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NRCan 2019-2020 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, 2020, 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, 2020 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

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

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

Original signed by
Jean-François Tremblay
Deputy Minister

September 30, 2020
Ottawa, Canada

Original signed by
Linda Hurdle
Chief Financial Officer

September 28, 2020
Ottawa, Canada

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

(in thousands of dollars)
  2020 2019
Liabilities
Accounts payable and accrued liabilities (Note 4)
408,499 1,407,060
Vacation pay and compensatory leave
31,971 24,502
Deferred revenue
808 66
Environmental liabilities (Note 5)
1,867 1,801
Lease obligation for tangible capital assets (Note 6)
60,151 63,500
Employee future benefits (Note 7)
17,245 16,791
Other liabilities (Note 8)
20,062 23,269
Total liabilities 540,603 1,536,989
Financial assets
Due from Consolidated Revenue Fund
417,688 419,185
Accounts receivable and advances (Note 9)
48,739 78,472
Total gross financial assets 466,427 497,657
Financial assets held on behalf of Government
Accounts receivable and advances (Note 9)
(25,828) (60,162)
Total financial assets held on behalf of Government (25,828) (60,162)
Total net financial assets 440,599 437,495
Departmental net debt 100,004 1,099,494
Non-financial assets
Prepayments
1,374 1,352
Inventory (Note 10)
427 736
Tangible capital assets (Note 11)
344,736 358,216
Total non-financial assets 346,537 360,304
Departmental net financial position (Note 12) 246,533 (739,190)

Table note:

 

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
Jean-François Tremblay
Deputy Minister

September 30, 2020
Ottawa, Canada

Original signed by
Linda Hurdle
Chief Financial Officer

September 28, 2020
Ottawa, Canada

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

(in thousands of dollars)
  2020
Planned Results
2020 2019
Expenses
Innovative and Sustainable Natural Resources Development
633,799 588,672 1,467,722
Globally Competitive Natural Resource Sectors
575,448 551,220 590,224
Natural Resource Science and Risk Mitigation
239,230 242,677 232,109
Internal services
134,343 159,540 150,755
Total expenses 1,582,820 1,542,109 2,440,810
Revenues
Rights and privileges
276,983 348,773 337,935
Other, such as revenue pursuant to agreements
287,250 114,840 322,381
Revenue from services of a non-regulatory nature
21,879 19,052 18,508
Proceeds from sales of goods and information products
1,488 1,297 1,363
Revenue from services of a regulatory nature
6,910 1,798 1,669
Services to other government departments
188 159 129
Revenues earned on behalf of Government
(556,421) (458,313) (654,441)
Total net revenues 38,277 27,606 27,544
Net cost of operations before government funding and transfers 1,544,543 1,514,503 2,413,266
Government funding and transfers
Net cash provided by Government of Canada
  2,449,812 1,646,611
Change in due from Consolidated Revenue Fund
  (1,497) (216,674)
Services provided without charge by other government departments (Note 15a)
  51,821 45,896
Transfer of the transition payments for implementing salary payments in arrears
  - (18)
Transfers of capital assets from/(to) other government departments
  40 (24)
Other transfers of assets from/(to) from other government departments
  50 (17)
Total government funding and transfers   2,500,226 1,475,774
Net (revenue) cost of operations after government funding and transfers   (985,723) 937,492
Departmental net financial position - Beginning of year   (739,190) 198,302
Departmental net financial position - End of year   246,533 (739,190)

Table note:

 

Segmented information (Note 16)

 

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

(in thousands of dollars)
  2020 2019
Net (revenue) cost of operations after government funding and transfers (985,723) 937,492
Change due to tangible capital assets
Acquisition of tangible capital assets (Note 11)
16,155 25,980
Amortization of tangible capital assets (Note 11)
(28,818) (26,602)
Proceeds from disposal of tangible capital assets
(182) (160)
Net loss on disposal of tangible capital assets including adjustments
(675) (697)
Transfers of capital assets from/(to) other government departments
40 (24)
Total change due to tangible capital assets (13,480) (1,503)
Change due to inventory (309) 5
Change due to prepayment 22 449
Net (decrease) increase in departmental net debt (999,490) 936,443
Departmental net debt - Beginning of year 1,099,494 163,051
Departmental net debt - End of year 100,004 1,099,494


