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NRCan 2022-2023 Consolidated Financial Statements

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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, 2023, 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 Ac t 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, 2023 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.

Original signed by

Michael Vandergrift
Deputy Minister

Ottawa, Canada
Date signed: September 12, 2023

Original signed by

Grace Chennette, CPA CMA
Acting Chief Financial Officer

Ottawa, Canada
Date signed: September 5, 2023

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

(in thousands of dollars)

  2023 2022
Restated
Footnote (note 19)
Liabilities
Accounts payable and accrued liabilities Footnote (note 4) 897,315 727,911
Vacation pay and compensatory leave 39,357 39,456
Deferred revenue - -
Environmental liabilities and asset retirement obligations Footnote (note 5) 26,295 28,303
Lease obligation for tangible capital assets Footnote (note 6) 49,765 53,284
Employee future benefits Footnote (note 7) 12,246 12,703
Other liabilities Footnote (note 8) 35,480 27,355
Total liabilities 1,060,458 889,012
Financial assets
Due from Consolidated Revenue Fund 923,512 747,702
Accounts receivable and advances Footnote (note 9) 55,588 55,659
Loans receivable Footnote (note 10) 135,853 99,357
Total gross financial assets 1,114,953 902,718
Financial assets held on behalf of Government
Accounts receivable and advances Footnote (note 9) (31,589) (35,294)
Loans receivable Footnote (note 10) (135,853) (99,357)
Total financial assets held on behalf of Government (167,442) (134,651)
Total net financial assets 947,511 768,067
Departmental Net debt 112,947 120,945
Non-financial assets
Prepayments 4,124 2,548
Inventory Footnote (note 12) 416 488
Tangible capital assets Footnote (note 13) 335,744 327,868
Total non-financial assets 340,284 330,904
Departmental net financial position Footnote (note 14) 227,337 209,959

Contractual obligations and contractual rights Footnote (note 15)

Contingent liabilities and contingent assets Footnote (note 16)

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

Original signed by

Michael Vandergrift
Deputy Minister

Ottawa, Canada
Date signed: September 12, 2023

Original signed by

Grace Chennette, CPA CMA
Acting Chief Financial Officer

Ottawa, Canada
Date signed: September 5, 2023

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

(in thousands of dollars)

  2023
Planned
Results
2023
Actual
2022
Actual
Restated
Footnote (note 19)
Expenses
Innovative and Sustainable Natural Resources Development 1,683,539 1,207,500 783,719
Globally Competitive Natural Resource Sectors 775,697 750,099 802,968
Natural Resource Science and Risk Mitigation  503,568 370,019 351,377
Internal services 192,313 226,877 170,416
Total expenses 3,155,117 2,554,495 2,108,480
Revenues
Rights and privileges 431,284 372,522 328,137
Other, such as revenue pursuant to agreements 24,381 66,818 241,581
Revenue from services of a non-regulatory nature 15,148 16,008 18,071
Proceeds from sales of goods and information products 6,387 1,499 2,038
Revenue from services of a regulatory nature  1,056 1,801 1,752
Services to other government departments  78 183 151
Revenues earned on behalf of Government (443,043) (428,828) (560,693)
Total net revenues 35,291 30,003 31,037
Net cost of operations before government funding and transfers  3,119,826 2,524,492 2,077,443
Government funding and transfers
Net cash provided by Government of Canada   2,306,806 1,773,479
Change in due from Consolidated Revenue Fund   175,810 250,751
Services provided without charge by other government departments Footnote (note 17a)   57,421 54,693
Transfers of capital assets from/(to) other government departments   1,775 (39)
Other transfers of assets from/(to) other government departments   58 (282)
Total government funding and transfers   2,541,870 2,078,602
Net revenue of operations after government funding and transfers   (17,378) (1,159)
Departmental net financial position - Beginning of year   209,959 208,800
Departmental net financial position - End of year   227,337 209,959

Segmented information Footnote (note 18)

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)

