NRCan 2018-2019 Consolidated Financial Statements

Table of contents

• Statement of Management Responsibility Including Internal Control over Financial Reporting
  • Consolidated Statement of Financial Position (Unaudited)
  • Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
  • Consolidated Statement of Change in Departmental Net Debt (Unaudited)
  • Consolidated Statement of Cash Flows (Unaudited)
• Notes to the Consolidated Financial Statements (Unaudited)
• 1. Authority and objectives
  2. Summary of significant accounting policies
  3. Parliamentary authorities
  4. Accounts payable and accrued liabilities
  5. Environmental liabilities
  6. Lease obligation for tangible capital assets
  7. Employee future benefits
  8. Other liabilities
  9. Accounts receivable and advances
  10. Inventory
  11. Tangible capital assets
  12. Departmental net financial position
  13. Contractual obligations and contractual rights
  14. Contingent liabilities and contingent assets
  15. Related party transactions
  16. Segmented information
  17. Subsequent events
  18. Comparative information
• Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Natural Resources Canada for fiscal year 2018-19 (unaudited)

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2019, and all information contained in these consolidated statements rests with the management of Natural Resources Canada (Department). These consolidated financial statements have been prepared by management using the Government’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 consolidated financial statements. Some of the information in the consolidated 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 Department’s financial transactions.  Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Department’s Departmental Results Report, is consistent with these consolidated 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 consolidated 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 Department; and through conducting an annual risk-based 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 ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2019 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the Department’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the Department’s operations, and by the Departmental Audit Committee, which oversees management’s responsibilities for maintaining adequate control systems and quality of financial reporting, and which recommends the consolidated financial statements to the Deputy Minister of Natural Resources Canada.

The consolidated financial statements of Natural Resources Canada have not been audited.

Natural Resources Canada
Consolidated Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)

	2019	2018
Liabilities
Accounts payable and accrued liabilities (note 4)	1,407,060	668,648
Vacation pay and compensatory leave	24,502	22,660
Deferred revenue	66	141
Environmental liabilities (note 5)	1,801	1,756
Lease obligation for tangible capital assets (note 6)	63,500	66,795
Employee future benefits (note 7)	16,791	18,417
Other liabilities (note 8)	23,269	21,966
Total liabilities	1,536,989	800,383
Financial assets
Due from Consolidated Revenue Fund	419,185	635,859
Accounts receivable and advances (note 9)	78,472	339,074
Total gross financial assets	497,657	974,933
Financial assets held on behalf of Government
Accounts receivable and advances (note 9)	(60,162)	(337,601)
Total financial assets held on behalf of Government	(60,162)	(337,601)
Total net financial assets	437,495	637,332
Departmental net debt	1,099,494	163,051
Non-financial assets
Prepayments	1,352	903
Inventory (note 10)	736	731
Tangible capital assets (note 11)	358,216	359,719
Total non-financial assets	360,304	361,353
Departmental net financial position (note 12)	(739,190)	198,302

Contractual obligations and contractual rights (note 13)
Contingent liabilities and contingent assets (note 14)

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

Natural Resources Canada
Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31
(in thousands of dollars)

	2019 Planned Results	2019	2018
Expenses
Innovative and Sustainable Natural Resources Development	610,253	1,467,722	568,754
Globally Competitive Natural Resource Sectors	570,673	590,224	685,721
Natural Resource Science and Risk Mitigation	214,229	232,109	207,215
Internal services	147,850	150,755	145,966
Total expenses	1,543,005	2,440,810	1,607,656
Revenues
Rights and privileges	402,526	337,935	522,744
Other, such as revenue pursuant to agreements	228,524	322,381	225,733
Revenue from services of a non-regulatory nature	22,275	18,508	19,874
Proceeds from sales of goods and information products	1,545	1,363	2,098
Revenue from services of a regulatory nature	5,971	1,669	1,931
Services to other government departments	171	129	125
Revenues earned on behalf of Government	(623,694)	(654,441)	(747,431)
Total net revenues	37,318	27,544	25,074
Net cost of operations before government funding and transfers	1,505,687	2,413,266	1,582,582
Government funding and transfers
Net cash provided by Government of Canada		1,646,611	1,164,649
Change in due from Consolidated Revenue Fund		(216,674)	393,923
Services provided without charge by other government departments (note 15a)		45,896	48,668
Transfer of the transition payments for implementing salary payments in arrears		(18)	(5)
Transfers of capital assets to other government departments		(24)	-
Other transfers of assets (to) from other government departments		(17)	12
Total government funding and transfers		1,475,774	1,607,247
Net cost (revenue) of operations after government funding and transfers		937,492	(24,665)
Departmental net financial position - Beginning of year		198,302	173,637
Departmental net financial position - End of year		(739,190)	198,302

Segmented information (note 16)

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

Natural Resources Canada
Consolidated Statement of Change in Departmental Net Debt (Unaudited)
For the year ended March 31
(in thousands of dollars)

	2019	2018
Net cost (revenue) of operations after government funding and transfers	937,492	(24,665)
Change due to tangible capital assets
Acquisition of tangible capital assets (note 11)	25,980	51,409
Amortization of tangible capital assets (note 11)	(26,602)	(23,996)
Proceeds from disposal of tangible capital assets	(160)	(209)
Net (loss) gain on disposal of tangible capital assets, including adjustments	(697)	777
Transfers of capital assets to other government departments	(24)	-
Total change due to tangible capital assets	(1,503)	27,981
Change due to inventory	5	(160)
Change due to prepayment	449	(1,235)
Net increase in departmental net debt	936,443	1,921
Departmental net debt - Beginning of year	163,051	161,130
Departmental net debt - End of year	1,099,494	163,051

