2018-19 Year end financial statement for the Canadian Northern Economic Development Agency

Table of contents

Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2019, and all information contained in these financial statements rests with the management of the Canadian Northern Economic Development Agency (the "Agency"). These financial statements have been prepared by management using the Government of Canada'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 financial statements. Some of the information in the 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 Agency’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Agency’s Departmental Results Report, is consistent with these 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 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 Agency. CanNor applies a multi-year, risk-based approach to the 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 on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

The Agency is subject to periodic Core Control Audits performed by the Office of the Comptroller General of Canada (OCG) and uses the results of such audits to comply with the Treasury Board Policy on Financial Management.

These financial statements have not been audited.

Original signed by Paula Isaak
Paula Isaak
President
Original signed by Ross Miller
Ross Miller, CPA, CMA
Chief Financial Officer

Ottawa, Canada
August 21, 2019

Statement of Financial Position (Unaudited)
As at March 31

(in dollars) 2019 2018
Liabilities
Accounts payable and accrued liabilities (Note 4) 8,741,475 15,155,298
Vacation pay and compensatory leave 749,095 631,551
Employee future benefits (Note 5) 325,442 359,710
Total Liabilities 9,816,012 16,146,559
Financial assets
Due from Consolidated Revenue Fund 8,299,973 13,991,567
Accounts Receivable (Note 6) 441,502 1,163,731
Total financial assets 8,741,475 15,155,298
Departmental net debt 1,074,537 991,261
Non-Financial assets
Tangible capital assets (Note 7) 334,622 422,863
Total non-financial assets 334,622 422,863
Departmental net financial position (739,915) (568,398)

Contractual obligations (Note 8)

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

Original signed by Paula Isaak
Paula Isaak
President
Original signed by Ross Miller
Ross Miller, CPA, CMA
Chief Financial Officer

Ottawa, Canada
August 21, 2019

Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31

(in dollars) 2019
Planned Results
2019 2018
Expenses
Economic Development in the Territories 23,880,843 37,662,118 46,104,927
Internal Services 5,978,872 6,127,716 5,856,938
Total Expenses 29,859,715 43,789,834 51,961,865
Revenues
Miscellaneous Revenue 0 23,982 6,749
Revenues earned on behalf of Government 0 (1,916) (1,521)
Total Revenues 0 22,066 5,228
Net Cost of Operations before government funding and transfers 29,859,715 43,767,768 51,956,637
Government funding and transfers
Net cash provided by Government N/A 47,102,957 49,771,655
Change in due from Consolidated Revenue Fund N/A (5,691,594) (141,980)
Services provided without charge by other government departments (Note 9) N/A 2,184,888 2,082,962
Total Government Funding and Transfers N/A 43,596,251 51,712,637
Net cost of operations after government funding and transfers N/A 171,517 244,000
Departmental net financial position - Beginning of year N/A (568,398) (324,398)
Departmental net financial position - End of year N/A (739,915) (568,398)

N/A = Not applicable

Segmented information (Note 10)

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

Statement of Change in Departmental Net Debt (Unaudited)
For the Year Ended March 31

(in dollars) 2019 2018
Net cost of operations after government funding and transfers 171,517 244,000
Change due to tangible capital assets
Acquisition of tangible capital assets 75,589 0
Amortization of tangible capital assets (163,830) (162,931)
Total change due to tangible capital assets (88,241) (162,931)
Net increase (decrease) in departmental net debt 83,276 81,069
Departmental net debt - Beginning of year 991,261 910,192
Departmental net debt - End of year 1,074,537 991,261

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

Statement of Cash Flows (Unaudited)
For the Year Ended March 31

(in dollars) 2019 2018
Operating Activities
Net cost of operations before government funding and transfers 43,767,768 51,956,637
Non-cash items:
Amortization of tangible capital assets (163,830) (162,931)
Gain on disposal of tangible capital assets 22,066 5,228
Services provided without charge by other government departments (Note 9) (2,184,888) (2,082,962)
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances (722,229) 667,978
Decrease (increase) in accounts payable and accrued liabilities 6,413,823 (525,998)
Decrease (increase) in vacation pay and compensatory leave (117,544) (212,466)
Decrease (increase) in future employee benefits 34,268 131,397
Cash used in operating activities 47,049,434 49,776,883
Capital investing activities
Acquisitions of tangible capital assets 75,589 0
Proceeds from disposal of tangible capital assets (22,066) (5,228)
Cash Used by Capital Investing Activities 53,523 (5,228)
Net Cash Provided by Government of Canada 47,102,957 49,771,655

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

Notes to the Financial Statements (Unaudited) for the Year Ended March 31

1. Authority and objectives

The Canadian Northern Economic Development Agency (the "Agency") was established on August 18, 2009 in accordance with paragraph 2(a) of the Public Service Rearrangement and Transfer of Duties Act. Pursuant to Order-in-Council P.C 2009-1423, the control and supervision portion of the Northern Economic Development Branch in the Department of Indian Affairs and Northern Development was transferred to the Agency. The Agency is listed in Schedule I.1 of the Financial Administration Act.

