 Total

2016 Total Restated (note 20)

Transfer payments

Industry

-

127,454

10,313

26,831

-

-

(1)

(102)

-

-

164,495

183,498

International

-

500

446

59

14

-

69

475

11

-

1,574

2,370

Non-profit organization

-

1,003

22,032

22,446

2,997

40

621

13,339

96

-

62,574

55,641

Other levels of government

469,166

2,070

51

-

-

-

30

598

-

-

471,915

331,166

Individuals

-

-

-

583

99

-

-

-

-

-

682

(54)

Total transfer payments

469,166

131,027

32,842

49,919

3,110

40

719

14,310

107

-

701,240

572,621

Operating expenses

Salaries and employee benefits

-

27,769

73,527

33,867

47,166

43,196

48,891

30,602

24,855

90,781

420,654

430,929

Environmental expenses

-

-

-

-

-

-

-

-

-

293

293

1,300

Information

-

1,796

503

302

855

217

261

1,239

235

4,984

10,392

5,421

Professional and special services

-

11,457

14,015

7,081

7,845

6,036

7,019

5,221

3,113

22,379

84,166

96,636

Rentals

-

1,282

6,791

1,512

5,416

11,089

2,821

1,655

1,375

4,114

36,055

44,326

Transportation

-

417

1,793

1,039

2,420

3,031

2,067

1,753

564

1,218

14,302

14,059

Utilities, material and supplies

-

495

8,654

2,604

1,736

3,993

3,440

659

1,591

2,371

25,543

26,933

Purchased repairs and upkeep

-

133

2,640

359

1,569

933

440

30

1,747

671

8,522

8,147

Acquisitions of non-capital assets

-

368

3,762

708

1,438

3,334

1,930

628

405

2,401

14,974

10,053

Amortization

-

-

-

-

-

-

-

-

-

21,657

21,657

21,145

Other

-

384

5,525

978

1,192

240

2,008

145

226

1,461

12,159

12,047

Total operating expenses

-

44,101

117,210

48,450

69,637

72,069

68,877

41,932

34,111

152,330

648,717

670,996

Total expenses

469,166

175,128

150,052

98,369

72,747

72,109

69,596

56,242

34,218

152,330

1,349,957

1,243,617

Revenues

Rights and privileges

430,530

-

-

89

-

-

1,747

571

95

-

433,032

231,497

Other, such as revenue pursuant to agreements

24,250

6

7,078

26

3

538

172

145,766

247

560

178,646

108,713

Revenue from services of a non-regulatory nature

-

-

14,042

1,657

3

4,857

2,125

109

844

-

23,637

21,410

Proceeds from sales of goods and information products

-

-

20

920

-

360

2,335

-

-

-

3,635

2,492

Revenue from services of a regulatory nature

-

-

130

-

-

-

1,942

-

-

-

2,072

2,227

Services to other government departments

-

-

-

-

-

-

-

-

-

140

140

166

Revenues earned on behalf of Government

(454,780)

31

(7,395)

(461)

(3)

(71)

(1,854)

(146,349)

(310)

(560)

(611,752)

(335,669)

Total net revenues

-

37

13,875

2,231

3

5,684

6,467

97

876

140

29,410

30,836

Net cost from continuing operations

469,166

175,091

136,177

96,138

72,744

66,425

63,129

56,145

33,342

152,190

1,320,547

1,212,781

20. Correction of error relating to prior period statements

The amount recorded for service provided without charge for accommodation was overstated by $5,075 thousands in the 2016 consolidated financial statements, as confirmed by the partner department. Consequently, the comparative consolidated financial statements presented for the year ended March 31, 2016 have been restated.

The effect of the retroactive change is as follows:

(in thousands of dollars)
 

2016
As previously stated

Effect of change

2016

Consolidated Statement of Operations and Departmental Net Financial Positions:

Expenses

Energy-efficient Practices and Lower-carbon Energy Sources

202,911

(350)

202,561

Technology Innovation

151,382

(910)

150,472

Innovation for New Products and Processes

94,649

(413)

94,236

Investment in Natural Resource Sectors

68,497

(540)

67,957

Landmass Information

78,607

(487)

78,120

Protection for Canadians and Natural Resources

78,363

(616)

77,747

Market Access and Diversification

55,497

(349)

55,148

Responsible Natural Resource Management

37,006

(315)

36,691

Internal Services

153,670

(1,095)

152,575

Total expenses

1,248,692

(5,075)

1,243,617

Net cost from continuing operations

1,217,856

(5,075)

1,212,781

Net cost of operation before government funding and transfers

1,342,326

(5,075)

1,337,251

Service provided without charge by other government departments (note 16a)

51,122

(5,075)

46,047

 

Consolidated Statement of Cash Flows:

Net cost of operation before government funding and transfers

1,342,326

(5,075)

1,337,251

Service provided without charge by other government departments (note 16a)

(51,122)

5,075

(46,047)

 

Parliamentary authorities (note 3):

