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NRCan 2017-2018 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, 2018, 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, 2018 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 Philip Jennings for:

____________________________
Christyne Tremblay
Deputy Minister

September 4, 2018
Ottawa, Canada

Original signed by Grace Chennette for:

___________________________
Cheri Crosby
Chief Financial Officer

August 24, 2018
Ottawa, Canada

Natural Resources Canada
Consolidated Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)
  2018 2017
Liabilities
  Accounts payable and accrued liabilities (note 4) 668,648 274,842
  Vacation pay and compensatory leave 22,660 22,255
  Deferred revenue 141 78
  Environmental liabilities (note 5) 1,756 4,908
  Lease obligation for tangible capital assets (note 6) 66,795 70,036
  Employee future benefits (note 7) 18,417 17,251
  Other liabilities (note 8) 21,966 16,416
Total liabilities 800,383 405,786
Financial assets
  Due from Consolidated Revenue Fund 635,859 241,936
  Accounts receivable and advances (note 9) 339,074 66,893
Total gross financial assets 974,933 308,829
Financial assets held on behalf of Government
  Accounts receivable and advances (note 9) (337,601) (64,173)
Total financial assets held on behalf of Government (337,601) (64,173)
Total net financial assets 637,332 244,656
Departmental net debt 163,051 161,130
Non-financial assets
  Prepayments 903 2,138
  Inventory (note 10) 731 891
  Tangible capital assets (note 11) 359,719 331,738
Total non-financial assets 361,353 334,767
Departmental net financial position (note 12) 198,302 173,637

Contractual obligations and contractual rights (note 13)
Contingent liabilities and contingent assets (note 14)

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

Original signed by Philip Jennings for:

____________________________
Christyne Tremblay
Deputy Minister

September 4, 2018
Ottawa, Canada

Original signed by Grace Chennette for:

___________________________
Cheri Crosby
Chief Financial Officer

August 24, 2018
Ottawa, Canada

Natural Resources Canada
Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31
(in thousands of dollars)
  2018
Planned
Results
2018 2017
Expenses
  Statutory Programs - Atlantic Offshore 406,532 524,861 469,166
  Energy-efficient Practices and Lower-carbon Energy Sources 182,890 238,747 175,128
  Technology Innovation 245,464 238,708 150,052
  Innovation for New Products and Processes 111,339 119,529 98,369
  Investment in Natural Resource Sectors 77,794 76,675 72,747
  Protection for Canadians and Natural Resources 73,333 73,523 69,596
  Market Access and Diversification 60,484 70,541 56,242
  Landmass Information 61,775 63,671 72,109
  Responsible Natural Resource Management 31,599 33,255 34,218
  Internal Services 159,101 168,146 152,330
Total expenses 1,410,311 1,607,656 1,349,957
Revenues
  Rights and privileges 291,448 522,744 433,032
  Other, such as revenue pursuant to agreements 226,345 225,733 178,646
  Revenue from services of a non-regulatory nature 24,157 19,874 23,637
  Proceeds from sales of goods and information products 1,606 2,098 3,635
  Revenue from services of a regulatory nature 5,344 1,931 2,072
  Services to other government departments 160 125 140
  Revenues earned on behalf of Government (510,595) (747,431) (611,752)
Total net revenues 38,465 25,074 29,410
Net cost of operations before government funding and transfers 1,371,846 1,582,582 1,320,547
Government funding and transfers
  Net cash provided by Government of Canada   1,164,649 1,364,147
  Change in due from (to) Consolidated Revenue Fund   393,923 (14,415)
  Services provided without charge by other government departments (note 15a)   48,668 46,549
  Transfer of the transition payments for implementing salary payments in arrears   (5) (4)
  Transfers of capital assets from other government departments   - 38
  Other transfers of assets from other government departments   12 -
Net revenue of operations after government funding and transfers   (24,665) (75,768)
Departmental net financial position - Beginning of year   173,637 97,869
Departmental net financial position - End of year   198,302 173,637

