1 Aboriginal Affairs and Northern Development Canada British Columbia Region Financial Reporting Processes Presentation to First Nations, Other Recipients and Auditors for 2012/2013 fiscal year reporting

2012/2013 Year-End Reporting Handbook AANDC and HC-FNIH have consolidated their audit reporting requirements into the this YERH and Audited Consolidated Financial Statements (ACFS). Both departments are referred throughout the document as AANDC and/or HC. AANDC and HC-FNIH have consolidated their audit reporting requirements into the this YERH and Audited Consolidated Financial Statements (ACFS). Both departments are referred throughout the document as AANDC and/or HC. 2

Financial statements are essential elements of accountability. They depict a Recipient’s financial health and provide information on how much funding was spent and for what purposes. Financial statements also assist in future decision making. Financial statements are essential elements of accountability. They depict a Recipient’s financial health and provide information on how much funding was spent and for what purposes. Financial statements also assist in future decision making. Financial statements are prepared by the Recipient and audited by an independent and qualified auditor. The auditor’s function is to determine the completeness and fairness of the financial statements in all material respects. Financial statements are prepared by the Recipient and audited by an independent and qualified auditor. The auditor’s function is to determine the completeness and fairness of the financial statements in all material respects. 3

BC Region Overview F-0080 Annual Audited Financial Statement F-0080 Annual Audited Financial Statement F-0081 Annual Unaudited Schedule of Revenue and Expenditure F-0081 Annual Unaudited Schedule of Revenue and Expenditure F-0190 Annual Audited Financial Statement F-0190 Annual Audited Financial Statement

BC Region Overview F-0191 Annual Audited Schedule of Revenue and Expenditure F-0191 Annual Audited Schedule of Revenue and Expenditure F-0192 Annual Unaudited Schedule of Revenue and Expenditure F-0192 Annual Unaudited Schedule of Revenue and Expenditure

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7 F-0080 – Annual Audited Consolidated Financial Statements First Nations, Tribal Councils and First Nation Political Organizations use the Canadian Public Sector Accounting Standards (CPSAS) First Nations, Tribal Councils and First Nation Political Organizations use the Canadian Public Sector Accounting Standards (CPSAS) This is based on the recommendations of the 2008 Financial Reporting by First Nations study from CICA This is based on the recommendations of the 2008 Financial Reporting by First Nations study from CICA orting_by_First_Nations_Report.pdf orting_by_First_Nations_Report.pdf orting_by_First_Nations_Report.pdf orting_by_First_Nations_Report.pdf

8 F-0080 Recipients other than First Nations, Tribal Councils and First Nation Political Organizations, should consult their auditor as to which accounting rules apply (Canadian Public Sector Accounting Standards or non-profit) Recipients other than First Nations, Tribal Councils and First Nation Political Organizations, should consult their auditor as to which accounting rules apply (Canadian Public Sector Accounting Standards or non-profit)

9 F-0080 It is acceptable to send the financial statements in 2 distinct packages which must arrive at AANDC together.

10 F First Package Annual Audited Financial Statements includes: Annual Audited Financial Statements includes: - Auditor’s Report, signed by auditor - Statement of Financial Position, signed by chief & Council. - Statement of Operations (revenues by source, AANDC revenue must reconcile) - Statement of Changes in Net Debt (or Assets) - Statement of Cash Flow - Notes to Financial Statements - Comparative figures for previous year must be presented. - A budget column for all revenues and expenditures. - Schedules of SFGF and Salaries & Honoraria with auditor’s Attestation.

F Reconciliation from Statement of Operations to AANDC funding confirmation AANDC and/or HC must be able to reconcile funding provided to the Recipient. The following reconciliation is to be submitted as part of the Audited Financial Statement package: AANDC and/or HC must be able to reconcile funding provided to the Recipient. The following reconciliation is to be submitted as part of the Audited Financial Statement package: 11

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13 F-0080 – SFGF Annex A (YERH) Schedule of Federal Government Funding Format must match YERH Schedule of Federal Government Funding Format must match YERH Auditor’s attestation or review engagement report is required Auditor’s attestation or review engagement report is required or Band Council Resolution authorizing release of entire audit on internet or Band Council Resolution authorizing release of entire audit on internet Reconciliation from Schedule of Federal Government Funding to AANDC funding confirmation Reconciliation from Schedule of Federal Government Funding to AANDC funding confirmation

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15 F Second Package 1. Program/Service/Activity Revenue and Expenditure Schedules 1. Program/Service/Activity Revenue and Expenditure Schedules With signed approval by Chief and Council and/or senior management OR With signed approval by Chief and Council and/or senior management OR An accountants notice to reader. An accountants notice to reader. Formats are included in YERH. Formats are included in YERH.

