Financial Statements for the Period from April 1, 2019 to July 14, 2019

a) Parliamentary authorities

CIRNAC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CIRNAC do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides reconciliation between the bases of reporting.

The planned results amounts in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are consistent with the amounts reported in the 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 Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2019-2020 Departmental Plan.

b) Net cash provided by government

CIRNAC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CIRNAC is deposited to the CRF and all cash disbursements made by CIRNAC 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.

c) Amounts due from or to the Consolidated Revenue Fund (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 CIRNAC is entitled to draw from the CRF without further authorities to discharge its liabilities.

d) Revenues

Revenues are recorded on the accrual basis:

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Other revenues are recognized in the period the event giving rise to the revenues occurred.
• Revenues that are non-respendable are not available to discharge CIRNAC's liabilities. While management is expected to maintain accounting control, it has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of CIRNAC's gross revenues.

e) Expenses

Expenses are recorded on the accrual basis.

• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. 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.
  
• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  
• Services provided without charge by other government departments for accommodation, employer contribution to the health and dental insurance plans, legal services, and workers' compensation are recorded as operating expenses at their carrying value.

f) Employee future benefits

• Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the government. CIRNAC'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 contribution. Actuarial surpluses or deficiencies are recognized in the financial statements of the government of Canada, as the Plan's sponsor.
• 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 as a whole.

g) Accounts and loans receivable

Accounts and loans receivable are stated at the lower of cost and net recoverable value.

When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts and loans receivable to amounts that approximate their net recoverable value.

The amount of allowance on loans receivable is determined on an assessment of collectability of each loan on an annual basis using a standard set of criteria to assess the default risk. Interest on loans receivable is calculated in accordance with the terms and conditions of each individual program.

If loans and interest receivables cannot be used to discharge CIRNAC's liabilities or to issue new loans, they are considered to be held on behalf of the government and are therefore presented as an offsetting amount to CIRNAC's financial position.

h) Contingent liabilities

Contingent liabilities are potential liabilities that 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, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

i) 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 financial statements.

j) Environmental liabilities

An environmental liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied:

• An environmental standard exists
• Contamination exceeds the environmental standard
• CIRNAC is directly responsible or accepts responsibility
• It is expected that future economic benefits will be given up
• A reasonable estimate of the amount can be made

The liability reflects CIRNAC's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rates used reflect the government's cost of borrowing associated with the estimated number of years to complete remediation. The recorded liabilities are adjusted each year, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred. If the likelihood of CIRNAC's responsibility is not determinable, a contingent liability is disclosed in the notes to the financial statements.

k) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. CIRNAC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Capital assets include lands held for future claim settlements which are to be transferred to First Nations upon settlements.

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

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.

l) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes at July 14. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the government's best estimate of the related amount at the end of the reporting period. They are determined according to methodologies that were applied consistently with the previous year. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the contractual obligations, the liability for employee future benefits, the allowance for doubtful accounts and the useful life of tangible capital assets. Actual results could differ significantly from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

Environmental liabilities are subject to measurement uncertainty as discussed in Note 6 due to the evolving technologies used in the estimation of the costs for remediation of contaminated sites, the use of discounted present value of future estimated costs, and the fact that not all sites have had a complete assessment of the extent and nature of remediation. Changes to underlying assumptions, the timing of the expenditures, the technology employed, or the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the environmental liabilities recorded.

m) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

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 financial statement purposes at the carrying amount

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

b) Authorities provided and used

a) Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events not wholly within the government's control occur or fail to occur. They are grouped into two categories: claims and pending and threatened litigation, and environmental liabilities for contaminated sites.

Claims
Claims outstanding against CIRNAC are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense is recorded in the financial statements.

CIRNAC has recorded a provision of $22,340 million ($22,397 million in 2019) for claims where it is likely that there will be a future payment and a reasonable estimation of the loss can be made.

Exposure to liability in excess of the amount accrued was estimated at a minimum of $313 million ($313 million in 2019). For claims where the estimate of loss is based on a range of possible outcomes, the amount accrued within the range is management's best estimate of the potential loss which may be at an amount lesser than the maximum of the range. Claims for which the outcome was not determinable and for which an amount had not been accrued were estimated at approximately $4,489 million ($4,489 million in 2019).

There are four significant types of claims faced by CIRNAC: comprehensive land claims, specific claims, claims for pending and threatened litigations, and special claims. Depending on its type, a claim may be resolved with a transfer payment or an operating expenditure. As a result, the year-over-year change in the provision is allocated between transfer payment expenses and operating expenses, as shown in Note 16 – Segmented information.

Comprehensive Land Claims
Comprehensive land claims arise in areas of the country where Aboriginal rights and title have not been resolved by treaty or by other legal means. There were 74 (74 in 2019) comprehensive land claims under negotiation, accepted for negotiation or under review transferred.

Specific Claims
Specific claims deal with the past grievances of First Nations related to Canada's obligations under historic treaties or the way it managed First Nations' funds or other assets. The Government of Canada will pursue a settlement agreement with the First Nation when a claim demonstrates an outstanding lawful obligation. There were 563 (567 in 2019) specific claims under negotiation, accepted for negotiation or under review transferred.