  2023 2022
Restated
Footnote (note 19)
Net revenue of operations after government funding and transfers (17,378) (1,159)
Change due to tangible capital assets
Acquisition of tangible capital assets Footnote (note 13) 34,231 21,355
Amortization of tangible capital assets Footnote (note 13) (28,259) (27,713)
Proceeds from disposal of tangible capital assets (188) (133)
Net gain (loss) on disposal of tangible capital assets including adjustments 317 (769)
Transfers of capital assets from/(to) other government departments 1,775 (39)
Total change due to tangible capital assets 7,876 (7,299)
Change due to inventory (72) 2
Change due to prepayments 1,576 125
Decrease in departmental net debt (7,998) (8,331)
Departmental net debt - Beginning of year 120,945 129,276
Departmental net debt - End of year 112,947 120,945

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)

  2023 2022
Restated
Footnote (note 19)
Operating activities
Net cost of operations before government funding and transfers 2,524,492 2,077,443

Non-cash items:

Amortization of tangible capital assets Footnote (note 13) (28,259) (27,713)
Net gain (loss) on disposal of tangible capital assets including adjustments 317 (769)
Services provided without charge by other government departments Footnote (note 17a) (57,421) (54,693)
Other transfers of assets (from)/to other government departments (58) 282
Variations in Statement of Financial Position:
Increase in accounts receivable and advances 3,634 3,314
Increase in prepayments 1,576 125
(Decrease) increase in inventory (72) 2
Increase in accounts payable and accrued liabilities (169,404) (251,944)
Decrease in vacation pay and compensatory leave 99 3,414
Decrease in deferred revenue - 405
Decrease in employee future benefits 457 2,438
Decrease (increase) in environmental liabilities and asset retirement obligations 2,008 (2,021)
Increase in other liabilities (8,125) (1,488)
Cash used in operating activities 2,269,244 1,748,795
Capital investing activities
Acquisitions of tangible capital assets Footnote (note 13) 34,231 21,355
Proceeds from disposal of tangible capital assets (188) (133)
Cash used in capital investing activities 34,043 21,222
Financing activities
Payments on lease obligations for tangible capital assets 3,519 3,462
Cash used in financing activities 3,519 3,462
Net cash provided by Government of Canada 2,306,806 1,773,479

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

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 Ac t 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:

(a) 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. Footnote 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 2022-2023 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 2022-2023 Departmental Plan.

(b) 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.

(c) Net cash provided by Government

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.

(d) Amounts due from or to the CRF

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.

(e) 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, he 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.

(f) 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.

(g) Environmental liabilities and asset retirement obligations

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.

An asset retirement obligation is recognized when all of the following criteria are satisfied: there is a legal obligation to incur retirement costs in relation to a tangible capital asset, the past event or transaction giving rise to the retirement liability has occurred, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The costs to retire an asset are normally capitalized and amortized over the asset’s estimated remaining useful life. An asset retirement obligation may arise in connection with a tangible capital asset that is not recognized or no longer in productive use. In this case, the asset retirement cost would be expensed. The measurement of the liability is the government’s best estimate of the amount required to retire a tangible capital asset.

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 and asset retirement obligations 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.

(h) 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.

(i) Financial instruments

A contract establishing a financial instrument creates, at its inception, rights, and obligations to receive or deliver economic benefits. The financial assets and financial liabilities portray these rights and obligations in the financial statements. The Department recognizes a financial instrument when it becomes a party to a financial instrument contract.

Financial instruments consist of accounts and loans receivable, loans receivable, accounts payable and accrued liabilities and the capital lease obligation.

All financial assets and liabilities are recorded at cost or amortized cost. Any associated transaction costs are added to the carrying value upon initial recognition.

For financial instruments measured at amortized cost, the effective interest method is used to determine interest revenue or expense.

Accounts and loans receivable are initially recorded at cost and, where necessary, are discounted to reflect their concessionary terms. Concessionary terms of loans include cases where loans are made on a long-term, low interest or interest-free basis or include forgiveness clauses. Unconditionally repayable contributions are recognized as loans receivable. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts and loans receivable to amounts that approximate their net recoverable value. Loans receivable are subsequently measured at amortized cost.

(j) 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. Tangible capital assets – 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 Footnote note 13. All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more 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.

(k) 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.

(l) 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.