16 F-0080 AANDC Revenue by code must reconcile to revenue on funding confirmation AANDC Revenue by code must reconcile to revenue on funding confirmation Expenditures listed by object Expenditures listed by object Each capital project (including housing) must be reported separately Each capital project (including housing) must be reported separately SET, FLEX, FIXED, and aggregated BLOCK funding and matching expenditures must be presented separately SET, FLEX, FIXED, and aggregated BLOCK funding and matching expenditures must be presented separately Transfers between Block Funding activities must be clearly traceable per line item. Transfers between Block Funding activities must be clearly traceable per line item.

17 F-0080 BC Region will net out deficits with surpluses in unexpended Fixed Funds in the areas of Elementary/Secondary Education and O&M. BC Region will net out deficits with surpluses in unexpended Fixed Funds in the areas of Elementary/Secondary Education and O&M. Example, a surplus in Student Transportation may be used to cover deficit in Ancillary Support. Example, a surplus in Student Transportation may be used to cover deficit in Ancillary Support.

18 F Auditor’s Management Letter The CICA Handbook assurance recommendation 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”. The CICA Handbook assurance recommendation 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 Management Letter” or “Internal Control Letter” be provided to AANDC and/or HC in all instances. It is strongly recommended that the “Auditor’s Management Letter” or “Internal Control Letter” be provided to AANDC and/or HC in all instances. However, this becomes a mandatory reporting requirement in the following cases: However, this becomes a mandatory reporting requirement in the following cases: Where, a recipient is already under default provisions of a funding agreement (a continuation of a previously imposed default; and Where, a recipient is already under default provisions of a funding agreement (a continuation of a previously imposed default; and 19

When a Recipient is in default of its funding agreement and AANDC and/or HC has notified the Recipient that a default management action is required, AANDC and/or HC will request the “Auditor’s Management Letter” or “Internal Control Letter”. When a Recipient is in default of its funding agreement and AANDC and/or HC has notified the Recipient that a default management action is required, AANDC and/or HC will request the “Auditor’s Management Letter” or “Internal Control Letter”. 20

21 F-0080 Audited Statement of Receipt and Expenditure of Indian Moneys (Trust Funds - if any withdrawals) is no longer required. However, it must be reflected in Financial Statements and Notes. Audited Statement of Receipt and Expenditure of Indian Moneys (Trust Funds - if any withdrawals) is no longer required. However, it must be reflected in Financial Statements and Notes.

22 F-0080 – Schedules of Salaries and Honoraria Two separate Schedules of Salaries, Honoraria, Travel, and Other Remuneration for elected and unelected officials. Two separate Schedules of Salaries, Honoraria, Travel, and Other Remuneration for elected and unelected officials. Auditor’s attestation or review engagement report (Format must match YERH Annexes B & C) Auditor’s attestation or review engagement report (Format must match YERH Annexes B & C)

23 F-0081 – Package must include Schedule of Salaries, Honoraria, Travel Expenses and Other Remuneration, for Elected (Annex B) and Senior Unelected (Annex C) Officials – AUDITOR’S ATTESTATION Schedule of Salaries, Honoraria, Travel Expenses and Other Remuneration, for Elected (Annex B) and Senior Unelected (Annex C) Officials – AUDITOR’S ATTESTATION Schedule (Annex E) of Federal Government Funding – AUDITOR’S ATTESTATION Schedule (Annex E) of Federal Government Funding – AUDITOR’S ATTESTATION Unaudited Program/Service/Activity Revenues and Expenses Schedules (Annex A) Unaudited Program/Service/Activity Revenues and Expenses Schedules (Annex A)