Pending and Threatened Litigations
There were legal proceedings for 547 (549 in 2019) general litigation claims being pursued through the courts transferred.

Special Claims
Special claims are the claims that do not fit with the parameters of existing Comprehensive Land Claims Policy or Specific Claims Policy and these claims are not being considered under any other mechanism such as being pursued through courts. There are currently 5 (5 in 2019) special claims under negotiation, accepted for negotiation or under review transferred.

Environmental liabilities
CIRNAC has estimated a contingent liability in the amount of $8 million for 4 sites ($8 million in 2019 for 4 sites) where the department has determined that it is not directly responsible, nor does it accept responsibility; however, there is legal uncertainty as to the department's position.

b) Contingent assets

Contingent assets arise in the normal course of operations and their ultimate disposition is unknown. CIRNAC has made claims against external parties for which a recovery or gain is likely to materialize, however a reasonable estimate cannot be made. Contingent assets are not recognized in the financial statements.

a) Pension benefits

CIRNAC'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 5 consecutive years of earnings. The benefits are integrated with Canada or Québec Pension Plan benefits and they are indexed to inflation.

Both the employees and CIRNAC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Economic Action Plan 2012, employee contributors have been divided into 2 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 2019-20 expense as of July 14, 2019 amounts to $7 million ($28.3 million in 2018-19). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2018-19 the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2018-19) the employee contributions.

CIRNAC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the consolidated financial statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits

Severance benefits provided to CIRNAC'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. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

Direct loans portfolio

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

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

Indigenous claimants

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

In 2018-19 the practice of funding comprehensive claims negotiations through loans was discontinued and replaced with repayable contributions. As such, loans were not issued in fiscal year 2019-20. CIRNAC continued issuing loans to defray costs related to negotiation of Specific claims.

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

• Loans are due and payable, as to principal and interest, on the date on which the claim is settled, or on a date fixed in the loan agreement
• Loans may be restructured, including forgiveness of a portion of the principal or interest in arrears, when the borrower cannot meet the term of the original loan agreement
• CIRNAC may seek security for loans when deemed appropriate

Specific claims loans are non-interest bearing while comprehensive land claim negotiation loans were interest bearing, however, interest started being accrued on date the claim was settled.

With the forgiveness approval of comprehensive land claim negotiation loans on June 17, 2019, all outstanding Indigenous claimants loans were non-interest bearing as at July 14, 2019.

First Nations in British Columbia

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

As these are comprehensive land claims loans, they were also bearing interest and no new loans were issued in fiscal year 2019 -20. The practice of funding comprehensive claims negotiations through loans was discontinued and replaced with repayable contributions.

Other direct loans

CIRNAC also has various legacy programs that are no longer active including the Inuit Loan Fund and Stoney Band Perpetual Loan. These legacy programs will continue to operate under their existing arrangements. All these loans outstanding are interest bearing.

a) Common services provided without charge by other government departments

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

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

b) Other transactions with related parties

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

2.1 Internal Control Management

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

• Organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior managers
• Crown-Indigenous Relations and Northern Affairs adheres to the Values and Ethic Code for the Public Sector
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control
• At least semi-annual monitoring of and regular updates on internal control management, as well as the provision of related assessment results and action plans to the Deputy Head and departmental senior management and, as applicable, the Departmental Audit Committee

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

2.2 Service Arrangements Relevant to Financial Reporting

Crown-Indigenous Relations and Northern Affairs relies on other organizations for the processing of certain transactions that are recorded in its financial statements as follows:

3.1 Changes in Internal Control over Financial Reporting

Management recognizes that there is an increased risk in financial reporting due to the continued transition of Crown-Indigenous Relations and Northern Affairs into a standalone department, while operating under a shared services model for internal services.

Management has assessed the impacts of the COVID-19 pandemic on the Department's internal controls over financial management and reporting. It is important to note that compensating controls have been implemented to address impacts of COVID-19 decisions.

3.2 Assessment Results Over the 2019-20 Internal Control Plan

In today's environment, effective internal control system requires thorough planning coupled with nimble responsiveness to emerging risks.

The initial Internal Control Plan for 2019-20 has been updated in-year to ensure value-added internal control assessments as part of ongoing departmental transition and transformation.

At the end of the fiscal year 2019-20, internal control assessments were completed for four business processes; areas for improvement have been identified surrounding targeted estimate and approval processes as well as asset monitoring practices, and management action plans will be monitored in 2020-21:

• Financial Close and Reporting
• Contingent Liabilities
• Tangible Capital Assets
• Contractual Obligations

Assessments are underway for the Grants and Contributions process as well as the Pay Administration process.

Overall, management has not identified any significant deficiencies or material weaknesses in the design or operation of the Department's internal controls over financial management and reporting which could have a material impact on the consolidated financial statements.

Results of the above assessments of internal controls over financial reporting support the Statement of Management Responsibility from the Deputy Minister and Chief Finances, Results and Delivery Officer for the 2019-20 Financial Statements.