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

Natural Resources Canada
Consolidated Statement of Cash Flows (Unaudited)
For the year ended March 31
(in thousands of dollars)

	2019	2018
Operating activities
Net cost of operations before government funding and transfers:	2,413,266	1,582,582
Non-cash items:
Amortization of tangible capital assets (note 11)	(26,602)	(23,996)
Net (loss) gain on disposal of tangible capital assets, including adjustments	(697)	777
Services provided without charge by other government departments (note 15a)	(45,896)	(48,668)
Transition payments for implementing salary payments in arrears	18	5
Other transfers of assets to (from) other government of departments	17	(12)
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable and advances	16,837	(1,247)
Increase (decrease) in prepayments	449	(1,235)
Increase (decrease) in inventory	5	(160)
Increase in accounts payable and accrued liabilities	(738,412)	(393,806)
Increase in vacation pay and compensatory leave	(1,842)	(405)
Decrease (increase) in deferred revenue	75	(63)
Decrease (increase) in employee future benefits	1,626	(1,166)
(Increase) decrease in environmental liabilities	(45)	3,152
Increase in other liabilities	(1,303)	(5,550)
Cash used in operating activities	1,617,496	1,110,208
Capital investing activities
Acquisitions of tangible capital assets (note 11)	25,980	51,409
Proceeds from disposal of tangible capital assets	(160)	(209)
Cash used in capital investing activities	25,820	51,200
Financing activities
Payments on lease obligations for tangible capital assets	3,295	3,241
Cash used in financing activities	3,295	3,241
Net cash provided by Government of Canada	1,646,611	1,164,649

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

Natural Resources Canada
Notes to the Consolidated Financial Statement (Unaudited)
For the year ended March 31, 2019
(in thousands of dollars)

1. Authority and objectives

The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department’s mandate is primarily based on the Department of Natural Resources Act, the Resources and Technical Surveys Act and the Forestry Act.

NRCan works to improve the quality of life of Canadians by ensuring that our natural resources are developed sustainably, providing a source of jobs, prosperity and opportunity, while preserving our environment and respecting our communities and Indigenous People.

NRCan fulfills its mandate through the following Core Responsibilities:

Innovative and Sustainable Natural Resources Development: Lead the transformation to a low-carbon economy by improving the environmental performance of Canada’s natural resource sectors through innovation and sustainable development and use.

Globally Competitive Natural Resource Sectors: Advance and promote market access, inclusiveness and competitiveness for Canada’s natural resource sectors, in support of jobs and economic growth.

Natural Resource Science and Risk Mitigation: Lead foundational science and share expertise for managing Canada’s natural resources, reducing the impacts of climate change and mitigating risks from natural disasters and explosives.

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 : Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services and Acquisition Services.

2. Summary of significant accounting policies

These consolidated financial statements are prepared using the Department’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:

1. Parliamentary authorities – The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department 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 Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated 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. The planned results amounts in the “Expenses” and “Revenues” sections of the Consolidated Statement of Operations and Departmental Net Financial Position are the amounts reported in the Consolidated Future-oriented Statement of Operations included in the 2018-19 Departmental Plan. Planned results are not presented in the “Government funding and transfers” section of the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Change in Departmental Net Debt because these amounts were not included in the 2018-19 Departmental Plan.
2. Consolidation – These consolidated financial statements include the accounts of the sub-entities for which the Deputy Minister is accountable. The accounts of the Geomatics Canada Revolving Fund have been consolidated with those of the Department, and all inter-organizational balances and transactions have been eliminated.
3. Net Cash Provided by Government of Canada – The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF and all cash disbursements made by the Department 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 of Canada.
4. 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.
5. Revenues:
   • Revenues from regulatory fees are recognized based on the services provided in the year.
   • Funds received are recorded as deferred revenue, provided the Department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
   • Other revenues are recognized in the period the event giving rise to the revenue occurred.
   • Revenues that are non-respendable are not available to discharge the Department’s liabilities. While the Deputy Minister 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 Department’s gross revenues.

6. Expenses – Expenses are recorded on the accrual basis
   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. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
   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, and workers’ compensation are recorded as operating expenses at their carrying value.

7. Environmental liabilities – An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the Department is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Department’s best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government’s cost of borrowing, associated with the estimated number of years to complete remediation.

   The recorded environmental liabilities are adjusted each year, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

   If the likelihood of the Department’s responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated financial statements.

8. Employee future benefits:
   1. Pension benefits – Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government of Canada. The Department’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department’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 of Canada as a whole.
9. Accounts receivables and advances are initially recorded at cost. An allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.
10. Non-financial assets :
    1. Prepayments are disbursements made before the completion of the work, delivery of the goods or rendering of the services. They are accounted for as non-financial assets until the related services are rendered, goods are consumed, or terms of the contractual agreement are fulfilled.
    2. Inventory:
       • Inventory held for consumption consists of parts, materials and supplies held for future program delivery. It is valued at cost using the average cost method. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.
       • Inventory held for resale consists of maps, which is valued at the lower of cost or net realizable value, with cost being determined using the weighted average cost of each title.
    3. The cost of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 11. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more ($1,000 or more for the Geomatics Canada Revolving Fund) 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, insect collection, and Crown land to which no acquisition cost is attributable; and intangible assets.