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

Net cost of operation before government funding and transfers

1,342,326

(5,075)

1,337,251

Service provided without charge by other government departments

(51,122)

5,075

(46,047)

Total items affecting net cost of operations but not affecting authorities

(59,139)

5,075

(54,064)

 

Related party transactions (note 16):

a) Common services provided without charge by other government departments:

Accommodation

21,447

(5,075)

16,372

Total common services provided without charge

51,122

(5,075)

46,047

 

Segmented information (note 19):

Operating expenses

Rentals

49,401

(5,075)

44,326

Total operating expense

676,071

(5,075)

670,996

Total expenses

1,248,692

(5,075)

1,243,617

Net cost from continuing operations

1,217,856

(5,075)

1,212,781

21. Comparative information

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

22. Subsequent event

In May 2017, the Minister of Natural Resources signed two agreements that provide additional loan guarantee support for the Muskrat Falls and Labrador Transmission Assets and the Labrador-Island Link projects. The guaranteed bond financing was completed in May 2017, raising $2.9 billion of guaranteed debt. As is the case with the original financing, only interest payments are being made on the guaranteed debt and the commencement of principal payments on the guaranteed debt has been scheduled to coincide with the expected commissioning dates of the projects. All of the safeguards put in place for the original guaranteed debt issuance to protect Canada’s interests have also been put in place for this issuance.  This additional loan guarantee will be reported as part of the department contingent liabilities in the 2018 consolidated financial

Annex to the Statement of Management Responsibility
Including Internal Control over Financial Reporting of Natural Resources Canada
for Fiscal Year 2016-17 (unaudited)

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

1. Introduction

This document provides summary information on the measures taken by Natural Resources Canada (NRCan) to maintain an effective system of internal control over financial reporting (ICFR), including information on internal control management and assessment results and related action plans.

Detailed information on NRCan’s authority, mandate, and program can be found in the 2016-17 Departmental Results Report and the 2017-18 Departmental Plan.

2. Departmental system of internal control over financial reporting

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.  A departmental internal control management framework approved by the Deputy Minister is in place (NRCan Framework for Internal Control over Financial Reporting) and includes:

  • Roles and responsibilities for the maintenance and assessment of the system of ICFR for the Chief Financial Officer (CFO), Chief Information Officer, senior departmental managers, process owners and all NRCan employees;
  • Requirements for the maintenance of an effective risk-based system of ICFR;
  • Risk-based approach for the assessment of the system of ICFR;
  • Regular updates/reports to departmental senior management and the Departmental Audit Committee;
  • Sign-offs on the representation related to the maintenance of a system of financial management and internal control by the Deputy Minister, the CFO and Assistant Deputy Ministers; and
  • Expectations for corrective actions where required.

NRCan has a Corporate Risk Profile (CRP), which was updated in 2016-17. The key operational and strategic risks and risk mitigation measures from the CRP are presented through the 2017-18 Departmental Plan. This presentation provides the opportunity to staff, along with the public to familiarize themselves with the key risks and the assurance that the risks are being managed sufficiently, consistently and comprehensively. The Department reports on significant financial risks in the Quarterly Financial Reports, including changes to risks and newly identified risks.

The Department's control environment also includes: 

  • A departmental Values and Ethics Code and a Values and Ethics Centre of Expertise. 
  • A dedicated unit under the CFO to conduct risk-based assessments of the system of ICFR, including follow-ups on corrective actions.
  • An Internal Audit function which provides independent and objective assurance on the effectiveness of internal controls through periodic risk-based audits and continuous audits, as well as through follow-up activities on the progress of the implementation of management action plans identified to address audit recommendations.
  • A multi-year risk-based audit plan, reviewed by the Departmental Audit Committee (DAC) and approved by the Deputy Minister. Plans and audit reports are available on the departmental internet site.
  • Senior managers’ performance agreements that include commitments on financial management.
  • Intranet based communication tools for policy instruments and procedures.
  • Mandatory training for financial officers.

The DAC is an advisory committee to the Deputy Minister. The Committee provides objective advice and recommendations to the Deputy Minister regarding the sufficiency, quality and results of assurance provided by the internal audit function on the adequacy and functioning of the department's risk management, control and governance frameworks and processes. Using a risk-based approach, the DAC has the responsibility to review all core areas of departmental management control and accountability processes, including reporting. Other areas of responsibility within the DAC’s scope include values and ethics, external assurance providers, quarterly financial reporting, departmental consolidated financial statements and the assessments of ICFR.

The DAC is composed of five members including the Deputy Minister, the Associate Deputy Minister and three external members recruited from outside of the federal public administration. The NRCan Chief Financial Officer and Chief Audit Executive attend all meetings of the DAC. The Chair may request the attendance of other departmental officials, or invite representatives from external assurance providers.

The DAC meets at least four times a year, and may convene additional meetings as circumstances require.

