Statement of Management Responsibility
Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2010 and all information contained in these statements rests with the Agency’s management. These financial statements have been prepared by management in accordance with Treasury Board accounting policies and year end instructions used by the Office of the Comptroller General which are consistent with Canadian generally accepted accounting principles for the public sector.
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 fulfil 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 to the Public Accounts of Canada and included in the Agency’s Departmental Performance Report and Annual Report is consistent with these financial statements.
Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the Agency.
The financial statements of the Agency have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.
| Serge P. Dupont Commissioner Ottawa, Canada November 1, 2010 |
Christopher Cuddy Assistant Commissioner Ottawa, Canada November 1, 2010 |
AUDITOR'S REPORT
To the Minister of Natural Resources
I have audited the statement of financial position of the Northern Pipeline Agency as at 31 March 2010 and the statements of operations, equity of Canada and cash flow for the year then ended. These financial statements are the responsibility of the Agency’s management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In my opinion, these financial statements present fairly, in all material respects, the financial position of the Agency as at 31 March 2010 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.
Further, in my opinion, the transactions of the Agency that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the Financial Administration Act and regulations, the Northern Pipeline Act and regulations, the National Energy Board Cost Recovery Regulations and the by-laws of the Agency.
Chantale Perreault, CA, CIA
Principal
for the Auditor General of Canada
Ottawa, Canada
24 September 2010
| 2010 | 2009 | |
|---|---|---|
| (Restated - Note 3) | ||
| ASSETS | ||
| Financial assets | ||
| Due from Consolidated Revenue Fund | $927,188 | $1,003,155 |
| Accounts receivable and advances (Note 7) | 327,336 | 20,557 |
| 1,254,524 | 1,023,712 | |
| Non-financial assets | ||
| Tangible capital assets (Note 5) | 10,453 | 4,106 |
| TOTAL ASSETS | $1,264,977 | $1,027,818 |
| LIABILITIES | ||
| Accounts payable and accrued liabilities (Note 7) | $79,400 | $33,127 |
| Deferred revenue (Note 6) | 1,185,577 | 994,691 |
| TOTAL LIABILITIES | 1,264,977 | 1,027,818 |
| Equity of Canada | - | - |
| TOTAL LIABILITIES AND EQUITY OF CANADA | $1,264,977 | $1,027,818 |
Contractual obligations (Note 9)
The accompanying notes form an integral part of the financial statements.
Approved by:
| 2010 | 2009 | |
|---|---|---|
| REVENUE | ||
| Regulatory revenue | $598,950 | $148,060 |
| OPERATING EXPENSES | ||
| Salaries and employee benefits | $252,945 | $9,629 |
| Professional and special services | 228,395 | 89,095 |
| Transportation and communication | 60,184 | 2,751 |
| Rentals | 42,058 | 41,180 |
| Small equipment | 7,751 | - |
| Utilities, Materials, Supplies | 4,326 | - |
| Information | 1,839 | 2,603 |
| Amortization | 867 | 2,788 |
| Loss on write-off of tangible capital assets | 568 | - |
| Other | 17 | 14 |
| TOTAL RECOVERABLE EXPENSES | 598,950 | 148,060 |
| NON-RECOVERABLE SERVICES RECEIVED WITHOUT CHARGE (Note 7) | 51,513 | 56,385 |
| NET COST OF OPERATIONS | $51,513 | $56,385 |
| 2010 | 2009 | |
|---|---|---|
| (Restated - Note 3) | ||
| Equity of Canada, beginning of the year | $ - | $ - |
| Net cost of operations | (51,513) | (56,385) |
| Change in due from Consolidated Revenue Fund | (75,967) | 91,392 |
| Non-recoverable services received without charge | 51,513 | 56,385 |
| Net cash provided by Government | 75,967 | (91,392) |
| Equity of Canada, end of the year | $ - | $ - |
The accompanying notes form an integral part of the financial statements.
| 2010 | 2009 | |
|---|---|---|
| (Restated - Note 3) | ||
| Operating Activities | ||
| Net cost of operations | $51,513 | $56,385 |
| Adjustment for non-cash items | ||
| Services received without charge (Note 7) | (51,513) | (56,385) |
| Amortization of tangible capital assets | (867) | (2,788) |
| (Loss) on write-off of tangible capital assets | (568) | - |
| (1,435) | (2,788) | |
| Variations in the Statement of Financial Position | ||
| Increase (Decrease) in accounts receivable and advances | 306,779 | (6,228) |
| (Increase) in accounts payable and accrued liabilities | (46,273) | (28,683) |
| (Increase) in deferred revenue | (190,886) | (53,693) |
| Cash used by operating activities | 68,185 | (91,392) |
| Investment Activities | ||
| Acquisition of tangible capital assets | 7,782 | - |
| Cash used by investment activities | 7,782 | - |
| Financing Activities | ||
| Net cash provided by Government of Canada | $ (75,967) | $ 91,392 |
The accompanying notes form an integral part of the financial statements.