(m) 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 31st. Gains and losses resulting from foreign currency transactions are reported on the Consolidated Statement of Operations and Departmental Net Financial Position and Footnote note 18 in other operating expenses according to the activities to which they relate.

(n) 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 and asset retirement obligations, 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.

(o) 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

(in thousands of dollars)

  2023 2022
Restated
Footnote (note 19)
Net cost of operations before government funding and transfers 2,524,492 2,077,443
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (28,259) (27,713)
Net gain (loss) on disposal of tangible capital assets including adjustments 317 (769)
Services provided without charge by other government departments (57,421) (54,693)
Increase in prepayments 1,576 125
(Decrease) increase in inventory (72) 2
Decrease in accrued liabilities 10,189 12,576
Decrease in vacation pay and compensatory leave 98 3,414
Decrease in employee future benefits 457 2,438
Decrease (increase) in environmental liabilities and asset retirement obligations 2,008 (2,021)
Refund of prior years' expenditures 1,994 1,191
Revenues and expenses for restricted accounts 1,443 391
Other adjustments 2,474 3,976
Total items affecting net cost of operations but not affecting authorities (65,196) (61,083)
Adjustments for items not affecting net cost of operations but affecting authorities:
Increase in loans receivable 43,081 80,035
Acquisitions of tangible capital assets 34,231 21,355
Decrease in lease obligation for tangible capital assets 3,519 3,462
Total items not affecting net cost of operations but affecting authorities 80,831 104,852
Current year authorities used 2,540,127 2,121,212

(b) Authorities provided and used

(in thousands of dollars)

  2023 2022
Authorities provided:
Vote 1 – Program expenditures 829,096 814,330
Vote 5 – Capital expenditures 52,321 34,378
Vote 10 – Grants and contributions 2,504,028 1,722,176
Statutory amounts: 554,167 614,869
Less: Authorities available for future years (9,352) (7,662)
Lapsed – Operating expenditures (45,089) (168,945)
Lapsed – Capital expenditures (18,216) (13,814)
Lapsed – Grants and contributions (1,326,828) (874,120)
Lapsed – Statutory - -
Current year authorities used 2,540,127 2,121,212

4. Accounts payable and accrued liabilities

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

(in thousands of dollars)

  2023 2022
Accounts payable - Other government departments and agencies 15,930 8,130
Accounts payable - External parties 305,285 244,207
Total accounts payable 321,215 252,337
Accrued liabilities 576,100 475,574
Total accounts payable and accrued liabilities 897,315 727,911

5. Environmental liabilities and asset retirement obligations

Environmental liabilities and asset retirement obligations include:

(in thousands of dollars)

  2023 2022
Remediation liability for contaminated sites 593 3,365
Asset retirement obligations 25,702 24,938
Total environmental liabilities and asset retirement obligations 26,295 28,303

(a) Remediation of contaminated sites

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 (15 sites in 2022) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Department has identified 7 sites (7 sites in 2022) where action is required and for which a gross liability of $593 thousand ($599 thousand in 2022) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts.

In 2022, the department estimated and recorded a liability of $2,766 thousand for 4 sites that had not yet been fully assessed by environmental experts. In 2023, these sites were further assessed and the liability was revised to $0 as it was determined that remediation work will not be required.

The estimate of $593 thousand ($3,365 thousand in 2022) 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 4 sites (4 sites in 2022), 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 as 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, 2023, and March 31, 2022. 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 2.0% (2.0% in 2022). 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 2023 rates range from 3.05% for a 4 year term to 2.84% for an 8 year term.

(in thousands of dollars)

Nature and Source Total number
of Sites
2023
Number of
Sites with a
liability
2023
Estimated Liability
2023
Estimated
Total
Undiscounted
Expenditures
2023
Estimated
Recoveries
2023
Fuel Related Practices Footnote (1) - - - - -
Office/Commercial/Industrial Operations Footnote (2) 11 7 593 729 -
Totals 11 7 593 729 -

(in thousands of dollars)

Nature and Source of Liability Total number
of Sites
2022
Number of
Sites with a
liability
2022
Estimated Liability
2022
Estimated
Total
Undiscounted
Expenditures
2022
Estimated
Recoveries
2022
Fuel Related Practices Footnote (1) 4 4 2,766 2,766 -
Office/Commercial/Industrial Operations Footnote (2) 11 7 599 729 -
Totals 15 11 3,365 3,495 -

(b) Assest Retirement Obligations

The Department has recorded asset retirement obligations for the removal of asbestos in buildings and removal of leasehold improvements.