24 F-0190 Annual Audited Financial Statements Annual Audited Financial Statements Program/Service/Activity Revenues and Expenditures Schedules Program/Service/Activity Revenues and Expenditures Schedules Funding Reconciliation from FNITP Funding Confirmation to Statement of Operations Funding Reconciliation from FNITP Funding Confirmation to Statement of Operations

25 F-0191 Audited Program/Service/Activity Revenues and Expenditures Schedules. Audited Program/Service/Activity Revenues and Expenditures Schedules. Auditor’s Report Auditor’s Report

26 F-0192 Unaudited Program/Service/Activity Revenues and Expenditures Schedules (Annex A) Unaudited Program/Service/Activity Revenues and Expenditures Schedules (Annex A)

Types of Funding – SET Surpluses are recovered at the end of each fiscal year Surpluses are recovered at the end of each fiscal year BC Region uses the lower of the reported expenditures or the audited schedules to determine the recoveries and reimbursements. BC Region uses the lower of the reported expenditures or the audited schedules to determine the recoveries and reimbursements. Deficits on capital projects or reimbursable deficits in Social Assistance may be brought forward from prior year. Deficits on capital projects or reimbursable deficits in Social Assistance may be brought forward from prior year. 27

SET – Continued Reimburseable set deficits in social assistance can be: Reimburseable set deficits in social assistance can be: Basic Needs (Transaction Activity Code 02305) Basic Needs (Transaction Activity Code 02305) Child Out of Parental Home Allowance (Transaction Activity Code 02307) Child Out of Parental Home Allowance (Transaction Activity Code 02307) Maintenance – Institutions (Transaction Activity Code 02370) Maintenance – Institutions (Transaction Activity Code 02370) Maintenance – Foster Homes (Transaction Activity Code 02371) Maintenance – Foster Homes (Transaction Activity Code 02371) Maintenance – Group Homes (Transaction Activity Code 02372) Maintenance – Group Homes (Transaction Activity Code 02372) Maintenance – Kinship Care (Transaction Activity Code 02379) Maintenance – Kinship Care (Transaction Activity Code 02379) Maintenance – Post Adoption Subsidies (Transaction Activity Code 02380) Maintenance – Post Adoption Subsidies (Transaction Activity Code 02380) Institutional Care – Type II (Transaction Activity Code 02397) Institutional Care – Type II (Transaction Activity Code 02397) Adult Foster Care (Transaction Activity Code 02398) Adult Foster Care (Transaction Activity Code 02398) 28

29 Set Funding

30 SSet Funding

SET – Continued April expenditure recognized as deferred revenue by AANC may appear in the previous year column. April expenditure recognized as deferred revenue by AANC may appear in the previous year column. 31

Types of Funding - FIXED Surpluses may be retained for one fiscal year if: Surpluses may be retained for one fiscal year if: – surpluses are used in the same program in the next fiscal year, or –The recipient sends a plan to AANDC within 120 days after end of the fiscal year to use the surplus in a different program, and AANDC must approve the plan. –A plan may be communicated to AANDC via addressed to Program manager and FSO. 32

Fixed – Continued Unexpended Fixed Funds will be held as deferred revenue in AANDC analysis. Unexpended Fixed Funds will be held as deferred revenue in AANDC analysis. AANDC assumes that unexpended fixed funds are used first before tapping into new year funding. AANDC assumes that unexpended fixed funds are used first before tapping into new year funding. Deficits are not brought forward, except for Capital projects. Deficits are not brought forward, except for Capital projects. 33

34 Fixed Funding

35 Fixed Funding

F-0080 – CFNFA OLD BLOCK The following recipients had CFNFA funding arrangements with old funding types (AFA, contribution, FTP) The following recipients had CFNFA funding arrangements with old funding types (AFA, contribution, FTP) 676 Kitamaat 676 Kitamaat 700 Boothroyd 700 Boothroyd 713 Canim Lake 713 Canim Lake 1071 Nuu-Chah-Nulth Tribal Council 1071 Nuu-Chah-Nulth Tribal Council 36