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

(in thousands of dollars)
  2020 2019
Operating activities
Net cost of operations before government funding and transfers 1,514,503 2,413,266
Non-cash items:
Amortization of tangible capital assets (Note 11)
(28,818) (26,602)
Net loss on disposal of tangible capital assets, including adjustments
(675) (697)
Services provided without charge by other government departments (Note 15a)
(51,821) (45,896)
Transition payments for implementing salary payments in arrears
- 18
Other transfers of assets (from)/to other government departments
(50) 17
Variations in Statement of Financial Position:
Increase in accounts receivable and advances
4,601 16,837
Increase in prepayments
22 449
(Decrease) increase in inventory
(309) 5
Decrease (increase) in accounts payable and accrued liabilities
998,561 (738,412)
Increase in vacation pay and compensatory leave
(7,469) (1,842)
(Increase) decrease in deferred revenue
(742) 75
(Increase) decrease in employee future benefits
(454) 1,626
Increase in environmental liabilities
(66) (45)
Decrease (increase) in other liabilities
3,207 (1,303)
Cash used in operating activities 2,430,490 1,617,496
Capital investing activities
Acquisitions of tangible capital assets (Note 11)
16,155 25,980
Proceeds from disposal of tangible capital assets
(182) (160)
Cash used in capital investing activities 15,973 25,820
Financing activities
Payments on lease obligations for tangible capital assets
3,349 3,295
Cash used in financing activities 3,349 3,295
Net cash provided by Government of Canada 2,449,812 1,646,611


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

  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 Core Responsibilities:

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

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

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

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

  2. Summary of significant accounting policies

    These consolidated financial statements are prepared using the Department’s accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

    Significant accounting policies are as follows:

    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 2019-2020 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 2019-2020 Departmental Plan.

    2. Consolidation

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

    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 of Canada.

    4. Amounts due from or to the CRF

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

    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, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the Department’s gross revenues.
    6. 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.
    7. 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.

    8. 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.
    9. Accounts receivable

      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.

    10. Non-financial assets

      1. Prepayments are disbursements made before the completion of the work, delivery of the goods or rendering of the services. They are accounted for as non-financial assets until the related services are rendered, goods are consumed, or terms of the contractual agreement are fulfilled.
      2. Inventory:
        • Inventory held for consumption consists of parts, materials and supplies held for future program delivery. It is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.
        • Inventory held for resale consists of maps, which is valued at the lower of cost or net realizable value, with cost being determined using the weighted average cost of each title.
      3. Tangible capital assets – The cost of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 11. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection, insect collection, and Crown land to which no acquisition cost is attributable; and intangible assets.
    11. Contingent liabilities

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

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

    12. Contingent assets

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

    13. 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 16 in other operating expenses according to the activities to which they relate.

    14. 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.

    15. 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:

    1. Reconciliation of net cost of operations to current year authorities used

      (in thousands of dollars)
        2020 2019
      Net cost of operations before government funding and transfers 1,514,503 2,413,266
      Adjustments for items affecting net cost of operations but not affecting authorities:
      Amortization of tangible capital assets
      (28,818) (26,602)
      Net loss on disposal of tangible capital assets including adjustments
      (675) (697)
      Services provided without charge by other government departments
      (51,821) (45,896)
      Increase in prepayments
      22 449
      (Decrease) increase in inventory
      (309) 5
      Decrease (increase) in accrued liabilities
      56,919 (23,184)
      Increase in vacation pay and compensatory leave
      (7,469) (1,842)
      (Increase) decrease in employee future benefits
      (454) 1,626
      Increase in environmental liabilities
      (66) (45)
      Refund of prior years' expenditures
      672 1,012
      Revenues and expenses for restricted accounts
      284 1,238
      Year-end accrual — pending Budget Implementation Act
      950,000 (950,000)
      Other adjustments
      2,499 4,345
      Total items affecting net cost of operations but not affecting authorities 920,784 (1,039,591)
      Adjustments for items not affecting net cost of operations but affecting authorities:
      Acquisitions of tangible capital assets
      16,155 25,980
      Decrease in lease obligation for tangible capital assets
      3,349 3,295
      Transition payments for implementing salary payments in arrears
      - 18
      Total items not affecting net cost of operations but affecting authorities 19,504 29,293
      Current year authorities used 2,454,791 1,402,968
    2. Authorities provided and used