Segmented information (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)
  2018 2017
Net revenue of operations after government funding and transfers (24,665) (75,768)
Change due to tangible capital assets
  Acquisition of tangible capital assets (note 11) 51,409 83,742
  Amortization of tangible capital assets (note 11) (23,996) (21,657)
  Proceeds from disposal of tangible capital assets (209) (254)
  Net gain (loss) on disposal of tangible capital assets, including adjustments 777 (131)
  Transfers of capital assets from other government departments - 38
Total change due to tangible capital assets 27,981 61,738
Change due to inventories (160) 8
Change due to prepayment (1,235) 633
Net increase (decrease) in departmental net debt 1,921 (13,389)
Departmental net debt - Beginning of year 161,130 174,519
Departmental net debt - End of year 163,051 161,130

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)
  2018 2017
Operating activities
Net cost of operations before government funding and transfers: 1,582,582 1,320,547
Non-cash items:
  Amortization of tangible capital assets (note 11) (23,996) (21,657)
  Net gain (loss) on disposal of tangible capital assets, including adjustments 777 (131)
  Services provided without charge by other government departments (note 15a) (48,668) (46,549)
  Transition payments for implementing salary payments in arrears 5 4
  Other transfers of assets from other government of departments (12) -
 Variations in Statement of Financial Position:
  (Decrease) increase in net accounts receivable and advances (1,247) 1,298
  (Decrease) increase in prepayments (1,235) 633
  (Decrease) increase in inventory (160) 8
  (Increase) decrease in accounts payable and accrued liabilities (393,806) 29,025
  Increase in vacation pay and compensatory leave (405) (977)
  (Increase) decrease in deferred revenue (63) 96
  (Increase) decrease in employee future benefits (1,166) 6,186
  Decrease (increase) in environmental liabilities 3,152 (294)
  Increase in other liabilities (5,550) (1,829)
Cash used in operating activities 1,110,208 1,286,360
Capital investing activities
  Acquisitions of tangible capital assets (note 11) 51,409 75,355
  Proceeds from disposal of tangible capital assets (209) (254)
Cash used in capital investing activities 51,200 75,101
Financing activities
  Lease obligation for tangible capital assets (1,131) (1,770)
  Lease payments for tangible capital assets 4,372 4,456
Cash used in financing activities 3,241 2,686
Net cash provided by Government of Canada 1,164,649 1,364,147

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, 2018
(in thousands of dollars)

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:

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 and Labrador Offshore Petroleum Board; Payments to the Newfoundland and Labrador 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 energy 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 objective of this Program is to address these barriers by encouraging and enabling energy consumers and producers to adopt cleaner and more energy efficient technologies, products, services and practices. This objective is 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.

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.

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.

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 and public confidence. 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.

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.

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 responsibly. These objectives are achieved through the provision of assessments and knowledge rooted in sound science.

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:

  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 2017-18 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 2017-18 Departmental Plan.
     
  2. Consolidation – These consolidated financial statements include the accounts of the sub-entities for which the Deputy Minister 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 of Canada – 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.
     
  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 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, 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 as a reduction of the Department’s gross revenues.
  1. 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.
       
  2. 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.
     
  3. 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.
       
  4. Accounts receivables and advances are initially recorded at cost. An allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.
     
  5. 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 describe in Note 11. 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. 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.
       
  6. Contingent liabilities – Contingent liabilities, including the allowance for loan guarantees and 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.
     
  7. 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 even is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the consolidated financial statements.
     
  8. 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 note 17 in other operating expenses according to the activities to which they relate.
     
  9. 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.
     