11. Contingent liabilities – Contingent liabilities, including the allowance for loan guarantees and an insurance program, are potential liabilities which 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 is recorded to other operating expenses. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the consolidated financial statements.

    For loan guarantees and the insurance program, an allowance is recorded when it is determined that a loss is likely and the amount of the allowance is estimated taking into consideration the nature of the guarantee and insurance program, loss experience and current conditions. The allowance is reviewed on an ongoing basis and changes in the allowance are recorded as expenses in the year they become known.

12. Contingent assets – Contingent assets are possible assets which may become actual assets when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, the contingent asset is disclosed in the notes to the consolidated financial statements.
13. Transactions involving foreign currencies – Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the rate of exchange in effect at March 31^st. Gains and losses resulting from foreign currency transactions are reported on the Consolidated Statement of Operations and Departmental Net Financial Position and note 16 in other operating expenses according to the activities to which they relate.
14. Measurement uncertainty – The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Department'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, environmental liabilities, the liability for employee future benefits, the useful life of tangible capital assets, and the allowance for doubtful accounts. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.
15. Related party transactions:
    1. Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.
    2. 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, except for the following:
       • Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
       • Certain services received on a without charge basis are recorded for departmental consolidated financial statement purposes at the carrying amount.

3. Parliamentary authorities

The Department receives most of its funding through annual parliamentary authorities. Items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Department 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

	2019	2018
	(in thousands of dollars)
Net cost of operations before government funding and transfers	2,413,266	1,582,582
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets	(26,602)	(23,996)
Net (loss) gain on disposal of tangible capital assets, including adjustments	(697)	777
Services provided without charge by other government departments	(45,896)	(48,668)
Increase (decrease) in prepayments	449	(1,235)
Increase (decrease) in inventory	5	(160)
Decrease (increase) in accrued liabilities	(23,174)	3,202
Increase in vacation pay and compensatory leave	(1,842)	(405)
Decrease (increase) in employee future benefits	1,626	(1,166)
(Increase) decrease in environmental liabilities	(45)	3,152
Refunds of prior years’ expenditures	1,012	672
Expenses restricted under the Environmental Studies Research Fund	(1,759)	(4,005)
Year-end accrual - pending Budget Implementation Act	(950,000)	-
Other adjustments	7,332	847
Total items affecting net cost of operations but not affecting authorities	(1,039,591)	(70,985)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets	25,980	51,409
Decrease in lease obligation for tangible capital assets, excluding capital lease adjustment due to an amendment	3,295	3,241
Transition payments for implementing salary payments in arrears	18	5
Total items not affecting net cost of operations but affecting authorities	29,293	54,655
Current year authorities used	1,402,968	1,566,252

b) Authorities provided and used

	2019	2018
	(in thousands of dollars)
Authorities Provided:
Vote 1 – Operating expenditures	592,381	570,836
Vote 5 – Capital expenditures	32,072	69,182
Vote 10 – Grants and contributions	437,573	413,911
Statutory amounts	468,230	585,238
Less:
Authorities available for future years	(6,267)	(7,722)
Lapsed – Operating expenditures	(9,710)	(14,203)
Lapsed – Capital expenditures	(6,784)	(18,162)
Lapsed – Grants and contributions	(104,527)	(32,828)
Current year authorities used	1,402,968	1,566,252

4. Accounts payable and accrued liabilities

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

	2019	2018
	(in thousands of dollars)
Accounts payable – Other government departments and agencies	13,810	10,978
Accounts payable – External parties	146,532	171,454
Total accounts payable	160,342	182,432
Year-end accrual – pending Budget Implementation Act (1)	950,000	-
Accrued liabilities	296,718	486,216
Total accounts payable and accrued liabilities	1,407,060	668,648

⁽¹⁾ A year-end accrual pending the Budget Implementation Act for a transfer payment to the Federation of Canadian Municipalities for the purpose of providing funding to the Green Municipal Fund

5. Environmental liabilities

With respect to environmental liabilities for the remediation of contaminated sites, the Government’s “Federal Approach to Contaminated Sites” sets out a framework for management of contaminated sites using a risk-based approach. Under this approach the Government has inventoried the contaminated sites identified on federal lands, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to human health and the environment.

The Department has identified 11 sites (11 sites in 2018) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 7 sites (7 sites in 2018) where action is required and for which a gross liability of $653 thousand ($608 thousand in 2018) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

There is 1 site that has not been assessed by environmental experts (1 site in 2018) for which the department has estimated and recorded a liability of $1,148 thousand ($1,148 thousand in 2018).

These two estimates combined, totaling $1,801 thousand ($1,756 thousand in 2018), represents management’s best estimate of the costs required to remediate sites to the current minimum standard for its use prior to contamination, based on information available at the consolidated financial statement date.

For the remaining 3 sites (3 sites in 2018), no liability for remediation has been recognized. These sites are at early stages of testing and evaluation and if remediation is required, liabilities will be reported as soon a reasonable estimate can be determined.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2019, and March 31, 2018. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast Consumer Price Index (CPI) rate of 2.2% (1.9% in 2018). Inflation is included in the undiscounted amount. The Government of Canada’s cost of borrowing by reference to the actual zero-coupon yield curve for Government of Canada bonds has been used to discount the estimated future expenditures. The March 2019 rates range from 1.60% for a 8 year term to 1.73% for a 12 year term.