2.2 Service arrangements relevant to financial statements

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

Common arrangements:

  • Public Services and Procurement Canada (PSPC) centrally administers the payments of salaries, and provides pay administration services to NRCan employees through the Public Service Pay Centre;
  • PSPC centrally administers the procurement of goods and services, as per established  delegated authorities, and provides accommodation services;
  • Treasury Board Secretariat provides the Department with information used to calculate various accruals and allowances, such as the accrued severance liability;
  • The department of Justice provides legal services to NRCan; and
  • Shared Services Canada (SSC) provides Information Technology infrastructure services to NRCan in the areas of data centre and network services.

Specific arrangement:

The department of Agriculture and Agri-Food Canada provides Integrated Financial and Material System services (SAP) to NRCan. 

3. Departmental assessment results during fiscal year 2016-17

The key findings and significant adjustments required from the current year's assessment activities are summarized below.

New or significantly amended key controls:

In the current year, the payroll and benefits process documentation of controls was reviewed and updated to reflect the implementation of a new payroll system (Phoenix) in February 2016. 

Ongoing monitoring program:

As part of its rotational ongoing monitoring plan, the department completed its reassessment of the risk assessment portion of entity-level controls, and of internal controls within the following processes: operating expenditures, and the IT general controls of the Specimen Signature Record (SSR) and the Human Resource Management System (PeopleSoft) applications. The department also conducted operating effectiveness testing of corrective actions that consist of reviews and which were implemented in 2015-16. For the most part, the internal controls that were tested performed as intended.

The following key correction requirements were identified:

  • Update year-end procedures to remind managers to reconcile their salary forecast to actual expenses;
  • Request the Public Sector Pay Center to establish a mechanism to provide the status of pay action requests;
  • Perform periodic security assessment and authorization process for both SSR and PeopleSoft applications;
  • Update procedures surrounding the granting, removing and restricting of logical access on a periodic basis for both SSR and PeopleSoft applications;
  • Update procedures to include escalation approval process in the review of designated managers delegated with financial authorities by their direct report; and
  • Establish monitoring process around segregation of duties to review appropriate use of spending and payments authorities.

Management action plans addressing the correction requirements above were developed. 

4. Departmental Action Plan

4.1 Progress during fiscal year 2016-17

NRCan continued to conduct ongoing monitoring according to the previous year’s rotational plan as shown in Table 1.

Table 1 - Progress during Fiscal Year 2016-17

Previous year’s rotational ongoing monitoring plan for current year – Operating Effectiveness testing

Status as of March 31, 2017

Operating expenditures

Completed. Corrective actions have started.

Entity-Level Controls

Completed.  No corrective actions were required.

IT general controls under departmental management

Completed. Corrective actions have started.

Testing of corrective actions that consist of reviews and which were implemented in 2015-16.

Completed.   No further corrective actions required.

Other on-going monitoring activities from previous year`s plan for the current year

Status as of March 31, 2017

Payroll and benefits1 update documentation to reflect the implementation of a new payroll system (Phoenix)

Completed.

Corrective actions - Implement required corrective actions.

Corrective actions outstanding as of March 31, 2016 are substantially completed.

4.2 Action plan for the next fiscal year and subsequent fiscal years

NRCan’s rotational ongoing monitoring plan over the next three years, based on risk and    reviewed each year to take into account process changes and new risks, is shown in Table 2.

Table 2 - Rotational Ongoing Monitoring Plan

Key control areas

Fiscal

Year

2017-18

Fiscal

Year

2018-19

Fiscal

Year

2019-20

Financial close2 and reporting

Yes

No

Yes

Repayable contributions

No

Yes

No

Grants and Contributions (standard)

No

Yes

No

Operating expenditures

No

Yes

No

Payroll and benefits

Yes

No

Yes

Capital assets

Yes

No

No

Entity level controls3

Yes

Yes

Yes

Revenues and accounts receivable

No

Yes

No

IT general controls under departmental management

No

Yes

No

Environmental liabilities

No

No

No

Offshore royalty revenues and corresponding statutory transfers

No

Yes

No

Testing of corrective actions that consist of reviews and which were implemented in the previous fiscal year

Yes

Yes

Yes

Note 1: The assessment of internal controls in 2016-17 was conducted based on work completed by the Chief Financial Officer (CFO) and the Chief Audit Executive (CAE). NRCan internal audit work included the update of controls of the Payroll and Benefits process to reflect the implementation of a new payroll system (Phoenix). The audit results can be found on the NRCan website. Reliance on documentation update of internal control completed by internal audit in 2016-17 minimized the duplication of efforts between the CFO and CAE’s respective functions.

Note 2: Financial close refers to the posting of accounting entries at period-end to ensure all financial activity for the period is accurately recorded in the accounts.

Note 3: Entity Level Controls assessment are being done over a three-year period. In 2017-18, the Information Systems and Communications, and Monitoring portions will be assessed. In 2018-19, the Control Environment portion will be reassessed. In 2019-20, the Risk Assessment portion will be assessed.

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