The changes in asset retirement obligations during the year are as follows:

(in thousands of dollars)

  2023 2022
Asbestos in
buildings
Removal of
Leasehold
Improvements
Total Restated
Footnote (note 19)
Opening balance 19,337 5,602 24,939 24,332
Liabilities Incurred - 174 174 10
Liabilities Settled - - - -
Revisions in estimates - - - -
Accretion expenseFootnote (1a) 474 115 589 596
Closing balance 19,811 5,891 25,702 24,938

The undiscounted future expenditures, adjusted for inflation, for the planned projects comprising the liability are $38,098 thousand ($37,875 thousand as at March 31, 2022). Estimated recoveries related to asset retirement obligations amounted to $0 thousand as at year end ($0 thousands in 2022) .

Key assumptions used in determining the provision are as follows:

(in thousands of dollars)

  2023 2022
Discount rate 2.31% - 2.45% 2.41% - 2.44%
Discount period and timing of settlement 2 to 20 years 3 to 21 years
Long-term rate of inflation 2% 2%

The Department’s ongoing efforts to assess contaminated sites and asset retirement obligations may result in additional environmental liabilities and asset retirement obligations.

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, 2023 ($95,993 thousand in 2022) and accumulated amortization of $46,684 thousand as at March 31, 2023 ($42,740 thousand in 2022). Interest on this obligation of $853 thousand ($910 thousand in 2022) 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:

(in thousands of dollars)

  2023
2024 4,372
2025 4,372
2026 4,372
2027 4,372
2028 4,372
2029 and subsequent 33,299
Total future minimum lease payment 55,159
Less: imputed interest (1.65%) 5,394
Lease obligation for tangible capital assets 49,765

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 2023 expense amounts to $45,178 thousand ($41,157 thousand in 2022). For Group 1 members, the expense represents approximately 1.02 times (1.01 times in 2022) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2022) 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, 2023, 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:

(in thousands of dollars)

  2023 2022
Accrued benefit obligation - Beginning of year 12,703 15,141
Expense for the year 687 949
Benefits paid during the year (1,144) (3,387)
Accrued benefit obligation - End of year 12,246 12,703

8. Other liabilities

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

(in thousands of dollars)

  2023 2022
Contractor security deposits - Cash 17 21
Guarantee deposits - Oil and gas 17,809 15,567
Shared costs projects 11,596 4,016
Shared costs agreements – Research 6,058 7,751
Total other liabilities 35,480 27,355

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.

Shared-cost agreements – Research: This account was established to facilitate the retention and disbursement of funds received from private industry 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:

(in thousands of dollars)

  2023 2022
Receivables - Other government departments and agencies 8,859 7,139
Receivables - External parties 46,660 48,008
Employee advances 349 760
Subtotal 55,868 55,907
Allowance for doubtful accounts on receivables from external parties (280) (248)
Gross accounts receivable and advances 55,588 55,659
Accounts receivable held on behalf of Government (31,589) (35,294)
Net accounts receivable and advances 23,999 20,365

The following table provides an aging analysis of accounts receivable from external parties and the associated valuation allowances used to reflect their net recoverable value.

(in thousands of dollars)

  2023 2022
Accounts receivable from external parties    
Not past due 44,463 44,509
Number of days past due    
1 to 30 190 284
31 to 60 22 37
61 to 90 16 -
91 to 365 110 1,221
Over 365 1,859 1,957
Subtotal 46,660 48,008
Less: Valuation allowance 280 248
Total 46,380 47,760

10. Loans receivable

The following table presents details of the Department's loans receivable and unconditionally repayable contribution balances:

(in thousands of dollars)

  2023 2022
Unconditionally repayable contributions 135,853 99,357
Subtotal 135,853 99,357
Gross loans receivable 135,853 99,357
Loans receivable held on behalf of Government (135,853) (99,357)
Net loans receivable - -

(a) Unconditionally repayable contributions

These loans relate to unconditionally repayable contributions made to outside parties that must be repaid without qualification. There are no loans that are past due or impaired.