Northern Pipeline Agency
Notes to the Financial Statements
Year ended 31 March 2010
1. Authority, Objectives and Operations
In 1978, Parliament enacted the Northern Pipeline Act to:
- give effect to an Agreement on Principles Applicable to a Northern Natural Gas Pipeline (the Agreement) between the Governments of Canada and the United States of America;
- establish the Northern Pipeline Agency (the Agency) to oversee the planning and construction of the Canadian portion of the project.
The Agency is designated as a department and named under Schedule I.1of the Financial Administration Act, reporting to Parliament through the Minister of Natural Resources.
The objectives of the Agency are to:
- carry out and give effect to the Agreement of September 20, 1977 between Canada and the United States underpinning the project;
- carry out, through the Agency, federal responsibilities in relation to the pipeline;
- facilitate the efficient and expeditious planning and construction of the pipeline, taking into account local and regional interests;
- facilitate consultation and coordination with the governments of the provinces and the territories traversed by the pipeline;
- maximize the social and economic benefits of the pipeline while minimizing any adverse social and environmental effects; and
- advance national economic and energy interests and to maximize related industrial benefits by ensuring the highest possible degree of Canadian participation.
In accordance with Section 29 of the Northern Pipeline Act and with the National Energy Board Cost Recovery Regulations, the Agency is required to recover all of its annual operating costs from the companies holding certificates of public convenience and necessity. Currently, Foothills is the sole holder of such certificates. The Government of Canada provides funds for working capital through an annual Parliamentary appropriation.
2. Summary of Significant Accounting Policies
These financial statements have been prepared in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are consistent with Canadian generally accepted accounting principles for the public sector. The significant accounting policies are:
a) Parliamentary appropriations:
The Agency is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the Agency do not parallel financial reporting according to generally accepted accounting principles since appropriations 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 appropriations from Parliament. Note 4 provides a high-level reconciliation between the bases of reporting.
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 the Government is the difference between all cash receipts and all cash disbursements including transactions between the Agency and departments of the federal government.
c) Due from the Consolidated Revenue Fund:
Due from the Consolidated Revenue Fund (CRF) represents the amount of cash that the Agency is entitled to draw from the Consolidated Revenue Fund without further appropriations, in order to discharge its liabilities.
d) Revenue/Deferred revenue:
Revenues from regulatory fees recovered from Foothills are recognized in the year in which the expenses were incurred.
Revenues that have been received but not yet earned are recorded as deferred revenues. Deferred revenues represent the accumulation of excess billings over the actual expenses.
e) Expenses:
Expenses are recorded on the accrual basis.
Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
Services provided without charge from other government departments are recorded as operating expenses at their estimated cost and credited directly to equity.
f) Accounts receivable:
Receivables are stated at amounts expected to be ultimately realized. A provision is made for receivables where recovery is considered uncertain.
g) Employee future benefits:
Future benefits for seconded employees, including pension benefits, providing services to the Agency are funded by the employee’s home-base department. Estimated costs are included in the employee benefits charged to the Agency.
h) Tangible capital assets:
All tangible capital assets and leasehold improvements having an initial cost of $1,000 or more are recorded at their acquisition cost. Tangible capital assets owned by the Agency are valued at cost, net of accumulated amortization. Amortization is calculated using the straight-line method, over the estimated useful life of the assets as follows:
| Office furniture and equipment | 10 years |
| Informatics hardware | 4 years |
i) Measurement uncertainty:
The preparation of these financial statements in accordance with Treasury Board accounting policies and year-end instructions issued by the Office of the Comptroller General, which are consistent with Canadian generally accepted accounting principles for the public sector, 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. Salaries and employee benefits and the useful life of tangible capital assets are the most significant items where estimates are used. Actual results could differ significantly from those estimated. Management’s estimates are reviewed annually and as adjustments become necessary, they are recognized in the financial statements in the year in which they become known.
3. Restatement of the Prior Year Deferred Revenue Opening Balance
According to the significant accounting policy, deferred revenue represents the accumulation of excess billings over the actual expenses of the Agency.
Every year, the Agency estimates its costs for the upcoming year and bills the third party, Foothills Pipe Lines Ltd. based on these estimates. Once a year, the Agency compares the actual expenses of the preceding year to the estimate billed and the difference is a “billing adjustment” which reduces future billings. In 2007, the Agency did not have sufficient billings to absorb the 2005 billing adjustment and overlooked to carry forward a portion of that billing adjustment in the deferred revenue calculation resulting in a $201,753 error. The March 31, 2009 deferred revenue and Due from the Consolidated Revenue Fund have been restated by $201,753 for the correction of the error.