  10. 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
  2018 2017
(in thousands of dollars)
Net cost of operations before government funding and transfers 1,582,582 1,320,547
Adjustments for items affecting net cost of operations but not affecting authorities:
  Amortization of tangible capital assets (23,996) (21,657)
  Net gain (loss) on disposal of tangible capital assets, including adjustments 777 (131)
  Services provided without charge by other government departments (48,668) (46,549)
  (Decrease) increase in prepayments (1,235) 633
  (Decrease) increase in inventory (160) 8
  Decrease in accrued liabilities 3,202 18,611
  Increase in vacation pay and compensatory leave (405) (977)
  (Increase) decrease in employee future benefits (1,166) 6,186
  Decrease (increase) in environmental liabilities 3,152 (294)
  Refunds of prior years’ expenditures 672 4,780
  Expenses restricted under the Environmental Studies Research Fund (4,005) (3,723)
  Other adjustments 847 2,520
  Total items affecting net cost of operations but not affecting authorities (70,985) (40,593)
Adjustments for items not affecting net cost of operations but affecting authorities:
  Acquisitions of tangible capital assets 51,409 75,355
  Decrease in lease obligation for tangible capital assets, excluding capital lease adjustment due to an amendment 3,241 2,686
  Transition payments for implementing salary payments in arrears 5 4
  Total items not affecting net cost of operations but affecting authorities 54,655 78,045
Current year authorities used 1,566,252 1,357,999
 
b) Authorities provided and used
  2018 2017
(in thousands of dollars)
Authorities Provided:
  Vote 1 – Operating expenditures 570,836 565,245
  Vote 5 – Capital expenditures 69,182 87,738
  Vote 10 – Grants and contributions 413,911 287,577
  Statutory amounts 585,238 534,414
Less:
  Authorities available for future years (7,722) (7,551)
  Lapsed – Operating expenditures (14,203) (43,239)
  Lapsed – Capital expenditures (18,162) (12,678)
  Lapsed – Grants and contributions (32,828) (53,507)
Current year authorities used 1,566,252 1,357,999

4. Accounts payable and accrued liabilities

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

  2018 2017
(in thousands of dollars)
Accounts payable – Other government departments and agencies 10,978 8,226
Accounts payable – External parties 171,454 115,859
Total accounts payable 182,432 124,085
Accrued liabilities 486,216 150,757
Total accounts payable and accrued liabilities 668,648 274,842

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 (9 sites in 2017) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 7 sites (8 sites in 2017) where action is required and for which a gross liability of $608 thousand ($3,760 thousand in 2017) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

In addition, there is 1 site that have not been assessed by environmental experts (1 site in 2017) for which the department has estimated and recorded a liability of $1,148 thousand ($1,148 thousand in 2017).

These two estimates combined, totaling $1,756 thousand ($4,908 thousand in 2017), 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 (0 sites in 2017), 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 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, 2018, and March 31, 2017. 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 1.9% (2% in 2017). 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 2018 rates range from 1.63% for a 1 year term to 2.16% for a 13 year term.

Nature and Source 2018 2017
Total Number of Sites Number of Sites with a liability Estimated Liability
(in thousands of dollars)
Estimated Total Undiscounted Expenditures
(in thousands of dollars)
Estimated Recoveries
(in thousands of dollars)
Total Number of Sites Number of Sites with a liability Estimated Liability
(in thousands of dollars)
Estimated Total Undiscounted Expenditures
(in thousands of dollars)
Estimated Recoveries
(in thousands of dollars)
Fuel Related Practices(1) 1 1 1,148 1,148 - 1 1 1,148 1,148 -
Office/
Commercial/
Industrial Operations(2)
10 7 608 776 - 8 8 3,760 3,925 -
Total 11 8 1,756 1,924 - 9 9 4,908 5,073 -

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, 2018 ($95,993  thousand in 2017) and accumulated amortization of $26,965 thousand as at March 31, 2018 ($23,021 thousand in 2017). Interest on this obligation of $1,131 thousand ($1,770 thousand in 2017) 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 obligation related to the upcoming years includes the following:

  2018
(in thousands of dollars)
2019 4,372
2020 4,372
2021 4,372
2022 4,372
2023 4,372
2024 and thereafter 55,158
Total future minimum lease payments 77,018
Less: imputed interest (1.65%) 10,223
Lease obligation for tangible capital assets 66,795

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 2018 expense amounts to $36,035 thousand ($35,764 thousand in 2017). For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2017) the employee contributions and, for Group 2 members, approximately 1.00 times (1.08 times in 2017) 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, 2018, 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:

  2018 2017
 (in thousands of dollars)
Accrued benefit obligation - Beginning of year 17,251 23,437
Expense for the year 2,471 (3,078)
Benefits paid during the year (1,305) (3,108)
Accrued benefit obligation - End of year  18,417 17,251

8. Other liabilities

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

  2018 2017
(in thousands of dollars)
Contractor security deposits - Cash 36 36
Guarantee deposits - Oil and gas 13,805 9,925
Shared costs projects 1,587 288
Market development and incentive payments – Alberta 752 1,556
Shared costs agreements – Research 5,786 4,611
Total other liabilities 21,966 16,416

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 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 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 2009-10, 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. It is anticipated that all remaining funds will be spent by March 31, 2019.

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 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:

  2018 2017
(in thousands of dollars)
Receivables - Other government departments and agencies 8,080 9,139
Receivables - External parties 330,787 57,495
Employee advances 530 738
Subtotal 339,397 67,372
Allowance for doubtful accounts on receivables from external parties (323) (479)
Gross accounts receivable and advances 339,074 66,893
Accounts receivable held on behalf of Government (337,601) (64,173)
Net accounts receivable and advances 1,473 2,720

10.  Inventory

The following table presents details of the inventory:

  2018 2017
(in thousands of dollars)
Inventories held for consumption 681 843
Inventories held for re-sale 50 48
Total inventory 731 891

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $235 thousand in 2018 ($177 thousand in 2017).

11.  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 and are amortized in the year they are put into service and are not amortized until they are put into service.

Capital asset class Cost Accumulated amortization Net book value
Opening balance Acquisitions Adjustments(1) Disposals and write-offs Closing balance Opening balance Amortization Adjustments Disposals and write-offs Closing balance 2018 2017
(in thousands of dollars)
Land 7,800 - - - 7,800 - - - - - 7,800 7,800
Buildings 204,252 - 40,962 - 245,214 136,280 4,233 1,681 - 142,194 103,020 67,972
Works and Infrastructure - - 4,285 - 4,285 - 131 - - 131 4,154 -
Machinery and equipment 255,970 8,455 3,112 3,143 264,394 187,399 12,556 742 3,041 197,656 66,738 68,571
Vehicles 8,930 525 (4) 377 9,074 6,995 469 - 361 7,103 1,971 1,935
Leasehold improvements 49,817 - 2,795 - 52,612 13,842 2,663 (11) - 16,494 36,118 35,975
Leased tangible capital assets 95,993 - - - 95,993 23,021 3,944 - - 26,965 69,028 72,972
Assets under construction 76,513 42,429 (48,052) - 70,890 - - - - - 70,890 76,513
Total 699,275 51,409 3,098 3,520 750,262 367,537 23,996 2,412 3,402 390,543 359,719 331,738

(1) Adjustments include assets under construction of $47,959 thousand that were transferred to the other categories upon completion of the assets.

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 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.