      (in thousands of dollars)
        2020 2019
      Authorities Provided:
      Vote 1 – Program expenditures
      622,683 592,381
      Vote 5 – Capital expenditures
      17,143 32,072
      Vote 10 – Grants and contributions
      522,629 437,573
      Vote 15 – Encouraging Canadians to use Zero Emission Vehicles
      131 -
      Vote 20 – Engaging Indigenous communities in Major Resource Projects
      717 -
      Vote 25 – Ensuring Better Disaster Management Preparation and Response
      3,270 -
      Vote 35 – Protecting Canada’s Critical Infrastructure from Cyber Threats
      809 -
      Statutory amounts
      1,420,120 468,230
      Less:
      Authorities available for future years
      (6,289) (6,267)
      Lapsed – Operating expenditures
      (13,357) (9,710)
      Lapsed – Capital expenditures
      (1,107) (6,784)
      Lapsed – Grants and contributions
      (107,031) (104,527)
      Lapsed – Budget Implementation
      (4,927) -
      Current year authorities used 2,454,791 1,402,968
  4. Accounts payable and accrued liabilities

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

    (in thousands of dollars)
      2020 2019
    Accounts payable – Other government departments and agencies 8,141 13,810
    Accounts payable – External parties 176,353 146,532
    Total accounts payable 184,494 160,342
    Year-end accrual – pending Budget Implementation Act Footnote 1 - 950,000
    Accrued liabilities 224,005 296,718
    Total accounts payable and accrued liabilities 408,499 1,407,060
  5. Environmental liabilities

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

    The Department has identified 11 sites (11 sites in 2019) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 7 sites (7 sites in 2019) where action is required and for which a gross liability of $719 thousand ($653 thousand in 2019) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

    There is 1 site that has not been assessed by environmental experts (1 site in 2019) for which the department has estimated and recorded a liability of $1,148 thousand ($1,148 thousand in 2019).

    These two estimates combined, totaling $1,867 ($1,801 in 2019) represents management’s best estimate of the costs required to remediate sites to the current minimum standard for its use prior to contamination, based on information available at the consolidated financial statement date.

    For the remaining 3 sites (3 sites in 2019), no liability for remediation has been recognized. These sites are at early stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined.

    The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2020, and March 31, 2019. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast Consumer Price Index (CPI) rate of 2.0% (2.2% in 2019). 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 2020 rates range from 0.64% for a 7 year term to 0.86% for a 11 year term.

      (in thousands of dollars)
    Nature and Source Total Number of Sites 2020 Number of Sites with a liability 2020 Estimated Liability 2020 Estimated Total Undiscounted Expenditures 2020 Estimated Recoveries 2020
    Fuel Related Practices1 1 1 1,148 1,148 -
    Office/
    Commercial/
    Industrial Operations2
    10 7 719 729 -
    Totals 11 8 1,867 1,877 -
      (in thousands of dollars)
    Nature and Source Total Number of Sites 2019 Number of Sites with a liability 2019 Estimated Liability 2019 Estimated Total Undiscounted Expenditures 2019 Estimated Recoveries 2019
    Fuel Related Practices 1 1 1 1,148 1,148 -
    Office/Commercial/Industrial Operations 2 10 7 653 784 -
    Totals 11 8 1,801 1,932 -
  6. Lease obligations 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, 2020 ($95,993 thousand in 2019) and accumulated amortization of $34,853 thousand as at March 31, 2020 ($30,909 thousand in 2019). Interest on this obligation of $1,022 thousand ($1,077 thousand in 2019) is reported in the Consolidated Statement of Operations and Departmental Net Financial Position as part of Innovative and Sustainable Natural Resources Development expenses. The obligation related to the upcoming years includes the following:

    (in thousands of dollars)
      2020
    2021 4,372
    2022 4,372
    2023 4,372
    2024 4,372
    2025 4,372
    2026 and subsequent 46,415
    Total future minimum lease payments 68,275
    Less: imputed interest (1.65%) 8,124
    Lease obligation for tangible capital assets 60,151
  7. Employee future benefits

    1. 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 2020 expense amounts to $42,139 thousand ($37,916 thousand in 2019). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2019) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2019) 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.