4. Parliamentary Appropriations
The Government of Canada funds the expenses of the Agency through Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations 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 as follows:
a) Reconciliation of net cost of operations to current year parliamentary appropriations used:
| 2010 | 2009 | |
|---|---|---|
| Net cost of operations | $51,513 | $56,385 |
| Adjustments for items affecting net cost of operations but not affecting appropriations: | ||
| Add (Less): | ||
| Services received without charge | (51,513) | (56,385) |
| Amortization of tangible capital assets | (867) | (2,788) |
| Revenue not available for spending | 598,950 | 148,060 |
| Other | 3,682 | (5,554) |
| 601,765 | 139,718 | |
| Adjustments for items not affecting net cost of operations but affecting appropriations: | ||
| Add (Less): | ||
| Acquisitions of tangible capital assets | 7,782 | - |
| Current year appropriations used | $609,547 | $139,718 |
b) Appropriations provided and used:
| 2010 | 2009 | |
|---|---|---|
| Vote 30 - Program expenditures | $613,000 | - |
| Vote 35 - Program expenditures | - | $256,200 |
| Vote 30b – Transfer from Vote 25 | 12,200 | - |
| Statutory amounts | 34,859 | 1,011 |
| Lapsed appropriations | (50,512) | (117,493) |
| Current year appropriations used | $609,547 | $139,718 |
c) Reconciliation of net cash provided by Government to current year appropriations used:
| 2010 | 2009 | |
|---|---|---|
| (Restated - Note 3) | ||
| Net cash provided by Government | $75,967 | $(91,392) |
| Adjustments for items not affecting net cost of operations: | ||
| Revenue not available for spending | 598,950 | 148,060 |
| Change in net position in the Consolidated Revenue Fund: | ||
| Variation in accounts receivable & advances |
(306,779) |
6,228 |
| Variation in accounts payable & accrued liabilities | 46,273 | 28,683 |
| Variation in deferred revenue / other liabilities | 190,886 | 53,693 |
| Other | 4,250 | (5,554) |
| Current year appropriations used | $609,547 | $139,718 |
5. Tangible Capital Assets
| Cost | Accumulated Amortization | Net book value 2010 | Net book value 2009 | |
|---|---|---|---|---|
| Office furniture and equipment | $11,262 | $3,470 | $7,792 | $4,106 |
| Informatics hardware | 2,760 | 99 | 2,661 | - |
| Total | $14,022 | $3,569 | $10,453 | $4,106 |
Amortization expense for the year ended March 31, 2010 is $867 (2009 - $2,788).
During the year, the Agency acquired tangible capital assets of $7,782 (2009 - $ nil). In addition, tangible capital assets with a net book value of $568 (2009 - $ nil) were written off during the year.
6. Deferred Revenue
Deferred revenue consists of:
| 2010 | 2009 | |
|---|---|---|
| (Restated - Note 3) | ||
| Deferred Revenue, Opening Balance | $994,691 | $940,998 |
| Restatement of the prior year Deferred Revenue (Note 3) | - | 201,753 |
| Deferred Revenue, Opening Balance, as restated | $994,691 | $1,142,751 |
| Billings in the fiscal year |
789,836 |
- |
| Recoverable expenses in the current year | (598,950) | (148,060) |
| Deferred Revenue, Closing Balance | $1,185,577 | $994,691 |
7. Related Party Transactions
The Agency is related as a result of common ownership to all Government of Canada departments, agencies and Crown corporations. The Agency enters into transactions with these entities in the normal course of business and on normal trade terms applicable to all individuals and enterprises except that certain services, as defined previously, are received without charge.
a) Services received without charge:
These services received without charge have been recognized in the Agency’s Statement of Operations as follows:
| 2010 | 2009 | |
|---|---|---|
| Audit services provided by the Office of the Auditor General of Canada |
$48,157 | $55,284 |
| Management services provided by Natural Resources Canada |
3,356 | 1,101 |
| Total | $51,513 | $56,385 |
b) Receivables and payables outstanding at year-end with related parties:
| 2010 | 2009 | |
|---|---|---|
| Accounts receivable with other government departments and agencies |
$ - | $19,989 |
| Accounts payable to other government departments and agencies |
$47,718 | $30,089 |
8. Easement Fee
In 1983, the Government of Canada, pursuant to Subsection 37(3) of the Northern Pipeline Act, granted Foothills Pipe Lines Ltd. a twenty-five year easement upon and under lands in the Yukon Territory. For the right of easement, Foothills Pipe Lines Ltd. is to pay the Agency an annual amount of $30,400; of this annual amount, $2,806 (2009 - $2,806) is collected on behalf of and forwarded directly to the Government of the Yukon Territory. The balance of $27,594 (2009 - $27,594) was remitted to the Government of Canada by the Agency. This fee is not accounted for in these financial statements.
9. Contractual Obligations
The nature of the Agency’s activities can result in some large multi-year contracts and obligations whereby the Agency will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:
| 2011 | 2012 | Total | |
|---|---|---|---|
| Operating leases | $18,406 | $1,214 | $19,620 |
10. Financial Instruments
The Agency’s financial instruments consist of accounts receivable and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Agency is not exposed to significant interest, currency or credit risk arising from these financial instruments. Unless otherwise disclosed in these financial statements, management estimates that the carrying values of the financial instruments approximate their fair value due to their impending maturity.
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