Nature and Source	2019					2018
	Total Number of Sites	Number of Sites with a liability	(in thousands of dollars)			Total Number of Sites	Number of Sites with a liability	(in thousands of dollars)
			Estimated Liability	Estimated Total Undiscounted Expenditures	Estimated Recoveries			Estimated Liability	Estimated Total Undiscounted Expenditures	Estimated Recoveries
Fuel Related Practices(1)	1	1	1,148	1,148	-	1	1	1,148	1,148	-
Office/ Commercial/ Industrial Operations(2)	10	7	653	784	-	10	7	608	776	-
Total	11	8	1,801	1,932	-	11	8	1,756	1,924	-

6.  Lease obligation for tangible capital assets

The Department has entered into an agreement to lease a building under a capital lease with a cost of $95,993 thousand as at March 31, 2019 ($95,993  thousand in 2018) and accumulated amortization of $30,909 thousand as at March 31, 2019 ($26,965 thousand in 2018). Interest on this obligation of $1,077 thousand ($1,131 thousand in 2018) is reported in the Consolidated Statement of Operations and Departmental Net Financial Position as part of Innovative and Sustainable Natural Resources Development expenses. The obligation related to the upcoming years includes the following:

	2019
	(in thousands of dollars)
2020	4,372
2021	4,372
2022	4,372
2023	4,372
2024	4,372
2025 and thereafter	50,786
Total future minimum lease payments	72,646
Less: imputed interest (1.65%)	9,146
Lease obligation for tangible capital assets	63,500

7.  Employee future benefits

 (a) Pension benefits: The Department’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 Department contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada’s Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates 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 2019 expense amounts to $37,916 thousand ($36,035 thousand in 2018). For Group 1 members, the expense represents approximately 1.01 times (1.01 times in 2018) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2018) the employee contributions.

The Department’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: Severance benefits provided to the Department’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 change in the obligation during the year is as follows:

	2019	2018
	(in thousands of dollars)
Accrued benefit obligation - Beginning of year	18,417	17,251
Expense for the year	1,686	2,471
Benefits paid during the year	(3,312)	(1,305)
Accrued benefit obligation - End of year	16,791	18,417

8. Other liabilities

The following table presents a detail of the Department’s other liabilities:

	2019	2018
	(in thousands of dollars)
Contractor security deposits - Cash	17	36
Guarantee deposits - Oil and gas	15,438	13,805
Shared costs projects	1,454	1,587
Market development and incentive payments – Alberta	558	752
Shared costs agreements – Research	5,802	5,786
Total other liabilities	23,269	21,966

Contractor security deposits – Cash: This account was established to record contractor security deposits that are required for the satisfactory performance of work in accordance with Government Contracts Regulations.

Guarantee deposits – Oil and gas: This account was established to record securities in the form of cash, which are required to be issued to, and held by the Government of Canada pursuant to an Exploration License in accordance with section 24 of the Canada Petroleum Resources Act. These securities are a performance guarantee that the agreed exploration will be performed in the manner and time frame specified. Interest is not paid on these deposits.

Shared-cost projects: This account was established to facilitate the retention and disbursement of funds received from private organizations and other governments for cost-sharing scientific non-research projects.

Market development incentive payments – Alberta: This account records funds received from the Government of Alberta to encourage the expansion of natural gas market in Alberta and provinces to the East, in accordance with an agreement between the Government of Canada and the Government of Alberta dated September 1, 1981 and pursuant to section 39 of the Energy Administration Act. The original term of the agreement was from November 1, 1981 to January 31, 1987. As a result of the Western Accord of March 25, 1985, payments from the Government of Alberta terminated as of April 30, 1986; however, payments continued to be made from the account for selected programs which encouraged the use of natural gas for vehicles.

In 2009-10, a strategy for the expenditure of these funds was agreed upon. This strategy consists of expending the remaining funds in support of expanding the use of natural gas in transportation and combined heat and power applications across Canada. It is anticipated that all remaining funds will be spent by March 31, 2020.

Shared-cost agreements – Research: This account was established to facilitate the retention and disbursement of funds received from private industries and other governments for joint research projects or shared-cost research agreements.

9.  Accounts receivable and advances

The following presents details of the Department’s accounts receivable and advances balances:

	2019	2018
	(in thousands of dollars)
Receivables - Other government departments and agencies	11,062	8,080
Receivables - External parties	66,760	330,787
Employee advances	790	530
Subtotal	78,612	339,397
Allowance for doubtful accounts on receivables from external parties	(140)	(323)
Gross accounts receivable and advances	78,472	339,074
Accounts receivable held on behalf of Government	(60,162)	(337,601)
Net accounts receivable and advances	18,310	1,473

10.  Inventory

The following table presents details of the inventory:

	2019	2018
	(in thousands of dollars)
Inventories held for consumption	687	681
Inventories held for re-sale	49	50
Total inventory	736	731

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $115 thousand in 2019 ($235 thousand in 2018).

11.  Tangible capital assets

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

Asset Class	Amortization period
Buildings	15 to 40 years
Works and infrastructure	20 to 40 years
Machinery and equipment	5 to 15 years
Vehicles	3 to 10 years
Leasehold improvements	Lesser of the remaining term of lease or useful life of the improvement
Leased tangible capital assets	Over term of lease/useful life
Assets under construction	Once in service, in accordance with asset class

Assets under construction are recorded in the applicable capital asset class and are amortized in the year they are put into service and are not amortized until they are put into service.