    2. 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, 2020, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities. The change in the obligation during the year is as follows:

      (in thousands of dollars)
        2020 2019
      Accrued benefit obligation - Beginning of year 16,791 18,417
      Expense for the year 3,000 1,686
      Benefits paid during the year (2,546) (3,312)
      Accrued benefit obligation - End of year 17,245 16,791
  8. Other liabilities

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

    (in thousands of dollars)
      2020 2019
    Contractor security deposits – Cash 13 17
    Guarantee deposits – Oil and gas 13,511 15,438
    Shared costs projects 377 1,454
    Market development and incentive payments – Alberta 207 558
    Shared costs agreements – Research 5,954 5,802
    Total other liabilities 20,062 23,269

    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, 2021.

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

  9. Accounts receivable and advances

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

    (in thousands of dollars)
      2020 2019
    Receivables – Other government departments and agencies 10,220 11,062
    Receivables – External parties 37,938 66,760
    Employee advances 841 790
    Subtotal 48,999 78,612
    Allowance for doubtful accounts on receivables from external parties (260) (140)
    Gross accounts receivable and advances 48,739 78,472
    Accounts receivable held on behalf of Government (25,828) (60,162)
    Net accounts receivable and advances 22,911 18,310
  10. Inventory

    The following table presents details of the inventory:

    (in thousands of dollars)
      2020 2019
    Inventories held for consumption 379 687
    Inventories held for re-sale 48 49
    Total inventory 427 736

    The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $395 thousand in 2020 ($115 thousand in 2019).

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

    Cost

    (in thousands of dollars)
      Opening Balance Acquisitions Adjustments1 Disposals and Write-offs Closing Balance
    Capital asset class
    Land
    7,800 - - - 7,800
    Buildings
    285,750 - 15,607 16 301,341
    Works and Infrastructure
    5,261 - 5,140 - 10,401
    Machinery and equipment
    276,171 4,698 426 12,977 268,318
    Vehicles
    9,930 406 1,205 416 11,125
    Leasehold improvements
    68,161 - 925 - 69,086
    Leased tangible capital assets
    95,993 - - - 95,993
    Assets under construction
    24,646 11,051 (22,972) 600 12,125
    Total 773,712 16,155 331 14,009 776,189

    Accumulated Amortization

    (in thousands of dollars)
      Opening Balance Amortization Adjustments1 Disposals and Write-offs Closing Balance
    Capital asset class
    Buildings
    147,274 6,548 9 14 153,817
    Works and Infrastructure
    290 258 - - 548
    Machinery and equipment
    208,916 12,957 147 12,605 209,415
    Vehicles
    7,544 495 - 398 7,641
    Leasehold improvements
    20,563 4,616 - - 25,179
    Leased tangible capital assets
    30,909 3,944 - - 34,853
    Assets under construction
    - - - - -
    Total 415,496 28,818 156 13,017 431,453

    Net book value

    (in thousands of dollars)
    Capital asset class
      2020 2019
    Land
    7,800 7,800
    Buildings
    147,524 138,476
    Works and Infrastructure
    9,853 4,971
    Machinery and equipment
    58,903 67,255
    Vehicles
    3,484 2,386
    Leasehold improvements
    43,907 47,598
    Leased tangible capital assets
    61,140 65,084
    Assets under construction
    12,125 24,646
    Total 344,736 358,216
  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.

    (in thousands of dollars)
      2020 2019
    Environmental Studies Research Fund - Restricted
    Balance – Beginning of year
    5,734 4,637
    Revenues
    1,729 2,856
    Expenses
    (1,589) (1,759)
    Balance – End of year
    5,874 5,734
    Nuclear Liability Account – Restricted
    Balance – Beginning of year
    4,439 4,299
    Revenues
    144 140
    Expenses
    - -
    Balance – End of year
    4,583 4,439
    Subtotal – Restricted 10,457 10,173
    Unrestricted 236,076 (749,363)
    Departmental net financial position – End of year 246,533 (739,190)
  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:

      (in thousands of dollars)
        2021 2022 2023 2024 2025 2026 and subsequent Total
      Other Transfer Payments 324,480 89,099 14,028 885 185 - 428,677
      Total 324,480 89,099 14,028 885 185 - 428,677
    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 Loan Guarantee Agreements. The agreements that underpin the federal loan guarantee require the beneficiaries to pay Canada an annual fee of 0.5% of the net amount of guaranteed debt outstanding.

