Financial Reporting Requirements Indigenous and Northern Affairs Canada (INAC) Annual Information Session November 2016

INTRODUCTION 2016-2017 Financial Reporting Requirements Consolidation of Reporting Requirements of Indigenous and Northern Affairs Canada (INAC) and Health Canada - First Nations and Inuit Health Branch (HC-FNIHB). INAC and HC-FNIHB have consolidated their financial year-end reporting requirements into the INAC Reporting Guide. The Reporting Guide also includes Audited Consolidated Financial Statements (ACFS) format requirements. INAC and HC-FNIHB Recipients must report using this document available on INAC's website. (http://www.aadnc-aandc.gc.ca/eng/1385559716700/1385559777677) First Nation and Inuit recipients who have funding agreements with both INAC and HC-FNIHB must provide their ACFS and schedules required under this document to INAC who will then provide the documents to HC-FNIHB.

Financial Reporting Requirements Agenda Accounting Standards Types of Financial Reporting First Nations Financial Transparency Act (FNFTA) Financial Reporting Packages Financial Reporting 1st Package – FNFTA Schedule of Remuneration and Expenses Financial Reporting 2nd Package Financial Reporting Requirements for Recipients Other than First Nations, Tribal Councils and Indigenous Representative Organizations (includes Not-For-Profit) Financial Health/Financial Ratios

Tribal Councils and Indigenous Representative Organizations: Accounting Standards First Nations: The Public Sector Accounting Handbook (PSA Handbook) applies to all governments in Canada and includes First Nations. Tribal Councils and Indigenous Representative Organizations: Must adhere to the PSA Handbook accounting recommendations of the Common Government Reporting Model unless they are deemed to be profit-oriented enterprises, or not-for-profit organizations, or government not-for-profit organizations (if applicable) by Canadian Accounting Standards definitions and recommendations. Who decides that? Management of the Organization decides it in consultation with their auditor.

Accounting Standards (cont’d) Recipients other than First Nations, Tribal Councils and Indigenous Representative Organizations: Must adhere to the PSA Handbook accounting standards unless they are deemed to be profit-oriented enterprises, or not-for-profit organizations, or government not-for-profit organizations (if applicable) by Canadian Accounting Standards definitions and recommendations.

Financial Reporting Types Financial reporting type is determined by recipient type, funding amount, and recipient risk level. The types of financial reporting are: F-0080 Annual Audited Consolidated Financial Statements package (applicable to all First Nations) F-0081 Annual Unaudited Schedule of Revenue and Expenses package F-0190 Annual Audited Consolidated Financial Statements package F-0191 Annual Audited Schedule of Revenue and Expenses package F-0192 Annual Unaudited Schedule of Revenue and Expenses F-0081 This is true for INAC recipient's not covered by the First Nation’s Fiscal Transparency Act (FNFTA) such as TCs PTOs and FNs under a self government agreement. First Nations need to submit a consolidated audit F-0080 in order to meet their obligations under FNFTA.

First Nations Financial Transparency Act (FNFTA) The FNFTA requires each First Nation that is a Band as defined in subsection 2(1) of the Indian Act (that is not party to a comprehensive self-government agreement given effect by an Act of Parliament) to prepare and publish on its internet site (or cause to be published on an internet site) the following documents within 120 days after the end of the financial year: its Audited Consolidated Financial Statements (ACFS), including the auditor's written report; and a Schedule of Remuneration and Expenses setting out the remuneration paid and the expenses reimbursed to its Chief and each of its Councillors for the financial year, accompanied by an auditor's report or a review engagement report. INAC is required to publish the ACFS and Schedules from First Nations on its website: http://pse5-esd5.ainc-inac.gc.ca/fnp/Main/Search/SearchFN.aspx In Ontario we have no First Nations under self-government agreements. And all FNs in Ontario have March 31st fiscal year ends. The web address is shown on the slide where these documents are published by INAC.

Financial Reporting Packages To comply with FNFTA mandates, ALL First Nations are required to send their financial reporting in two distinct packages, which must arrive at INAC together. 1st package Contains documents to be published on the internet by INAC and the First Nation (pursuant to FNFTA requirements). 2nd package Contains documents NOT to be published on the internet by INAC but required as per the funding agreement. “on the Internet” refers to both AANDC and a FN’s website. If a FN does not have access to a website it may request AANDC to post on its website in order to fulfill the FNs responsibilities under FNFTA. Request Needs to accompany the FN financial statements in writing.

Financial Reporting 1st Package - FNFTA ACFS are to be published on the internet by INAC and the First Nation and should include the following: Management Responsibility Letter Auditor’s Report signed by auditor Consolidated Statement of Financial Position, signed by Chief and Council Consolidated Statement of Operations (budget figures and revenues by source; INAC revenue must reconcile) Consolidated Statement of Changes in Net Debt (or Assets) Consolidated Statement of Cash Flow Notes to Financial Statements Comparative figures for previous year must be presented “on the Internet” refers to both INAC and a FN’s website. If a FN does not have access to a website it may request INAC to post on its website in order to fulfill the FNs responsibilities under FNFTA. Request Needs to accompany the FN financial statements in writing.

Financial Reporting 1st Package – FNFTA (cont’d) Also included with the FNFTA package is the Schedule of Remuneration and Expenses (Chiefs and Councillors) – Annex B. The following documents make up this submission: Auditor’s Report or Review Engagement Report signed by auditor; and Schedule of Remuneration and Expenses. The website for information on the consistent consolidated financial statements is: https://www.aadnc-aandc.gc.ca/eng/1386700365578/1386700453627. “on the Internet” refers to both INAC and a FN’s website. If a FN does not have access to a website it may request INAC to post on its website in order to fulfill the FNs responsibilities under FNFTA. Request Needs to accompany the FN financial statements in writing.