Types of Funding: NEW BLOCK Flexibility to transfer between Block Funded Programs. Flexibility to transfer between Block Funded Programs. Net transfers between Block funded programs must net out to zero and must be clearly traceable. Net transfers between Block funded programs must net out to zero and must be clearly traceable. Ineligible expenditures or transfers will be recovered in the same fiscal year. Ineligible expenditures or transfers will be recovered in the same fiscal year. Aggregate surplus/deficit is carried forward until the end of the agreement. Aggregate surplus/deficit is carried forward until the end of the agreement. 37

NEW BLOCK - Continued Opening surpluses and deficits at beginning of funding arrangements are not brought forward Opening surpluses and deficits at beginning of funding arrangements are not brought forward Surplus will be classified as Long Term Liability until the last year of the agreement, and then it will be classified as Deferred Revenue for the following year. Surplus will be classified as Long Term Liability until the last year of the agreement, and then it will be classified as Deferred Revenue for the following year. Aggregate surpluses may be retained for one fiscal year after the end of the agreement if: Aggregate surpluses may be retained for one fiscal year after the end of the agreement if: 38

NEW BLOCK - Continued – Surpluses will be used within block services, –or –The recipient sends a plan to AANDC to use the surplus in a different program outside block services, and AANDC must approve the plan. –A plan may be communicated to AANDC via addressed to Program manager and FSO. 39

NEW BLOCK - Continued In presentation of schedules, AANDC and other revenues should be shown at the top, followed by all expenses by object with Transfers shown below the surplus/deficit line. In presentation of schedules, AANDC and other revenues should be shown at the top, followed by all expenses by object with Transfers shown below the surplus/deficit line. If a program has AANDC plus other sources of revenue, AANDC will pro-rate revenue against expenditures. If a program has AANDC plus other sources of revenue, AANDC will pro-rate revenue against expenditures. 40

NEW BLOCK - Continued Block fund revenues should be divided among all block funded activities within each program – it is better not to show revenues as a transfer. Block fund revenues should be divided among all block funded activities within each program – it is better not to show revenues as a transfer. For example in education total revenue $100,000 should be divided among all schedules with eligible expenditures within education ie. Tuition $25,000, ancillary services $75,000 guidance and counselling $25,000 For example in education total revenue $100,000 should be divided among all schedules with eligible expenditures within education ie. Tuition $25,000, ancillary services $75,000 guidance and counselling $25,000 41

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43 Bl oc k Block Fund

44 Block Funding

NEW Block - Continued 45 Block Funding Summary Sheet FY Sched # & Name or Page# Surplus (Deficit) Beginning of Year AANDC Block Revenue Other Block Revenue Total Block Revenue Block Program Expenditure s Block Transfer In/(Out) Block Trf Sched # & Name or Page# Cumulative Net Surplus (Deficit) End of Year

46 Types of Funding - GRANTS GRANT – same as previous years, recipient may retain if they qualify for the grant GRANT – same as previous years, recipient may retain if they qualify for the grant

47 Notification of Auditor Recipients report to AANDC who their auditor is by March 15 each fiscal year. Recipients report to AANDC who their auditor is by March 15 each fiscal year. FN Approval for AANDC to contact the auditor directly. FN Approval for AANDC to contact the auditor directly.

48 AANDC sends confirmations to auditors in May each fiscal year Packages include: Funding Confirmation Checklist for AANDC audit acceptance Trust fund balances Guaranteed loan balances Social Development statistical rollup List of funded Capital projects List of PAYE

49 AANDC receives audits July 29 Please see page 5 of the program guide for information on how to send in reports. aandc.gc.ca/dci/RRG/ /E/UR/MG/Regional/K_1213E_BC_Pro gram_Guide.pdf aandc.gc.ca/dci/RRG/ /E/UR/MG/Regional/K_1213E_BC_Pro gram_Guide.pdf

50 AANDC checklist for incoming audits AANDC’s target is to accept or reject audits in 15 days (Initial Review) AANDC’s target is to accept or reject audits in 15 days (Initial Review) Is the audit consistent with the Year End Reporting Handbook (YERH)? Is the audit consistent with the Year End Reporting Handbook (YERH)? Does AANDC have enough information to proceed with the review? Does AANDC have enough information to proceed with the review?