Capital asset class	Cost						Accumulated amortization					Net book value
	Opening balance	Acquisitions		Adjustments(1)	Disposals and write-offs	Closing balance	Opening balance	Amortization	Adjustments	Disposals and write-offs	Closing balance	2019	2018
	(in thousands of dollars)
Land	7,800	-		-	-	7,800	-	-	-	-	-	7,800	7,800
Buildings	245,214	44		40,567	75	285,750	142,194	5,119	(37)	2	147,274	138,476	103,020
Works and Infrastructure	4,285	-		976	-	5,261	131	159	-	-	290	4,971	4,154
Machinery and equipment	264,394	7,551		6,570	2,344	276,171	197,656	12,865	80	1,685	208,916	67,255	66,738
Vehicles	9,074	900		330	374	9,930	7,103	446	353	358	7,544	2,386	1,971
Leasehold improvements	52,612	-		15,549	-	68,161	16,494	4,069	-	-	20,563	47,598	36,118
Leased tangible capital assets	95,993	-		-	-	95,993	26,965	3,944	-	-	30,909	65,084	69,028
Assets under construction	70,890	17,485		(63,442)	287	24,646	-	-	-	-	-	24,646	70,890
Total	750,262	25,980	550		3,080	773,712	390,543	26,602	396	2,045	415,496	358,216	359,719

(1) Adjustments include assets under construction of $63,442 thousand that were transferred to the other categories upon completion of the assets. It also includes transfers of tangible capital assets with other government departments with a net effect of ($24) thousand on the departmental net financial position.

12. Departmental net financial position

A portion of the Department’s net financial position is used for a specific purpose.  Related revenues and expenses are included in the Consolidated Statement of Operations and Departmental Net Financial Position.

The Environmental Studies Research Fund account was established pursuant to subsection 76(1) of the Canada Petroleum Resources Act. The purpose of the Fund is to finance environmental and social studies pertaining to the manner in which, and the terms and conditions under which, exploration, development and production activities on frontier lands, authorized under this Act or any other act of Parliament, should be conducted.

The Nuclear Liability Account is a continuation of the Nuclear Liability Reinsurance Account under the previous Nuclear Liability Act. It is established pursuant to sub-section 32(1) of the Nuclear Liability and Compensation Act, to record indemnity fees paid by operators and to provide for payment of any claims arising under the indemnity agreements entered into between the Government and nuclear installation operators.

Legislation requires that the revenues of these accounts to be earmarked and that related payments and expenses be charged against such revenues. The transactions do not represent liabilities to third parties but are internally restricted for specified purposes.

	2019	2018
	(in thousands of dollars)
Environmental Studies Research Fund - Restricted
Balance - Beginning of year	4,637	5,563
Revenues	2,856	3,079
Expenses	(1,759)	(4,005)
Balance - End of year	5,734	4,637
Nuclear Liability Account - Restricted
Balance – Beginning of year	4,299	4,025
Revenues	140	274
Expenses	-	-
Balance – End of year	4,439	4,299
Subtotal - Restricted	10,173	8,936
Unrestricted	(749,363)	189,366
Departmental net financial position - End of year	(739,190)	198,302

13. Contractual obligations and contractual rights

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

   	2020	2021	2022	2023	2024	2025 and subsequent	Total
   	(in thousands of dollars)
   Transfer Payments	310,014	141,837	19,768	1,114	348	185	473,266
   Total	310,014	141,837	19,768	1,114	348	185	473,266

2. Contractual rights
   The activities of the Department sometimes involve the negotiation of contracts or agreements with outside parties that result in the department having rights to both assets and revenues in the future. They principally involve leases of property, royalties, and sales of goods and services. The major contractual rights that will generate revenues in future years are the Net Profits Interest Agreement (NPI) and the Loan Guarantee Agreements. The NPI grants Canada the right to receive 10% of net profits from oil and gas produced from the Hibernia Development Project and which has earned $3.2 billion as at March 31, 2019 ($3 billion in 2018). Outstanding contractual rights for subsequent fiscal years are not estimable. Refer to Note 17 for further informations about NPI. In addition, the agreements that underpin the federal loan guarantee require the beneficiaries to pay Canada an annual fee of 0.5% of the net amount of guaranteed debt outstanding. An amount of $14,500 thousand has been earned as at March 31,2019.
   
   These major contractual rights that will generate revenues in future years and that can be reasonably estimated are summarized as follows:

   	2020	2021	2022	2023	2024	2025 and subsequent		Total
   	(in thousands of dollars)
   Loan Guarantee Fees	14,500	14,500	14,424	14,195	13,889	254,394		325,902
   Total	14,500	14,500	14,424	14,195	13,889	254,394		325,902

14. Contingent liabilities and contingent assets

1. Contingent liabilities
   
   Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown.  They are grouped into these categories as follows:
    
   1. Claims and litigation: Claims have been made against the Department in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. While the total amount claimed in these actions is significant, their outcomes are not determinable. The Department has recorded an allowance for claims and litigations where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. Claims and litigations for which the outcome is not determinable and a reasonable estimate can be made by management amount to approximately $14,470 thousand in 2019 ($3,300 thousand in 2018).
       