      Pursuant to Section 19.5(b) of the Net Profit Interest Agreement (NPI) and Section 18.5(b) of the Incidental Net Profit Interest Agreement (INPI), the Government of Canada has assigned the NPI and INPI Payments to the Crown in relation to the Hibernia Project to the Canada Development Investment Corporation (CDEV), which consisted of the contractual rights of NRCan in the past. In August 2019, NRCan signed a Memorandum of Understanding (MOU) with CDEV that assigns and transfers the NPI and INPI from the Minister of NRCan to CDEV.

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

      (in thousands of dollars)
        2021 2022 2023 2024 2025 2026 and subsequent Total
      Loan Guarantee Fees 14,500 14,424 14,195 13,889 13,579 240,815 311,402
      Total 14,500 14,424 14,195 13,889 13,579 240,815 311,402
  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 others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department records an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $14,470 thousand in 2020 ($14,470 thousand in 2019).

      2. Loan guarantees:
        (in thousands of dollars)
          Authorized Limit Outstanding guarantees
        2020 2019
        Lower Churchill Hydroelectric Projects 9,200,000 9,173,519 8,649,907

        The Government of Canada provided loan guarantee support for the construction of the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ([1] Muskrat Falls and Labrador Transmission Assets and [2] Labrador-Island Link) and one project sponsored by Emera Inc. (Maritime Link). In 2013, the financing was completed for the Nalcor-led projects, raising $5 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 2014, the bond financing was completed for the Maritime Link, raising $1.3 billion of guaranteed debt for a life of about 39 years.

        Further to an announcement made by the Minister of Natural Resources in November 2016, in May 2017, the Minister of Natural Resources signed two additional Guarantee Agreements to provide additional loan guarantee support to the Nalcor-sponsored projects. On May 25, 2017, the financing was completed, raising $2.9 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, 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, 2020, $9.17 billion of guaranteed debt has been released to the project entities ($8.65 billion in 2019).

        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. 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 10 operators, the federal government covers the liability associated with the two exceptions. It also covers the difference between the lower liability amount prescribed in the NLCR for lower-risk installations and the $1 billion liability amount assigned in the NLCA. The federal government charges each operator an annual fee for providing this indemnity coverage.

        The Department of Natural Resources administers the Nuclear Liability Account (Account) on behalf of the federal government through a consolidated specified purpose account. This Account is a continuation of the Nuclear Liability Reinsurance Account under the previous NLA. All fees paid by the operators of nuclear installations are credited to this Account. The closing balance of this Account as at March 31, 2020, is $4,582,955. 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, 2020 ($0 in 2019).

  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.

    1. Common services provided without charge by other government departments:

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

      (in thousands of dollars)
        2020 2019
      Employer’s contribution to the health and dental insurance plans 34,298 28,833
      Accommodation 17,328 16,843
      Workers' compensation 195 220
      Total common services provided without charge 51,821 45,896

      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.

    2. Administration of programs on behalf of other government departments

      The Department has a number of Memoranda of Understanding with other government departments for the administration of their programs. The Department issued approximately $21,419 thousand ($23,263 thousand in 2019) 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.

    3. Other transactions with other government departments and agencies

      (in thousands of dollars)
        2020 2019
      Expenses 126,409 121,844
      Revenues 6,166 6,398