51 AANDC Audit Review Letter Audit review letter addresses audit opinion, and the recipient’s financial position Financial Ratios implemented for recipients using the government reporting model including all First Nations. For other recipient using the non-profit presentation AANDC is using operating equity divided by total revenue.

52 AANDC Audit Review Letter Letter summarizes surplus recoveries, reimbursements, and deferred revenues Letter summarizes surplus recoveries, reimbursements, and deferred revenues Detailed report and annexes show how the numbers in the letter were calculated Detailed report and annexes show how the numbers in the letter were calculated

53 AANDC Audit Review Letter Annexes show analysis of all funded services and all capital projects except for grants Annexes show analysis of all funded services and all capital projects except for grants AANDC reimburses for SET Basic Needs, Child Out of Parental Home, Adult Institutional Care, and Child & Family Services Maintenance to the lower of the approved report or the audit amount AANDC reimburses for SET Basic Needs, Child Out of Parental Home, Adult Institutional Care, and Child & Family Services Maintenance to the lower of the approved report or the audit amount

54 AANDC Audit Review Letter Capital Project Surplus Recovery and Reimbursement Form: Recipients can request funding for incomplete capital projects to replace funds recovered as part of the audit review process. Recipients can request funding for incomplete capital projects to replace funds recovered as part of the audit review process.

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56 AANDC Audit Review Letter Recoveries and reimbursements : Recoveries and reimbursements : Will be netted in same fiscal year; Will be netted in same fiscal year; possible recovery in one fiscal year; reimbursement in next possible recovery in one fiscal year; reimbursement in next

57 Standards for Default Management Wording in the Funding Arrangement for Default Management Wording in the Funding Arrangement for Default Management Default of funding provisions Default of funding provisions Denial or adverse opinion by auditor Denial or adverse opinion by auditor Negative Financial Ratios Negative Financial Ratios Health and safety is at risk Health and safety is at risk Governance Issues Governance Issues Program Delivery or the lack thereof. Program Delivery or the lack thereof.

58 Changes in Policies Emphasis on prevention and voluntary management development plans Emphasis on prevention and voluntary management development plans Default management can be on a program specific basis Default management can be on a program specific basis Default prevention, Default Management and Sustainability are emphasized, where previous policy emphasized default management Default prevention, Default Management and Sustainability are emphasized, where previous policy emphasized default management

Three Types of Default Management Management Action Plan (MAP) Self Managed Management Action Plan (MAP) Self Managed MAP with Expert Resource Service MAP with Expert Resource Service Third Party Managed Third Party Managed 59

60 Default based on Ratios For recipients using the non-profit presentation model we still use the operating surplus/deficit divided by total revenue, intervention triggered at -8% For recipients using the non-profit presentation model we still use the operating surplus/deficit divided by total revenue, intervention triggered at -8% For recipients using the government presentation model (including all First Nations) we use 3 financial ratios. For recipients using the government presentation model (including all First Nations) we use 3 financial ratios.

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Financial Ratios - Liquidity The liquidity ratio calculates whether the Recipient has assets sufficient to cover liabilities. It is a measure of short-term financial health The liquidity ratio calculates whether the Recipient has assets sufficient to cover liabilities. It is a measure of short-term financial health 64

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Financial Ratios - Sustainability 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. 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. 66

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Financial Ratios – Working Capital This ratio tests to see if current working capital deficiency can be covered with one month's revenues. This ratio tests to see if current working capital deficiency can be covered with one month's revenues. 68

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70 Policy 200 Default Prevention and Management aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/

71 Directive 205 Default Prevention and Management aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/

72 Directive Third Party Funding Agreement Management aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/ aandc.gc.ca/eng/ BC Region has no third party funding agreements at this time BC Region has no third party funding agreements at this time

Year-End Reporting handbook: Year-End Reporting handbook: year-end-handbook.pdf year-end-handbook.pdf Audited Consistent Consolidated Financial Statements Model: Audited Consistent Consolidated Financial Statements Model: model-financial-stmts.pdf model-financial-stmts.pdf 73

74 Questions?? Ashraf Ghali Tel:

75 BC Audit Review Thanks for coming to the conference!