Schedule of Remuneration and Expenses Two separate Schedules of Remuneration and Expenses are required. Both must be accompanied by a signed Auditor’s Report or Review Engagement Report. For the FNFTA package, only the Chief and Council Annex B, is required. This will be posted online. For the second package, both the Chief and Council Annex B, and the Unelected Senior Officials Annex C, are required. This will not be posted online. The format must meet (or exceed) the minimum Financial Reporting Requirements found in the Reporting Guide Annexes B & C.

Schedule of Remuneration and Expenses (cont’d) Section 6(1) of the FNFTA requires the public disclosure of remuneration (salaries and expenses) paid to the Chief and Councilor(s) by the First Nation and its entities, which are required to be consolidated in its audited financial statements.

Schedule of Remuneration and Expenses (cont’d) “Remuneration” is defined in the Act as any salaries, wages, commissions, bonuses, fees, honoraria and dividends and any other monetary benefits (other than the reimbursement of expenses) and non-monetary benefits, paid by the First Nation and by any entity that, in accordance with generally accepted accounting principles, is required to be consolidated with the First Nation. “Expenses” are defined in the Act as including costs of transportation, accommodation, meals, hospitality and incidental expenses.

Schedule of Remuneration and Expenses (cont’d) (Excerpt from the 2016-2017 Reporting Guide)

Financial Reporting 2nd Package The second package contains the same documents as the FNFTA package. The second package also includes documents NOT required to be published on the internet by INAC. The following is the list of additional information required: Remuneration and Expenses for Unelected Senior Officials Annex C Statement of Moveable Assets Reserve (Annex D) – An auditor’s report or a review engagement report is required, where applicable (required by Health Canada) Reconciliation of Revenue Reconciliation of INAC revenue: Statement of Operations to INAC Funding Confirmation. Reconciliation is NOT based on cash flow. INAC and/or HC must be able to reconcile funding provided to the recipient.

Financial Reporting 2nd Package (cont’d) Program/Service/Activity[/Project] Revenue and Expenses Schedules (Annex A) With signed approval by Chief and Council and/or senior management or an Accountant’s Notice to Reader. Formats are set out in the Reporting Guide. Each INAC Revenue by program code should be reported separately. Disclose ALL revenues/funding received by all sources for each INAC-funded activity/program. INAC will prorate its portion/percentage of the total revenue applied to total expenditures to determine surpluses and deficits. Each capital project (including housing) should be reported separately. SET, FLEX, FIXED, and BLOCK funding and matching expenditures should also be presented separately. Disclose Budget figures and Prior-year Unexpended Funds, where applicable and presented separately as Fixed, Flex, and Block Funding. Annex A must be approved by an authorized representative of the recipient, indicated by a signature on the submitted package.

Financial Reporting 2nd Package (cont’d) Auditor’s Letter to Management (Internal Control Letter) (NOT required to be published on the internet) The Canadian Institute of Chartered Accountants (CICA) Handbook - Assurance recommendation 5220.07 states that “The auditor should communicate to the audit committee or equivalent, significant weaknesses in internal control, which the auditor identifies during the course of the financial statement audit.” It is strongly recommended that the “Auditor’s Letter to Management” or “Internal Control Letter” be provided to INAC in all instances. However, its provision become a mandatory reporting requirement when a recipient is in default of their funding agreement terms and conditions. INAC has notified, or will notify, the recipient when a remedy for a default is required and will request the “Auditor’s Letter to Management” or “Internal Control Letter”.

Financial Reporting Requirements for Recipients other than First Nations, Tribal Councils and Indigenous Representative Organizations (includes Not-For-Profit) Financial reporting requirements for Recipients other than First Nations, Tribal Councils and Indigenous Representative Organizations (including Not-For-Profit) using the General Reporting Model include the following: Annual Audited Consolidated Financial Statements; same requirements as F-0080 not including Annex B & C (Schedules of Remuneration and Expenses) Program/Service/Activity[/Project] Revenues and Expenses Schedules (Annex A); same requirements as F-0080

Financial Health/Financial Ratios For recipients using the non-profit presentation model, we still use the cumulative operating surplus/deficit divided by total revenue. Default management may be triggered at <0 percent. For recipients using the Common Government or Public Sector Accounting Board (PSAB) model (including all First Nations), three financial ratios are used to determine financial health: - Liquidity: < 0.90 is unfavourable - Sustainability: < 0.50 is unfavourable - Working Capital: <- 0.08 is unfavourable

Financial Health/Financial Ratios (cont’d) The liquidity ratio calculates whether the recipient has assets sufficient to cover liabilities. It is a measure of short-term financial health. Liquidity Ratio = Current assets divided by current liabilities.

Financial Health/Financial Ratios (cont’d) Liquidity Ratio

Financial Health/Financial Ratios (cont’d) The sustainability ratio calculates the recipient's ability to service operational and capital obligations over the long-term. It is a measure of longer term financial health. Sustainability Ratio = (total financial assets less Government Business Enterprise and Trust Funds) divided by total liabilities.

Financial Health/Financial Ratios (cont’d) Sustainability Ratio

Financial Health/Financial Ratios (cont’d) This ratio tests to see if current working capital deficiency can be covered with one month's revenues. Working Capital Ratio = (current assets less current liabilities) divided by total revenue.

Financial Health/Financial Ratios (con’d) Working Capital

Questions??