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

  16. Segmented information

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

    (in thousands of dollars)
      Natural Resource Science and Risk Mitigation Innovative and Sustainable Natural Resources Development Globally Competitive Natural Resource Sectors Internal Services 2020 2019
    Transfer payments
    Industry
    2,216 196,247 21,074 - 219,537 222,211
    International
    280 1,699 1,106 - 3,085 2,513
    Non-profit organizations
    6,629 37,882 58,142 - 102,653 1,016,154
    Other levels of government
    1,866 29,512 377,962 - 409,340 447,201
    Individuals
    134 14,604 38,522 - 53,260 21,711
    Total transfer payments 11,125 279,944 496,806 - 787,875 1,709,790
    Operating expenses
    Salaries and employee benefits
    154,623 203,860 58,956 112,788 530,227 476,378
    Information
    1,000 6,743 1,251 4,627 13,621 10,331
    Professional and special services
    23,290 45,119 7,909 29,187 105,505 112,885
    Rentals
    13,628 10,174 2,590 5,349 31,741 29,953
    Transportation and communication
    7,096 4,164 3,423 2,247 16,930 19,512
    Utilities, material and supplies
    9,549 12,031 1,074 1,985 24,639 23,090
    Purchased repairs and upkeep
    2,720 3,207 192 289 6,408 6,727
    Acquisitions of non-capital assets
    4,143 5,611 1,031 2,548 13,333 14,253
    Amortization
    12,430 13,205 747 2,436 28,818 26,602
    Other
    3,073 4,614 (22,759) (1,916) (16,988) 11,289
    Total Operating expenses 231,552 308,728 54,414 159,540 754,234 731,020
    Total expenses 242,677 588,672 551,220 159,540 1,542,109 2,440,810
    Revenues
    Rights and privileges
    1,649 145 346,979 - 348,773 337,935
    Other, such as revenue pursuant to agreements
    1,337 18,740 94,472 291 114,840 322,381
    Revenue from services of a non-regulatory nature
    7,255 11,797 - - 19,052 18,508
    Proceeds from sales of goods and information products
    384 913 - - 1,297 1,363
    Revenue from services of a regulatory nature
    - 1,798 - - 1,798 1,669
    Services to other government departments
    - - - 159 159 129
    Revenues earned on behalf of Government
    (443) (16,128) (441,451) (291) (458,313) (654,441)
    Total net revenues 10,182 17,265 - 159 27,606 27,544
    Net cost of operations 232,495 571,407 551,220 159,381 1,514,503 2,413,266
  17. Subsequent events

    The outbreak of the Coronavirus disease [“COVID-19”] has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. The duration and impact of the COVID-19 outbreak is unknown at this time. As a result, it is not possible to reliably estimate the length and severity of the impact on NRCan’s financial position and financial results in future periods.

    As announced through the Government of Canada Covid-19 Economic Response Plan, NRCan received approval for the following new programs and initiatives in support of Canada’s COVID-19 pandemic response during the first two quarters of fiscal year 2020-21:

    • Youth Employment and Skills Strategy Enhancement ($15.8M): this funding will support the NRCan's Science and Technology Internship Program, as part of the overall Youth Employment and Skills Strategy investments. Funding will be used to create 500 Science, Technology, Engineering and Maths (STEM) internships and training opportunities for Canadian youth between 15 and 30 years in the natural resources sector.
    • Emissions Reduction Fund ($750M): the government will provide up to $750 million over two years, starting in 2020-21, to create a new proposed Emissions Reduction Fund to reduce emissions in Canada’s oil and gas sector, with a focus on methane. This fund will provide primarily repayable contributions to conventional and offshore oil and gas firms to support their investments to reduce greenhouse gas emissions.
  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 2019-20 (unaudited)

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

  1. Introduction

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

    Detailed information on NRCan’s authority, mandate and Core Responsibilities can be found in the 2020-21 Departmental Plan and the 2019-20 Departmental Results Report.

  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. The NRCan Framework for ICFM, approved by the Deputy Minister (DM), is in place and comprises:

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

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

    2.2 Service arrangements relevant to financial statements

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

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

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

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

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

  3. Departmental internal control assessment results for fiscal year 2019-20

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

    Progress during fiscal year 2019-20
    Previous year’s rotational ongoing monitoring plan for current year Status
    • Offshore royalty revenues/statutory transfers
    • Grants and contributions (G&C), including repayable contributions.

    Performed by the Audit and Evaluation Branch (AEB) through continuous audits (CA).

    Design effectiveness (DE) and operating effectiveness (OE) testing completed as planned; no remedial actions required.
    • IT general controls (ITGCs)
    • Budgeting and forecasting (B&F)
    • Investment planning (IP)

    Performed by the Financial Management Internal Control (FMIC) unit.

    DE and OE testing completed as planned for ITGC and B&F, and DE testing started for IP; remedial actions started.

    In addition to the progress made in ongoing monitoring, the AEB conducted the Audit of the Administration of the Lower Churchill Projects Loan Guarantees (LCPLG). The objective of the audit was to determine whether effective controls are in place to administer, monitor, and report on the LCPLG, including the adequate presentation of the related contingent liabilities note in NRCan’s financial statements.

