2010-11 Year End Financial Statements for the Canadian Northern Economic Development Agency

1. Authority and Objectives

The Canadian Northern Economic Development Agency (CanNor) 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 CanNor. CanNor is listed in Schedule I.1 of the Financial Administration Act.

CanNor is an important element of Canada's Northern Strategy in furthering the development of a strong and diversified economy for the benefit of those who live, work and support their families in the North and for all Canadians. CanNor's mandate is to promote economic development in Canada's three territories: the Northwest Territories, Nunavut and Yukon. CanNor delivers regional economic development programs in the territories, co-ordinates and serves as the regional delivery agent for certain national economic initiatives, develops related policy, conducts research, administers federal responsibilities in the North (such as official language minority communities and the Regional Federal Councils), and plays an advocacy role to support effective program delivery and leverage federal involvement for the long-term prosperity of Northerners.

In pursuit of its mandate and to contribute to its strategic outcome of developed and diversified territorial economies that support prosperity for all Northerners, CanNor has structured its program activities as follows:

a) Community Development – This program activity supports community-level investments in infrastructure and organizations, individual-level investments in skills and capacity development, and proposals from First Nation, Métis and Inuit entrepreneurs in the North as well as from northern communities, Aboriginal businesses and financial organizations. The objective of this program activity is the establishment of economically sustainable Northern communities with a higher quality of life for residents.

b) Business Development – This program activity supports the growth and expansion of northern businesses, including small and medium enterprises, through training, advisory services, and grants and contributions. The objective of this program activity is the encouragement of a competitive, diverse Northern business sector with a strengthened capacity for innovation.

c) Policy, Advocacy and Coordination – This program activity supports research and analysis to guide programming and policy choices, the promotion of northern interests both inside and outside of the federal government, the development of horizontal strategies, initiatives and projects to address economic development challenges in the North, the coordination of federal responsibilities throughout the regulatory cycle of resource development projects, and close collaboration with key players to improve northern economic development. The objective of this program activity is to ensure that CanNor has the information and understanding required to provide a balanced, regionally sensitive approach that addresses northern priorities while maximizing effectiveness.

d) Internal Services – This program activity supports the programs and other corporate obligations of CanNor to ensure effective and efficient delivery of its mandate.

2. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

a) Parliamentary authorities – CanNor is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CanNor 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 the 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.

b) Net cash provided by Government – CanNor operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CanNor 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) Due from Consolidated Revenue Fund – Amounts due from/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 Agency is entitled to draw from the CRF without further appropriations to discharge its liabilities.

d) Expenses – Expenses are recorded on the accrual basis:

Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized 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.

Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made.

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 contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

e) Employee future benefits–

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. CanNor's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require CanNor to make contributions for any actuarial deficiencies of the Plan.

Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

f) Accounts receivable – Accounts receivables are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.

g) 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. The Agency 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 asset as follows:

h) Measurement uncertainty – The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are the liability for employee severance 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.

3. Parliamentary Authorities

CanNor is financed by the Government of Canada through Parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, CanNor 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

b) Authorities provided and used

4. Accounts receivable and advances

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

5. Tangible capital assets

6. Accounts payable and accrued liabilities

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

7. Employee future benefits

a) Pension benefits

CanNor's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. 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 Plans benefits and they are indexed to inflation.

Both the employees and the Agency contribute to the cost of the Plan. The 2010-2011 expense amounts to $880,303 ($534,149 in 2009-2010), which represents approximately 1.9 times (1.9 times in 2009-2010) the contributions by employees.

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

b) Severance benefits

CanNor provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, is as follows:

8. Related Party Transactions

CanNor is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. CanNor enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the Agency received common services which were obtained without charge from other Government departments as disclosed below.

a) Services provided without charge

During the year CanNor received services without charge from certain common service organizations, related to accommodation, legal services and the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in CanNor's Statement of Operations as follows:

The Government has centralized some of its administrative activities for efficiency, costeffectiveness 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 Canada and audit services provided by the Office of the Auditor General are not included in the Agency's Statement of Operations.

b) Other transactions with related parties

9. Segmented Information

Presentation by segment is based on CanNor's program activity architecture. 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 program activities, by major object of expenses and by major type of revenues. The segment results for the period as are follows:

10. Correction of error

An audit of the Agency's accrued liabilities determined that the balance reported for the 2010 fiscal year was understated as a result of an error in the calculation of accrued liability balances and the improper application of the Payables-at-Year-end policy. This led to a corresponding understatement in the asset 'Due from Consolidated Revenue Fund'.

The audit also revealed that transfer payment expenses were overstated for the 2010 fiscal year due to improper recognition of accrued liabilities. This resulted in a corresponding overstatement of accrued liabilities and 'Due from Consolidated Revenue Fund' balances.

Furthermore, the liability for vacation pay and compensatory leave was understated for the 2010 fiscal year as a result of a coding error. This led to a corresponding overstatement in Equity of Canada.

The net effect of the prior year errors on the 2010 comparative figures included in these financial statements is summarized below.

11. Comparative Information

Comparative figures have been reclassified to conform to the current year's presentation.