Contributing to the jobs and growth in Canada, the Agency works to develop a diversified, sustainable and dynamic economy across Canada’s three territories. It does this by delivering funding programs to Northerners and Indigenous people, guiding resource development and major projects across the North through the Northern Projects Management Office, undertaking research to support the development of evidence-based policies, advocating for northern economic prosperity and diversification, and collaborating with other federal departments, territorial governments, Indigenous organizations, and industry.

In pursuit of its mandate, the Agency has structured its core responsibilties as follows:

  1. Economic Development in the Territories – Work in the territories to support the conditions for a sustainable, diversified and innovative economy in collaboration with Northerners/Indigenous people, businesses, organizations, other federal departments and other levels of government.
  2. 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: Acquisition Management Services; Communications Services; Financial Management Services; Human Resources Management Services; Information Management Services, Information Technology Services; Legal Services; Materiel Management Services; Management and Oversight Services; and Real Property Management Services.

2. Summary of significant accounting policies

These financial statements are prepared using the Agency’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:

a) Parliamentary authorities

The Agency is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Agency 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 Financial Position and in the Statement of Operations and Departmental Net 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 Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2018-2019 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 2018-2019 Departmental Plan.

b) Net cash provided by Government

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

d) Revenues

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

e) Expenses

  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.
  2. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  3. Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their carrying value.

f) Employee future benefits

  1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer pension plan administered by the Government. The Agency’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Agency’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 as a whole.

g) Accounts receivable

Accounts receivable are initially recorded at cost and when necessary, an allowance for valuation is recorded to reduce the carrying value to amounts that approximate their net recoverable value.

h) Non-financial assets

The costs of acquiring capital property are capitalized as tangible capital assets and are amortized to expense over the estimated useful lives of the assets, as described in Note 7. 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 and Crown land to which no acquisition cost is attributable; and intangible assets.

i) 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, a provision is accrued and an expense recorded to other expenses. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

j) Contingent assets

Contingent assets are possible assets that 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.

k) 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 Agency'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, the liability for employee future benefits and the useful life of tangible capital assets. Actual results could significantly differ 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.

l) Related party transactions

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. Certain services received on a without charge basis are recorded, for departmental financial statement purposes, at the carrying amount.

3. Parliamentary authorities

The Agency receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Financial Position and in the Statement of Operations and Departmental Net Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Agency has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

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

(in dollars) 2019 2018
Net cost of operations before government funding and transfers 43,767,768 51,956,637
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (163,830) (162,931)
Services provided without charge by other government departments (2,184,888) (2,082,962)
Adjustments of prior year accounts payable 1,711,928 1,928,689
Refunds of prior year's expenditures 2,848,359 2,536,103
Decrease in employee future benefits 34,268 131,397
Decrease (increase) in vacation pay and compensatory leave (117,545) (212,466)
Other (303,279) 13,842
Total items affecting net cost of operations but not affecting authorities 1,825,013 2,151,672
Adjustments for items not affecting net cost of operations but affecting authorities:
Increase in accounts receivable and advances 132,579 306,516
Authorities available for future years 22,066 5,228
Acquisition of tangible capital assets 75,589 0
Total items not affecting net cost of operations but affecting authorities 230,234 311,744
Current year authorities used 45,823,015 54,420,053

b) Authorities provided and used

(in dollars) 2019 2018
Authorities Provided:
Vote 1 – Operating expenditures 15,276,589 14,229,425
Vote 5 – Contributions 34,270,717 40,037,297
Statutory amounts 1,267,435 1,239,978
Total authorities provided 50,814,741 55,506,700
Less:
Authorities available for future years (22,066) (5,228)
Lapsed: Authorities available from previous years (5,228) 0
Lapsed: Vote 1 – Operating expenditures (1,434,432) (597,063)
Lapsed: Vote 5 – Contributions (3,530,000) (484,356)
Current year authorities used 45,823,015 54,420,053

4. Accounts payable and accrued liabilities

The following table presents details of the Agency's accounts payable and accrued liabilities.

(in dollars) 2019 2018
Accounts payable – Other government departments and agencies 318,091 611,212
Accounts payable – External parties 1,457,484 1,985,087
Accounts payable – Salaries owing to employees 1,423,323 1,328,104
Total accounts payable 3,198,898 3,924,403
Accrued liabilities 5,542,577 11,230,895
Total accounts payable and accrued liabilities 8,741,475 15,155,298

5. Employee future benefits

a) Pension benefits

The Agency’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 Agency 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 two groups - Group 1 related to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

The 2018-2019 expense amounts to $864,872 ($840,865 in 2017-2018). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2017-2018) the employee contributions and, for Group 2 members, approximately 1.00times (1.00 times in 2017-2018) the employee contributions.