11. Risk Management

The Department has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk.

(a) Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss.

The Department’s maximum exposure to credit risk at March 31, 2022 and March 31, 2023 is the carrying amount of its financial assets.

The Department has determined that there is no significant concentration of credit risk related to accounts receivable from external parties. An analysis of the age of these financial assets and the associated valuation allowances used to reflect these accounts at their net recoverable value is disclosed in Footnote Note 9.

(b) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of currency risk and interest rate risk.

i) Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates. The Department has determined that there is no significant concentration of currency risk related to foreign denominated financial instruments.

ii) Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Department’s loans receivable (or other interest-bearing instruments) bear fixed interest rates. Although the fair value of these financial instruments will be affected by changes in market interest rates, there is no impact on the Department’s financial statements as these items are measured at cost or amortized cost.

(c)Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities.

As the funding for the Department’s financial liabilities is drawn from the Consolidated Revenue Fund, its exposure to liquidity risk is fully mitigated.

12. Inventory

The following table presents details of the inventory:

(in thousands of dollars)

  2023 2022
Inventories held for consumption 369 440
Inventories held for re-sale 47 48
Total inventory 416 488

The cost of consumed inventory recognized as an expense in the Consolidated Statement of Operations and Departmental Net Financial Position is $186 thousand in 2023 ($73 thousand in 2022).

13. 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 in the year they are put into service and are not amortized until they are put into service.

Cost

(in thousands of dollars)

Opening Balance Acquisitions Adjustments Footnote (1) Disposals and Write-offs Closing Balance
Capital asset class
Land 7,800 - - - 7,800
Buildings 314,025 621 1,565 11 316,200
Works and Infrastructure 21,652 - - - 21,652
Machinery and equipment 283,722 14,521 1,876 2,540 297,579
Vehicles 11,723 1,668 2,445 339 15,497
Leasehold improvements 73,883 - 1,995 - 75,878
Leased tangible capital assets 95,993 - - - 95,993
Assets under construction 8,692 17,421 (3,273) - 22,840
Total 817,490 34,231 4,608 2,890 853,439

Accumulated Amortization

(in thousands of dollars)

Opening Balance Amortization Adjustments Footnote (1) Disposals and Write-offs Closing Balance
Capital asset class
Buildings 173,036 7,194 15 11 180,234
Works and Infrastructure 1,750 788 - - 2,538
Machinery and equipment 227,077 10,702 246 2,527 235,498
Vehicles 8,196 669 2,416 325 10,956
Leasehold improvements 36,823 4,962 - - 41,785
Leased tangible capital assets 42,740 3,944 - - 46,684
Total 489,622 28,259 2,677 2,863 517,695

Net book value

(in thousands of dollars)

  2023 2022
RestatedFootnote (note 19)
Capital asset class
Land 7,800 7,800
Buildings 135,966 140,989
Works and Infrastructure 19,114 19,902
Machinery and equipment 62,081 56,645
Vehicles 4,541 3,527
Leasehold improvements 34,093 37,060
Leased tangible capital assets 49,309 53,253
Assets under construction 22,840 8,692
Total 335,744 327,868

(1)Adjustments include assets under construction of $5,011 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 $1,775 thousand on the departmental net financial position.

14. 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 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. This account is a continuation of the Nuclear Liability Reinsurance Account under the previous Nuclear Liability Act, now repealed.

Legislation requires that the revenues of these accounts 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.