  2018 2017
(in thousands of dollars)
Environmental Studies Research Fund - Restricted
  Balance - Beginning of year 5,563 3,247
  Revenues 3,079 6,039
  Expenses (4,005) (3,723)
  Balance - End of year 4,637 5,563
Nuclear Liability Account - Restricted
  Balance – Beginning of year 4,025 -
  Transfer from Canadian Nuclear Safety Commission (Note 16) - 4,025
  Revenues 274 -
  Expenses - -
  Balance – End of year 4,299 4,025
Subtotal - Restricted 8,936 9,588
Unrestricted 189,366 164,049
Departmental net financial position - End of year 198,302 173,637

13. Contractual obligations and contractual rights

  1. 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:
      2019 2020 2021 2022 2023 Total
    (in thousands of dollars)
    Transfer Payments to International Organizations 1,186 - - - - 1,186
    Other Transfer Payments 168,054 99,395 66,617 638 645 335,349
    Total 169,240 99,395 66,617 638 645 336,535
  2. 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 Net Profits Interest Agreement (NPI) and the Loan Guarantee Agreements. The NPI grants Canada the right to receive 10% of net profits from oil and gas produced from the Hibernia Development Project and which has earned $3 billion as at March 31, 2018. Outstanding contractual rights for subsequent fiscal years are not estimable. In addition, 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:
      2019 2020 2021 2022 2023 2024 and subsequent Total
    (in thousand of dollars)
    Loan Guarantee Fees 14,500 14,500 14,500 14,424 14,195 268,283 340,402
    Total 14,500 14,500 14,500 14,424 14,195 268,283 340,402

14. Contingent liabilities and contingent assets

  1. 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:
     
    1. 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 thousand in 2018 ($3,300 thousand in 2017). 
       
    2. Loan guarantees:
        Authorized Limit Outstanding guarantees
      2018 2017
      (in thousands of dollars)
      Lower Churchill Hydroelectric Projects 9,200,000 7,800,750 5,396,676

      The Government of Canada provided loan guarantee support for the construction of the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ((a) Muskrat Falls and Labrador Transmission Assets and (b) Labrador-Island Link) and one project sponsored by Emera Inc. (Maritime Link). In December 2013, the financing was completed for the Nalcor-led projects, raising $5 billion of guaranteed debt in the form of a bond financing. These bonds have a life varying from about 15 years to 40 years. In April 2014, the bond financing was completed for the Maritime Link, raising $1.3 billion of guaranteed debt for a life of about 39 y 39 years.

      Further to the November 2016 announcement, 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 $2.9 billion 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 bonds that were issued under both the original guarantees and the additional guarantees, initially, only interest payments are being made on the guaranteed debt. The commencement of principal payments on the guaranteed debt has been scheduled to begin shortly after 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 interests, all of the project entities’ shares, assets and agreements have been pledged as security to Canada.

      The Maritime Link project has successfully completed all construction activities and was commissioned on February 9, 2018. As per the terms of the loan guarantee agreements, principal repayments will begin on December 1, 2020. These principal and interest payments will be made on a semi-annual basis until maturity date of December 1, 2052. As of March 31, 2018, $7,800,750 thousand ($5,396,676 thousand in 2017) of guaranteed debt has been released to the project entities.

      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.
       
    3. 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, an amount to be phased in over four years with $650 million applying in 2017, $750 million in 2018, $850 million in 2019 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 16 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 $750 million liability amount prescribed in the NLCA in 2018.  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, 2018 is $4,299 thousand ($4,025 thousand in 2017). 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.
       
  2. 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, 2018 ($1,200 thousand in 2017).

15. 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:

  2018 2017
(in thousands of dollars)
Employer’s contribution to the health and dental insurance plans 31,698 29,171
Accommodation 16,772 17,167
Workers' compensation 198 211
Total common services provided without charge 48,668 46,549

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 Memorandum of Understandings with other government departments for the administration of their programs. The Department issued approximately $17,211 thousand ($16,814 thousand in 2017) 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:

  2018 2017
(in thousands of dollars)
Expenses 127,371 141,249
Revenues 5,972 6,062

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

16. 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.