   2. Loan guarantees:

      	Authorized Limit	Outstanding guarantees
      		2019	2018
      	(in thousands of dollars)
      Lower Churchill Hydroelectric Projects	9,200,000	8,649,907	7,800,750

      
      The Government of Canada provided loan guarantee support for the construction of the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ([1] Muskrat Falls and Labrador Transmission Assets and [2] Labrador-Island Link) and one project sponsored by Emera Inc. (Maritime Link). In 2013, the financing was completed for the Nalcor-led projects, raising $5 billion of guaranteed debt in the form of a bond financing. These bonds have a life varying from about 15 years to 40 years. In 2014, the bond financing was completed for the Maritime Link, raising $1.3 billion of guaranteed debt for a life of about 39 years.
      
      Further to an announcement made by the Minister of Natural Resources in November 2016, in May 2017, the Minister of Natural Resources signed two additional Guarantee Agreements to provide additional loan guarantee support to the Nalcor-sponsored projects. On May 25, 2017, the financing was completed, raising $2.9 billion of guaranteed debt in the form of a bond financing. These bonds have terms varying from 3½ years to 40 years. As per the terms of the bonds that were issued under both the original guarantees and the additional guarantees, only interest payments are being made on the guaranteed debt. The commencement of principal payments on the guaranteed debt has been scheduled to begin shortly after the expected commissioning dates of the projects, with the schedule of these payments depending on the specific terms and conditions of each of the guaranteed bonds. Among the many safeguards put in place to protect Canada’s interests, all of the project entities’ shares, assets and agreements have been pledged as security to Canada.
      
      The Maritime Link project has successfully completed all construction activities and was commissioned on February 9, 2018. As per the terms of the loan guarantee agreements, principal repayments will begin on December 1, 2020. These principal and interest payments will be made on a semi-annual basis until maturity date of December 1, 2052. As of March 31, 2019, $8.65 billion of guaranteed debt has been released to the project entities ($ 7.8 billion in 2018).
      
      No allowance for losses has been recorded for these loan guarantees as, at this time, no costs are likely to occur. An allowance will be recorded if it becomes likely that Canada will incur costs under the guarantee and when the amount of the loss can be reasonably estimated.
       
   3. Insurance program:
      
      Under the Nuclear Liability and Compensation Act (NLCA), which entered into force on January 1, 2017 and replaced the Nuclear Liability Act (NLA), operators of designated nuclear installations are required to maintain financial security against the liability imposed on them by the NLCA.
      
      The NLCA establishes that the operator’s liability for damages resulting from a nuclear incident is limited to $1 billion, an amount to be phased in over four years with $650 million applying in 2017, $750 million in 2018, $850 million in 2019 and $1 billion in 2020. This amount applies to the “Power Reactor Class” of nuclear installations prescribed in the Nuclear Liability and Compensation Regulations (NLCR). Lower liability amounts for lower-risk installations, based on their commensurate risk, are prescribed in the NLCR. The Minister of Natural Resources is required to review the operator’s liability limit at least once every five years, and the Government may increase the limit by regulation.
      
      Financial security covers all the categories of damage that are compensable under the NLCA, with the exception of damage arising from normal emissions, and bodily injury occurring 10 to 30 years after a nuclear incident. Through the indemnity agreement, entered into with 16 operators, the federal government covers the liability associated with the two exceptions. It also covers the difference between the lower liability amount prescribed in the NLCR for lower-risk installations and the $850 million liability amount assigned in the NLCA in 2019. The federal government charges each operator an annual fee for providing this indemnity coverage.
      
      The Department of Natural Resources administers the Nuclear Liability Account (Account) on behalf of the federal government through a consolidated specified purpose account. This Account is a continuation of the Nuclear Liability Reinsurance Account under the previous NLA. All fees paid by the operators of nuclear installations are credited to this Account. The closing balance of this Account as at March 31, 2019, is $4,439,445. Any claims under an indemnity agreement could be up to the level of the liability amount assigned in the NLCA; however, there is no limit to the number of incidents to which the indemnity could apply. There have been no claims against – or payments out of – the Account since its creation under the NLA.
       
2. Contingent assets
   
   The Department issued conditionally repayable contributions with proponents for early stage research and development (R&D) activities. Repayments are determined upon the successful commercialization of products generated by the R&D. There are no amounts estimated to be repaid as at March 31, 2019 ($0 in 2018).

15. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

The department 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 Department received services without charge from certain common service organizations, related to accommodation, the employer’s contribution to the health and dental insurance plans, and workers’ compensation coverage. These services received without charge have been recorded at the carrying value in the Department’s Consolidated Statement of Operations and Departmental Net Financial Position as follows:

					2019	2018
					(in thousands of dollars)
Employer’s contribution to the health and dental insurance plans					28,833	31,698
Accommodation					16,843	16,772
Workers' compensation					220	198
Total common services provided without charge					45,896	48,668

The Government of Canada 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 of Canada 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 payroll and cheque issuance services provided by Public Services and Procurement Canada and audit services provided by the Office of the Auditor General, are not included in the Department’s Consolidated Statement of Operations and Departmental Net Financial Position.

(b) Administration of programs on behalf of other government departments: The Department has a number of Memoranda of Understanding with other government departments for the administration of their programs. The Department issued approximately $23,263 thousand ($17,211 thousand in 2018) in payments on behalf of the other government departments. These expenses are not reflected in the Departmental Consolidated Financial Statements, but rather in the Financial Statements of the respective government departments.

(c) Other transactions with other government departments and agencies:

						2019	2018
						(in thousands of dollars)
Expenses						121,844	127,371
Revenues						6,398	5,972

Expenses and revenues disclosed in (c) exclude common services provided without charge, which are already disclosed in (a).

