Financial Statements for the Year Ended March 31, 2021

a) Parliamentary authorities

CIRNA is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CIRNA 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 2020-21 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 2020-21 Departmental Plan.

b) Net cash provided by Government

CIRNA operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CIRNA is deposited to the CRF and all cash disbursements made by CIRNA 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/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 CIRNA 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 CIRNA's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of CIRNA'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. CIRNA'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 CIRNA'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 CIRNA'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,
• CIRNA 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 CIRNA'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 CIRNA'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. CIRNA does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the 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 March 31. 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, except for contractual obligations (note 15) for which estimate methodology was revised in 2020-21. The most significant items where estimates are used are contingent liabilities, environmental liabilities, 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

In addition to the amount for authorities available for future years presented above, most of the other lapsed amounts may become available to the CIRNA in the 2021-2022 fiscal year, but due to the timing of parliamentary approvals, these amounts had not been approved at March 31, 2021. Additional information on the use of authorities, including explanation of variances and lapsed amounts, can be found in the CIRNA's Departmental Result Report.

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 CIRNA 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.

CIRNA has recorded a provision of $23,968 Million ($19,553 Million in 2020) for claims where it is likely that there will be a future payment and a reasonable estimation of the loss can be made.

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. Exposure to liability in excess of the amount accrued is estimated at a minimum of $1,946 Million ($1,288 Million in 2020).

Claims for which the outcome is not determinable and for which an amount has not been accrued are estimated at approximately $916 Million ($985 Million in 2020).

There are four significant types of claims faced by CIRNA: 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.

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 are currently 75 (75 in 2020) comprehensive land claims under negotiation, accepted for negotiation or under review.

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 are currently 627 (593 in 2020) specific claims under negotiation, accepted for negotiation or under review.

Pending and Threatened Litigations

There are legal proceedings for 364 (409 in 2020) general litigation claims being pursued through the courts as at March 31, 2021.

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 8 (5 in 2020) special claims under negotiation, accepted for negotiation or under review.

Environmental liabilities

CIRNA has estimated a contingent liability in the amount of $8 Million for 4 sites ($8 Million in 2020 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. CIRNA 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.

Guarantee deposits

In fulfilling its duties under various acts that govern the use of federal Crown land, including land use activities, water resources, and water rights, CIRNA may issue licences, permits, and other instruments to individuals and organizations that propose to undertake resource exploration and other types of development projects.

In accordance with the terms and conditions of the instrument, CIRNA may require security deposits to ensure the lands and waters are returned in a condition acceptable to CIRNA. These guarantee deposits are received in the form of cash and are deposited to and held in the Consolidated Revenue Fund.

a) Common services provided without charge by other government departments

During the year, CIRNA 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 CIRNA'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 CIRNA'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;
• Ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control;
• External and internal reporting responsibilities related to risk, assessment results and action plans, which includes engagement with senior management and the Departmental Audit Committee, as applicable;
• Crown-Indigenous Relations and Northern Affairs ICFR assessment approach and methodology;

The Department's control environment also includes:

• A Crown-Indigenous Relations and Northern Affairs Values and Ethics Code that incorporates the Values and Ethics for the Public Sector and the Directive on Conflict of Interest;
• A Departmental Audit Committee that provides objective advice and guidance, independent of management in the departmental areas of governance, risk management and control;
• Risk assessments and audit results performed by auditors from Internal Audit, Recipients Audit; Office of the Auditor General and Common Services providers;
• An internal control unit that helps the Chief Finances, Results and Delivery Officer to monitor effectiveness of ICFR across the department, and continuously works in close collaboration with business/risk owners; and
• Senior manager's performance agreements with clear commitments to sound financial and internal control management.

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 New or significantly amended key Controls

In the last fiscal year, there were no significantly amended key controls in existing processes that required a reassessment. 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.

Since the COVID-19 pandemic, measures have been and continue to be deployed by the department, to ensure compensating controls (e.g. logical access controls, changes in the Grants and Contributions process) have been implemented in a timely manner to address the new risks associated with the pandemic.

3.2 Ongoing monitoring program

Crown-Indigenous Relations and Northern Affairs has a mature ongoing risk-based rotational monitoring program encompassing internal control over financial reporting.

As part of ongoing monitoring program, design effectiveness and operations effectiveness testing is conducted on selected key controls in all of the control environments to obtain sufficient reliable evidence to support the department's financial control environment in place is sound.

In 2020-21, the department performed ongoing monitoring activities of the following business processes controls based on its ongoing risk-based monitoring plan:

• Pay Administration
• Grants and Contributions

Overall, the key internal controls for the above-mentioned business processes were found to be operating effectively to ensure the production of reliable financial information. No significant deficiencies or material weaknesses, that could lead to a material misstatement of the financial statements, were identified.

In addition, the planning stage of the assessment of the Entity-level controls is well underway as at March 31, 2021. The assessment of the IT General and Application Controls that was also planned for 2020-21 was delayed to leverage the Internal Audit on Indigenous Services' IT Security.

Remediation identified from departmental ongoing monitoring ICFR assessments is addressed through risk-based management action plans prepared and implemented by the business process owners which included action plan recommendations from previous years. ICFR assessments will continue to be monitored in 2021-22 to ensure that remedial actions have been taken and completed.