17. Segmented information

Presentation by segment is based on the Department programs. 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 programs, 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 Protection for Canadians and Natural Resources Market Access and Diversifi-cation Landmass Information Responsible Natural Resource Management Internal Services 2018 Total 2017 Total
Transfer payments
  Industry - 120,754 89,625 35,519 50 22 28 - 15 - 246,013 164,495
  International - 868 627 10 16 215 1,108 - - - 2,844 1,574
  Non-profit organization - 65,487 9,234 27,547 1,569 844 12,945 50 - - 117,676 62,574
  Other levels of government 524,861 1,636 2,893 118 - 104 1,430 - - - 531,042 471,915
  Individuals - 10 - 1,038 - 41 4,795 - - - 5,884 682
Total transfer payments 524,861 188,755 102,379 64,232 1,635 1,226 20,306 50 15 - 903,459 701,240
Operating expenses
  Salaries and employee benefits - 32,053 87,585 38,221 49,999 53,589 37,048 43,290 25,332 103,267 470,384 420,654
  Environmental expenses - - - - - - - - - (3,152) (3,152) 293
  Information - 928 1,088 355 966 442 809 113 216 3,581 8,498 10,392
  Professional and special services - 13,462 16,730 8,962 11,085 6,286 6,226 7,238 3,133 27,592 100,714 84,166
  Rentals - 1,395 6,625 1,557 4,951 2,577 1,596 3,214 1,100 1,705 24,720 36,055
  Transportation - 500 1,974 1,173 2,143 2,540 2,373 2,943 909 3,633 18,188 14,302
  Utilities, material and supplies - 367 10,271 2,586 1,985 2,758 587 3,821 1,316 2,290 25,981 25,543
  Purchased repairs and upkeep - 73 2,156 482 1,526 386 51 362 698 829 6,563 8,522
  Acquisitions of non-capital assets - 744 4,124 674 1,259 1,643 459 1,999 419 4,356 15,677 14,974
  Amortization - - - - - - - - - 23,995 23,995 21,657
  Other - 470 5,776 1,287 1,126 2,076 1,086 641 117 50 12,629 12,159
Total operating expenses - 49,992 136,329 55,297 75,040 72,297 50,235 63,621 33,240 168,146 704,197 648,717
Total expenses  524,861 238,747 238,708 119,529 76,675 73,523 70,541 63,671 33,255 168,146 1,607,656 1,349,957
Revenues
  Rights and privileges 520,787 - - 103 - 1,703 126 2 23 - 522,744 433,032
  Other, such as revenue pursuant to agreements 1,265 2 4,060 34 14 414 218,322 515 53 1,054 225,733 178,646
  Revenue from services of a non-regulatory nature - - 11,901 918 38 3,247 88 3,609 73 - 19,874 23,637
  Proceeds from sales of goods and information products - - 1 1,031 - 537 - 529 - - 2,098 3,635
  Revenue from services of a regulatory nature - - - - - 1,931 - - - - 1,931 2,072
  Services to other government departments - - - - - - - - - 125 125 140
  Revenues earned on behalf of Government (522,052) (2) (4,565) (253) (14) (1,033) (218,417) - (29) (1,066) (747,431) (611,752)
Total net revenues - - 11,397 1,833 38 6,799 119 4,655 120 113 25,074 29,410
Net cost of operations 524,861 238,747 227,311 117,696 76,637 66,724 70,422 59,016 33,135 168,033 1,582,582 1,320,547

18. 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 2017-18 (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, assessment results and the departmental action plan.

Detailed information on NRCan’s authority, mandate, and program activities is described in the 2017-18 Departmental Results Report and the 2018-19 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 (DM), is in place, which:

  • establishes accountability structures as they relate to internal control management, including roles and responsibilities of senior management, process owners and all NRCan employees;
  • emphasizes the importance of entity level controls such as NRCan’s Values and Ethics Code, as well as the need for ongoing communication and training to support the overall functioning of the system of internal control; and
  • establishes the reporting frequency on the management of internal controls to those in charge of governance and oversight (i.e. Chief Financial Officer (CFO), DM and the Departmental Audit Committee (DAC)).