16. Segmented information

Presentation by segment is based on 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 core responsibilities, by major object of expense and by major type of revenue. The segment results for the period are as follows:

(in thousands of dollars)

	Natural Resource Science and Risk Mitigation	Innovative and Sustainable Natural Resources Development	Globally Competitive Natural Resource Sectors	Internal Services	2019	2018
Transfer payments
Industry	6,284	189,027	26,900	-	222,211	246,013
International	256	1,607	650	-	2,513	2,844
Non-profit organizations	6,140	967,528	42,486	-	1,016,154	117,676
Other levels of government	638	15,751	430,812	-	447,201	531,042
Individuals	121	2,815	18,775	-	21,711	5,884
Total transfer payments	13,439	1,176,728	519,623	-	1,709,790	903,459
Operating expenses
Salaries and employee benefits	140,537	183,872	47,447	104,522	476,378	470,384
Information	993	5,349	1,042	2,947	10,331	8,498
Professional and special services	26,024	49,107	9,984	27,770	112,885	97,562
Rentals	12,520	10,036	2,175	5,222	29,953	24,720
Transportation and communication	7,855	4,679	3,182	3,796	19,512	18,188
Utilities, material and supplies	9,855	11,153	1,112	970	23,090	25,981
Purchased repairs and upkeep	2,529	2,980	211	1,007	6,727	6,563
Acquisitions of non-capital assets	4,276	5,885	1,153	2,939	14,253	15,677
Amortization	10,785	13,170	619	2,028	26,602	23,996
Other	3,296	4,763	3,676	(446)	11,289	12,628
Total Operating expenses	218,670	290,994	70,601	150,755	731,020	704,197
Total expenses	232,109	1,467,722	590,224	150,755	2,440,810	1,607,656
Revenues
Rights and privileges	1,571	115	336,249	-	337,935	522,744
Other, such as revenue pursuant to agreements	1,157	19,371	301,635	218	322,381	225,733
Revenue from services of a non-regulatory nature	7,844	10,664	-	-	18,508	19,874
Proceeds from sales of goods and information products	413	950	-	-	1,363	2,098
Revenue from services of a regulatory nature	-	1,669	-	-	1,669	1,931
Services to other government departments	-	-	-	129	129	125
Revenues earned on behalf of Government	(374)	(15,966)	(637,883)	(218)	(654,441)	(747,431)
Total net revenues	10,611	16,803	1	129	27,544	25,074
Net cost of operations	221,498	1,450,919	590,223	150,626	2,413,266	1,582,582

17. Subsequent events

Pursuant to Section 19.5(b) of the Net Profit Interest Agreement (NPI) and Section 18.5(b) of the Incidental Net Profit Interest Agreement (INPI), the Government of Canada is assigning the NPI and INPI Payments to the Crown in relation to the Hibernia Project to the Canada Development Investment Corporation (CDEV). The impact of this assignment of revenues, once finalized, will be reflected in the 2019-20 financial statements.

18. Comparative information

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

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of Natural Resources Canada for fiscal year 2018-19 (unaudited)

Summary of the assessment of effectiveness of the system of internal control over financial reporting and the action plan

1. Introduction

This document summarizes the measures taken by Natural Resources Canada (NRCan) to maintain an effective system of internal control over financial management (ICFM), including internal control over financial reporting (a subset of the system of ICFM), as well as information on internal control management, assessment results, and related action plans.

Detailed information on NRCan’s authority, mandate and Core Responsibilities can be found in the 2019-20 Departmental Plan and the 2018-19 Departmental Results Report.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

NRCan has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. The NRCan ICFM Framework, approved by the Deputy Minister (DM), is in place and comprises:

• organizational accountability structures relating to internal control management that support sound financial management, including roles and responsibilities of senior departmental managers for internal control management in their areas of responsibility;
• values and ethics that describes the expected behaviors that guide employees in all activities related to their professional duties;
• ongoing communication and training on statutory requirements, and policies and procedures for sound financial management and control; and
• at least semi-annual monitoring of, and regular updates to, internal control management, with  related assessment results and action plans provided to the DM and senior departmental management, and as applicable, the Departmental Audit Committee (DAC).

The DAC provides advice to the DM on the adequacy and functioning of the department’s risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

NRCan relies on other organizations for the processing of certain transactions that are recorded in its consolidated financial statements as follows:

2.2.1 Common service arrangements

• Public Services and Procurement Canada, which administers the payment of salaries and the procurement of goods and services, and provides accommodation services.
• Shared Services Canada, which provides information technology (IT) infrastructure services.
• Department of Justice Canada, which provides legal services.
• Treasury Board of Canada Secretariat, which provides information on public service insurance and centrally administers payment of the employer’s share of contributions toward statutory employee benefit plans.

NRCan relies on other departments for the processing of certain information or transactions that are recorded in its financial statements, as follows:

2.2.2 Specific arrangements

• Agriculture and Agri-Food Canada provides NRCan with a SAP financial system platform to capture and report all financial transactions.

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the systems of internal control over financial reporting related to these specific services.

3. Departmental assessment results during fiscal year 2018-19

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year’s rotational plan.