The Agency’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 the Agency’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, 2019, 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 changes in the obligations during the year were as follows:

(in dollars) 2019 2018
Accrued benefit obligation – Beginning of year 359,710 491,107
Expense for the year 174,990 (131,004)
Benefits paid during the year (209,258) (393)
Accrued benefit obligation – End of year 325,442 359,710

6. Accounts receivable and advances

The following table presents details of the Agency's accounts receivable and advances balances:

(in dollars) 2019 2018
Receivables – Other government departments and agencies 40,764 324,586
Receivables – Salaries owing from employees 264,624 708,120
Receivables – External parties 171,238 165,192
Employee advances 4,430 3,580
Sub-total 481,056 1,201,478
Allowance for doubtful accounts on receivables from external parties (39,554) (37,723)
Gross accounts receivable and advances 441,502 1,163,755
Accounts receivable held on behalf of Government 0 (24)
Net accounts receivable and advances 441,502 1,163,731

7. Tangible capital assets

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

Asset Class Amortization Period
Leasehold Improvements Over the useful life of the improvement or the lease term, whichever is shorter
Motor vehicles 5 years
(in dollars)
Capital Asset Class Cost Accumulated Amortization Net Book Value
Opening
Balance
Acquisitions
and Disposals
Closing
Balance
Opening
Balance
Amortization Disposals Closing
Balance
2019 2018
Motor Vehicles 84,387 23,236 107,623 (84,387) (900) 52,353 (32,934) 74,689 0
Leasehold Improvements 2,406,365 0 2,406,365 (1,983,502 (162,930) 0 (2,146,432) 259,933 422,863
Total 2,490,752 23,236 2,513,988 (2,067,889) (163,830) 52,353 (2,179,366) 334,622 422,863

8. Contractual obligations

The nature of the Agency’s activities may result in some large multi-year contracts and obligations whereby the Agency will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in dollars) 2020 2019
Transfer payments 32,954,541 11,452,000
Rental of residential buildings 1,359,878 1,123,236

9. Related party transactions

The Agency is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms.

a) Common services provided without charge by other government departments

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

(in dollars) 2019 2018
Accommodation 1,365,261 1,251,878
Employer's contribution to the health and dental insurance plans 819,627 831,084
Total 2,184,888 2,082,962

The Government 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 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 Works and Government Services and audit services provided by the Office of the Auditor General are not included in the Agency’s Statement of Operations and Departmental Net Financial Position.

b) Other transactions with other government departments and agencies

(in dollars) 2019 2018
Expenses 3,746,132 3,520,004

Expenses disclosed in (b) include the cost of finance and administration services provided by Crown-Indigenous Relations and Northern Affairs, and other government departments, and excludes common services provided without charge already disclosed in (a).

10. Segmented information

Presentation by segment is based on the Agency's 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 main programs, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in dollars) Economic Development in the Territories Internal Services 2019 Total 2018 Total
Transfer Payments
Transfer Payments 26,844,233 0 26,844,233 35,594,693
Total - Paiements de transfert 26,844,233 0 26,844,233 35,594,693
Operating Expenses
Salaries and employee benefits 8,245,698 3,422,475 11,668,173 10,967,959
Professional and special services 800,157 1,524,601 2,324,758 2,017,524
Amortization of tangible capital assets 0 163,830 163,830 162,931
Travel and relocation 627,253 147,378 774,631 786,432
Buildings, machinery and equipment 1,642 87,269 88,912 263,211
Accommodation 964,807 400,454 1,365,261 1,251,878
Utilities, materials and supplies 18,826 66,266 85,092 66,489
Rentals of buildings and machinery 117,223 133,327 250,550 547,409
Transportation and telecommunication services 1,254 22,013 23,267 10,755
Information services 27,375 32,259 59,634 69,884
Repair and maintenance 13,868 119,290 133,158 111,598
Other expenses (218) 8,553 8,335 108,395
Bad debt expense 1,830 0 1,830 4,194
Expenses incurred on behalf of Government (1,830) 0 (1,830) (1,488)
Total operating expenses 10,817,885 6,127,716 16,945,601 16,367,173
Total expenses 37,662,118 6,127,716 43,789,834 51,961,865
Revenues
Miscellaneous revenue 0 23,982 23,982 6,749
Revenues earned on behalf of Government 0 (1,916) (1,916) (1,521)
Total revenues 0 22,066 22,066 5,228
Net cost of operations 37,662,118 6,105,650 43,767,768 51,956,637

11. Comparative information

Certain comparative figures have been reclassified to conform to the current year’s presentation.

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