A dedicated unit under the direction of the CFO, with a primary focus on maintaining a risk-based system of ICFR, is also in place.

The DAC provides advice and recommendations to the DM on the adequacy and functioning of NRCan’s risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

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

Common service arrangements

  • Public Services and Procurement Canada centrally administers the payment of  salaries and the procurement of goods and services in accordance with NRCan’s Delegation of Authority, and provides pay administration services through the Public Service Pay Center and accommodation services;
  • The Treasury Board of Canada Secretariat provides services related to public sector insurance for NRCan employees and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans (i.e., the Public Service Pension Plan, Employment Insurance Plan, Canada Pension Plan, Quebec Pension Plan and Public Service Supplementary Death Benefit Plan) on behalf of NRCan;
  • Justice Canada provides legal services to NRCan; and
  • Shared Services Canada provides information technology (IT) infrastructure services to NRCan in the areas of data centre and network services. The scope and responsibilities are addressed in the interdepartmental arrangement between Shared Services Canada and NRCan.

Specific arrangements

  • Agriculture and Agri-Food Canada provides NRCan with operating, maintenance, and development services for the integrated financial and material management system (SAP Solution).
  • NRCan provides internal services, including human resources management, financial management, information management, information technology, acquisitions, management of real property and material to the Northern Pipeline Agency.

Information on the overall effectiveness of the system of ICFR for these service providers is contained within their respective Annex.

3. Departmental assessment results during fiscal year 2017-18

Table 1 summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s ongoing monitoring plan.

Table 1 - Progress during fiscal year 2017-18
Previous year’s rotational ongoing monitoring plan for current year Status
Financial close and reporting : Operating effectiveness testing Deferred until 2018-19.
Payroll and benefits: Design and operating effectiveness testingFootnote 1 Completed. Corrective actions underway.
Capital assets: Operating effectiveness testing
Entity-level controls: Operating effectiveness testing
Follow-up assessment on implementation of outstanding corrective actions Completed. Outstanding corrective actions have been substantially implemented.

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

New or significantly amended key controls 

With the introduction of the Treasury Board of Canada Secretariat Guideline on Financial Management of Pay Administration this year, NRCan reviewed its key controls over payroll and benefits process against the internal control framework for a fully serviced pay administration model and assessed their effectiveness accordingly.

Ongoing monitoring program

As part of its rotational ongoing monitoring plan, NRCan reassessed its key controls over payroll and benefits and capital assets, as well as its entity level controls for information systems and communication, and monitoring components.

In general, key controls were assessed as effective with the following areas of improvement:

Payroll and benefits

  • Strengthen post payment verification controls.
  • Align financial and human resources delegation instruments, where applicable.

Capital assets

  • Maintain asset records in a timely manner.
  • Expand accounting guidance for the capitalization of salaries and benefits for assets under construction.

Entity level controls – Information systems and communication, and monitoring

  • Strengthen risk assessment for business processes and transactions for key control areas.
  • Update financial management policy instruments on a timely basis.

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

Table 2 illustrates NRCan’s risk-based ongoing monitoring plan over the next three years. The plan is reviewed each year to the take into account process changes and new risks.

Table 2 - Rotational ongoing monitoring plan
Key Control Areas 2018-19 2019-20 2020-21
Financial close and reporting Yes No No
Repayable contributions Yes No No
Grants and contributions (standard) Yes No No
Operating expenditures No No Yes
Payroll and benefits No No Yes
Capital assets No No No
Entity level controls No No No
Revenues and accounts receivable Yes No No
IT general controls under departmental management No Yes No
Environmental liabilities No No Yes
Offshore royalty revenues/statutory transfers Yes No No
Contingent liabilities No No Yes
Budgeting and forecasting (planning) No Yes No
Investment planning No Yes No
Costing Yes No No
Cabinet document submissions (including CFO Attestation ) No Yes No
Follow-up assessment on implementation of outstanding corrective actions Yes Yes Yes
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