    The key findings and remedial actions from the current fiscal year’s assessment activities are summarized in Section 3.2.

    3.1 New or significantly amended key controls
    3.1.1 Investment Planning Process

    The IP process is undergoing significant changes to meet the new requirements and mandatory procedures from the TB Policy on the Planning and Management of Investments and TB Directive on the Management of Projects and Programs (effective April 11, 2019). Consequently, the focus of the IP ICFM assessment was to assist business process owners (BPOs) by:

    • Assessing the risks associated with changes made to controls and processes;
    • Identifying where more, less, or different controls are required; and
    • Advising on new norms.
    3.1.2 COVID-19

    New emerging risk areas in NRCan’s control environment as a result of the novel coronavirus (COVID-19) pandemic were identified, such as governance and oversight during the pandemic and the return to workplace, business continuity planning, IM/IT security and capacity, and changes to the G&C process and controls due to flexibilities sought. In response, various advisory and audit projects are planned for 2020-21 by the AEB as per the NRCan 2020-25 Integrated Audit and Evaluation Plan and will be leveraged for reporting in the Annex.

    Additionally, logical access controls (i.e. access to programs and data and password configuration policies) and IT operation controls (e.g. incident and problem management, system jobs, and backups) for key financial systems were tested by the Financial Management Internal Control (FMIC) unit during the 2019-20 ITGC assessment. The objective was to help ensure that effective ITGCs are in place and functioning as intended to mitigate the risk of unauthorized access to systems and data, and system disruptions due to increased remote working.

    3.2 Ongoing monitoring program

    As part of its rotational ongoing monitoring plan (OMP), NRCan:

    • reassessed key ITGCs (i.e. program development, program changes, access to programs and data, and computer operations) under NRCan’s responsibility for SAP ( Departmental financial system), PeopleSoft ( Human resources management system), and documented and tested the design effectiveness (DE) and operating effectiveness (OE) of key ITGCs for Phoenix (Government payroll system);
    • documented and tested the DE and OE of key controls for the B&F business process;
    • assessed key risks associated with changes made to processes and controls for IP; and
    • reassessed key financial and monitoring controls for the Offshore royalty revenues/statutory transfers and G&Cs, including repayable contributions business processes;

    For the most part, the key controls that were tested performed as intended, with remediation required as follows; remediation by the BPOs is underway.

    ITGCs
    • Improve the timeliness of user access reviews and removals to key financial systems for employees that left the department.
    • Formally define and document procedures for IT Operations (e.g. problems and/or incidents management and system and interface jobs).
    • Strengthen the review of third party service organization reports for common and specific service providers.
    • Reinforce segregation of duties for the development and implementation of system changes.
    B&F
    • Strengthen the sufficiency and appropriateness of evidence to substantiate the performance of key challenge functions and further restrict and review user access to financial information used for financial management (FM) and resource allocation decision making.
    IP
    • As mentioned in Section 3.1.1, the IP process is undergoing significant changes to meet the new TB requirements and mandatory procedures, and so a follow-up assessment to complete the DE and OE testing is scheduled for 2022-23 in order to allow revised control activities to be put into place by the BPOs.
    Offshore royalty revenues/statutory transfers and G&Cs, including repayable contributions
  4. Departmental action plan for the next fiscal year and subsequent fiscal years

    NRCan’s rotational OMP for the next five fiscal years, based on an annual validation of the high-risk key control areas and related adjustments, as required, is shown in the following table. Note that the OMP includes planned advisory projects, and joint audit and evaluations, as per the NRCan 2020-25 IAEP, that will be leveraged to provide additional assurance over the effectiveness of risk management, control, and governance processes related to the system of ICFM.