Progress during fiscal year 2018-19

Previous year’s rotational ongoing monitoring plan for current year	Status
Financial close and reporting, revenues and accounts receivable, including costing and pricing of external charges, offshore royalty revenues/statutory transfers, grants and contributions, including repayable contributions.	Completed as planned; remedial actions started

In delivering against the 2018-19 ongoing monitoring plan, the Financial Management Internal Control (FMIC) unit leveraged the work and results of various audits performed by the Audit and Evaluation Branch (AEB). More specifically, since the audit scope and objectives were sufficiently aligned with internal control over financial reporting (ICFR) requirements, reliance was placed on the assessment of the effectiveness of key controls within the business processes of offshore royalty revenue /statutory transfers and grants and contributions. In addition, it is noteworthy to mention that the AEB also tested key controls within the travel and pay and benefits business processes.

Section 3.2 provides a summary of the related assessment results.

3.1 New or significantly amended key controls 

To broaden the scope to ICFM in accordance with the Treasury Board Policy on Financial Management, NRCan documented and assessed the effectiveness of key controls for costing and pricing of external charges as part of its reassessment of the revenues and accounts receivable business process for the 2018 to 2019 fiscal year.

3.2 Ongoing monitoring program

As part of its rotational ongoing monitoring plan, NRCan reassessed key controls within the financial close and reporting, revenues and accounts receivables, offshore revenues/statutory transfers, and grants and contributions business processes.

Results indicated that key controls tested in 2018-19 as per the ongoing monitoring plan were generally effective, with the following areas of improvement:

Financial close and reporting

• Restrict GCDocs access to financial reports and posting of period-end accruals and adjustments in the financial system to authorized users.
• Strengthen the review and approval process to create, modify, and/or suspend elements of the Chart of Accounts prior to processing in the financial system.

Revenue and accounts receivable

• Strengthen the consultation process between responsibility centre managers and functional revenue and cost recovery experts when establishing and/or amending external charging agreements.

Offshore royalty revenues/statutory transfers and grants and contributions, including repayable contributions

• Please refer to the report titled “Continuous Auditing of Key Controls for Selected Processes Annual Report for 2018-19” that will be published on NRCan’s Website at www.nrcan.gc.ca/audit/reports/2019/21880.

4. Departmental action plan for the next fiscal year and subsequent years

NRCan’s rotational ongoing monitoring plan for the next three fiscal years, based on an annual validation of the high-risk key control areas is shown in the following table.

Rotational ongoing monitoring plan

Key Control Areas	2019-20	2020-21	2021-22
Entity level controls	No	No	Yes
IT general controls under departmental management	Yes	No	No
Financial close and reporting	No	No	No
Grants and contributions, including repayable contributions *	Yes	No	No
Payroll and benefits	No	Yes	No
Operating expenditures	No	No	Yes
Offshore royalty revenues/statutory transfers *	Yes	No	No
Revenues and accounts receivable	No	No	No
Environmental liabilities	No	No	Yes
Contingent liabilities	No	No	No
Capital assets	No	No	Yes
Budgeting and forecasting (planning)	Yes	No	No
Investment planning	Yes	No	No
Costing	No	Yes	No
Cabinet document submissions (including CFO Attestation)	No	Yes	No

* The FMIC Unit will leverage the audit work and results of the planned continuous audits performed by the AEB as it was determined that the audit scope and objectives are sufficiently aligned with an ICFR assessment.

As per last fiscal year’s ongoing monitoring plan, the timing of certain internal control assessments was revised mainly:

• to allow more time to focus on the ICFM business processes;
• to align with the departmental audit plan, where results could be leveraged; and
• due to a change in risk levels from a previous internal control assessment.

5. Departmental status and action plan for the next fiscal year and subsequent fiscal years

Building on progress to date, NRCan is positioned to complete a full assessment of its system of ICFR by 2020-21. Only the payroll and benefits business process has yet to reach the ongoing monitoring phase due to new and significantly amended key controls identified in 2017-18.

In addition, as per the Treasury Board Policy on Financial Management (effective April 1, 2017), NRCan added four new financial management business processes (i.e. budgeting and forecasting, investment planning, costing, cabinet document submission, including CFO attestation) and is positioned to document, assess the design adequacy, and operating effectiveness of related key controls by 2021-22. At that time, NRCan will be applying its rotational ongoing monitoring plan for these business processes to reassess the effectiveness of key controls using a risk-based approach.

The status and action plan for the completion of the identified control areas for the next fiscal year and for subsequent years are shown in the following table.

Status and action plan for the next fiscal year and subsequent fiscal years

Key control areas	Design effectiveness testing and remediation	Operational effectiveness testing and remediation	Ongoing monitoring rotation *
Entity-level controls	Complete	Complete	2021-22
IT general controls under departmental management	Complete	Complete	2019-20
Financial close and reporting	Complete	Complete	Future fiscal years
Grants and contributions, including repayable contributions	Complete	Complete	Future fiscal years
Payroll and benefits	Complete	2020-21	Future fiscal years
Operating expenditures	Complete	Complete	2021-22
Offshore royalty revenues/statutory transfers	Complete	Complete	Future fiscal years
Revenue and accounts receivable	Complete	Complete	Future fiscal years
Environmental liabilities	Complete	Complete	2021-22
Contingent liabilities	Complete	Complete	Future fiscal years
Capital assets	Complete	Complete	2021-22
Budgeting and forecasting (planning)	2019-20	2019-20	Future fiscal years
Investment planning	2019-20	2019-20	Future fiscal years
Costing	2020-21	2020-21	Future fiscal years
Cabinet document submissions (including CFO attestation )	2020-21	2020-21	Future fiscal years

* Ongoing monitoring rotation means that key controls have been documented, assessed for design adequacy and operating effectiveness, and are now subject to ongoing monitoring to ensure continued effectiveness.