(in thousands of dollars)

  2023 2022
Restated
Footnote (note 19)

Environmental Studies Research Fund - Restricted

Balance - Beginning of year 4,120 3,880
Revenues 5,654 5,556
Expenses (4,373) (5,316)
Balance - End of year 5,401 4,120
Nuclear Liability Account - Restricted
Balance - Beginning of year 4,880 4,728
Revenues 162 152
Balance - End of year 5,042 4,880
Subtotal - Restricted 10,443 9,000
Unrestricted 216,894 200,959
Departmental net financial position - End of year 227,337 209,959

15. Contractual obligations

(a) 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:

(in thousands of dollars)

  2024 2025 2026 2027 2028 2029 and subsequent Total
Other Transfer Payments 756,744 555,917 475,760 223,251 35,492 80,104 2,127,268
Total 756,744 555,917 475,760 223,251 35,492 80,104 2,127,268

16. Contingent liabilities and contingent assets

(a) 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:

i. 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 records 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 $30,000 thousand in 2023 ($11,170 thousand in 2022).

ii. Loan guarantees:

(in thousands of dollars)

  Authorized Limit Outstanding guarantees
  2023 2022
Lower Churchill Hydroelectric Projects 10,200,000 8,891,526 9,056,169

From 2013 to 2017, the Government of Canada guaranteed a total of $9.2 billion in debt issued to support 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).

Interest payments on these bonds began immediately after issuance, occurring every six months on June 1 and December 1 of every year. Principal repayments began in 2020. In some cases, principal repayments are made directly to bondholders every six months; in other cases, the entire principal amount of the bond is repaid on the maturity date – in these cases, funds are gradually set aside every six months to ensure that the full principal amount can be paid on the maturity date.

In March 2022, the Government of Canada issued a subsequent federal loan guarantee for $1 billion in debt. The proceeds of this debt issuance will be used to make principal repayments for the Muskrat Falls and Labrador Transmission Assets project that come due on or before June 1, 2029. Interest payments on this subsequent guarantee begin on June 1, 2022 and will occur every six months until the debt is retired. The principal amounts will be repaid beginning on December 1, 2037, with the final payment occurring on June 1, 2057.

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 net amount of debt remaining outstanding, having been reduced by both principal repayments to bond holders as well as funds held in escrow for future principal repayments, is $8.89 billion as at March 31, 2023.

iii. 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), now repealed, 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. 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 routine emissions, and bodily injury occurring 10 to 30 years after a nuclear incident. Through the indemnity agreement, entered into with 9 operators, the federal government covers the liability associated with the two exceptions. It also covers the difference between the lower liability amount prescribed in NLCR for lower-risk installations and, as applicable, the $1 billion liability.assigned in the NLCA. 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 repealed 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 2023, is $5,041,310. 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.

(b) 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, 2023 ($0 in 2022).

17. 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:

(in thousands of dollars)

  2023 2022
Employer's contribution to the health and dental insurance plans 39,247 36,678
Accommodation 17,888 17,984
Workers' compensation 286 31
Total common services provided without charge 57,421 54,693

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 $16,422 thousand ($18,702 thousand in 2022) 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

(in thousands of dollars)

  2023 2022
Expenses 171,199 131,406
Revenues 6,789 6,491

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

18. 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 Footnote 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 2023 2022
Restated
Footnote (note 19)
Transfer payments
Industry 17,645 348,912 110,928 - 477,485 261,686
International 790 4,799 3,549 - 9,138 4,549
Non-profit organizations 22,919 132,313 32,780 - 188,012 271,228
Other levels of government 54,270 46,217 479,585 - 580,072 621,540
Individuals 9,656 290,899 44,989 - 345,544 143,596
Total transfer payments 105,280 823,140 671,831 - 1,600,251 1,302,599
Operating expenses
Salaries and employee benefits 160,791 249,203 62,761 145,047 617,802 546,254
Information 4,230 7,709 1,849 4,401 18,189 15,200
Professional and special services 44,134 59,813 6,213 57,444 167,604 124,815
Rentals 13,591 11,402 2,288 6,093 33,374 34,396
Transportation and communication 7,237 4,147 1,537 2,070 14,991 5,624
Utilities, material and supplies 11,247 12,816 934 2,332 27,329 23,341
Purchased repairs and upkeep 1,810 3,404 227 783 6,224 6,668
Acquisitions of non-capital assets 4,338 7,365 504 11,381 23,588 11,866
Amortization 13,699 12,236 824 1,500 28,259 27,713
Other 3,662 16,265 1,131 (4,174) 16,884 10,004
Total Operating expenses 264,739 384,360 78,268 226,877 954,244 805,881
Total expenses 370,019 1,207,500 750,099 226,877 2,554,495 2,108,480
Revenues
Rights and privileges 1,799 282 370,441 - 372,522 328,137
Other, such as revenue pursuant to agreements 1,359 8,949 56,213 297 66,818 241,581
Revenue from services of a non-regulatory nature 7,491 8,511 6 - 16,008 18,071
Proceeds from sales of goods and information products 463 1,036 - - 1,499 2,038
Revenue from services of a regulatory nature - 1,801 - - 1,801 1,752
Services to other government departments - - - 183 183 151
Revenues earned on behalf of Government (415) (1,462) (426,654) (297) (428,828) (560,693)
Total net revenues 10,697 19,117 6 183 30,003 31,037
Net cost of operations 359,322 1,188,383 750,093 226,694 2,524,492 2,077,443