    Rotational ongoing monitoring plan
    Key Control Areas 2020-21 2021-22 2022-23 2023-24 2024-25
    Entity level controls (ELCs)
    1. Control environment – governance and oversight
    2. Information and communication and Monitoring activities
    3. Risk assessment
    Yes – AEB (1) Yes – FMIC (2) Yes – AEB (3) No No
    IT general controls (ITGCs) under departmental management
    1. Agreement Module Interface (G&C Financial System)
    2. Various ITGC related audits in response to Covid 19 risks
    3. Specimen Signature Record (SSR) and Etools (e.g. e- procurement, epar, epayment, and epaye)
    4. SAP, PeopleSoft, and Phoenix (under NRCan’s responsibility)
    Yes – FMIC (1) and AEB (2) Yes – FMIC (3) Yes – AEB Yes – FMIC (4) No
    Financial close and reporting No No Yes – FMIC No No
    Grants and contributions (G&C), including repayable contributions
    1. Repayable contributions (contingent assets)
    2. Expenditure management process for G&Cs, excluding Repayable contributions
    Yes – FMIC (1) and AEB No No Yes – FMIC (2) Yes – AEB (1)
    Payroll (Pay) and benefits Yes – FMIC and AEB No No Yes – FMIC No
    Procure to pay (formerly called Operating expenditures) Yes – AEB Yes – AEB No Yes – AEB Yes – FMIC
    Offshore royalty revenues/statutory transfers Yes – AEB Yes – AEB Yes – AEB Yes – AEB Yes – AEB
    Revenue and accounts receivable, including Costing for internal and external charging agreements No Yes – FMIC and AEB Yes – FMIC No Yes – FMIC
    Environmental liabilities No No Yes – FMIC No No
    Contingent liabilities
    1. Lower Churchill Projects Loan Guarantees and
    2. Nuclear Liability Account
    No No No Yes – FMIC (1) No
    Capital assets No Yes – FMIC and AEB No No Yes – FMIC
    Budgeting and forecasting No No No Yes – FMIC and AEB No
    Investment planning Yes – AEB No Yes – FMIC and AEB Yes – AEB No
    Chief financial officer attestations (included in Cabinet submissions), and related costing Yes – FMIC No No No Yes – FMIC
    The OMP was amended as follows:
    • changed duration from three to five years to better align with the NRCan 2020-25 IAEP, inform planning in order to maximize the use of resources between AEB and FMIC, and limit the burden on BPOs.
    • advanced the assessment of repayable contributions (included in G&C business process) and ITGC testing of the G&C financial system (i.e. Agreement Module Interface) to 2021-22.
    • deferred the assessment of the environmental liabilities business process from 2021-22 to 2022- 23 to prioritize the reassessment of ITGCs for the SSR and Etools in 2021-22.
    • deferred the assessment of costing for internal and external charging agreements (included in Revenue and accounts receivable process) to 2021-22 to align with the planned Audit of NRCan’s Cost Recovery Projects in order to maximize efficiencies.
    • Included AEB projects as per the NRCan 2020-25 IAEP to provide additional assurance on the effectiveness of NRCan’s control environment. The decision to leverage these audit projects will be based on the audit scope, objectives, and criteria included in the terms of references (ToR), which will be analyzed annually upon the finalization of the ToR to ensure a sufficient alignment with an ICFM assessment. Adjustments to the OMP will be made, as required.
  5. Departmental status and action plan for the next fiscal year and subsequent fiscal years

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

    Status and action plan for the next fiscal year and subsequent fiscal years
    Key control areas Design effectiveness testing and remediation Operational effectiveness testing and remediation Ongoing monitoring rotation Footnote *
    Entity-level controls Complete Complete 2020-21, 2021-22, and 2022-23
    IT general controls under departmental management Complete Complete 2020-21, 2021-22, 2022-23, and 2023-24
    Financial close and reporting Complete Complete 2022-23
    Grants and contributions, including repayable contributions Complete Complete 2020-21, 2023-24, and 2024-25
    Payroll and benefits Complete Complete 2020-21 and 2023-24
    Procure to pay Complete Complete 2020-21, 2021-22, 2023-24, and 2024-25
    Offshore royalty revenues/statutory transfers Complete Complete Annually
    Revenue and accounts receivable Complete Complete 2022-23
    Environmental liabilities Complete Complete 2022-23
    Contingent liabilities Complete Complete 2023-24
    Capital assets Complete Complete 2021-22 and 2024-25
    Budgeting and forecasting Complete Complete 2023-24
    Investment planning 2022-23 2022-23 Future fiscal years
    Costing for internal and external charging agreements (included in Revenue and receivables process, but presented separately until ongoing monitoring achieved) 2021-22 2021-22 2024-25
    Chief financial officer attestations (included in Cabinet submissions), and related costing. 2020-21 2020-21 2024-25
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