19. Adjustments to prior year’s results

Effective April 1, 2022 the Government adopted the new Public Sector Accounting Standard PS3280 Asset Retirement Obligations. This standard requires public sector entities to recognize legally obligated costs associated with the retirement of tangible capital assets on acquisition, construction or development and expense those costs systematically over the life of the asset.

The Government applied the modified retrospective application transitional approach. On initial application of the standard, the Government recognized:

  1. a liability for any existing asset retirement obligations, adjusted for accumulated accretion to that date;
  2. an asset retirement cost capitalized as an increase to the carrying amount of the related tangible capital assets;
  3. accumulated amortization on that capitalized cost; and
  4. an adjustment to the opening balance of the accumulated surplus / deficit.

Asset retirement obligations associated with assets no longer in productive recognized a liability and a corresponding adjustment to the opening accumulated surplus / deficit.

These amounts were measured using information, assumptions and discount rates that are current at the beginning of the fiscal year. The amount recognized as an asset retirement cost is measured as of the date the asset retirement obligation was incurred. Accumulated accretion and amortization are measured for the period from the date the liability would have been recognized had the provisions of this standard been in effect to the date as of which this standard is first applied.

A reconciliation of the restatement for the significant consolidated financial statement line items follows:

(in thousands of dollars)

  2022
As previously
stated
Effect of the
adjustment
2022
Restated
Statement of Financial Position
Environmental liabilities and asset retirement obligations Footnote (note 5) 3,365 24,938 28,303
Total liabilities 864,074 24,938 889,012
Departmental Net debt 96,007 24,938 120,945
Tangible capital assets Footnote (note 13) 322,963 4,905 327,868
Total non-financial assets 325,999 4,905 330,904
Departmental net financial position Footnote (note 14) 229,992 (20,033) 209,959
Statement of Operations and Departmental Net Financial Position
Total expenses 2,107,407 1,073 2,108,480
Net cost of operations before government funding and transfers 2,076,370 1,073 2,077,443
Net revenue after government funding and transfers (2,232) 1,073 (1,159)
Departmental net financial position - Beginning of year 227,760 (18,960) 208,800
Departmental net financial position - End of year 229,992 (20,033) 209,959
Statement of changes in Net Debt
Net revenue of operations after government funding and transfers (2,232) 1,073 (1,159)
Amortization of tangible capital assets Footnote (note 13) (27,236) (477) (27,713)
Net loss on disposal of tangible capital assets including adjustments (779) 10 (769)
Total change due to tangible capital assets (6,832) (467) (7,299)
Decrease in departmental net debt (8,937) 606 (8,331)
Departmental net debt - Beginning of year 104,944 24,332 129,276
Departmental net debt - End of year 96,007 24,938 120,945
Statement of Cash Flows
Net cost of operations before government funding and transfers 2,076,370 1,073 2,077,443
Amortization of tangible capital assets Footnote (note 13) (27,236) (477) (27,713)
Net loss on disposal of tangible capital assets including adjustments (779) 10 (769)
Increase in environmental liabilities and asset retirement obligations (1,415) (606) (2,021)
Net cash provided by Government of Canada 1,773,479 - 1,773,479

20. 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 2022-23 (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 2023-24 Departmental Plan and the 2022-23 Departmental Results Reports.

2. Departmental system of internal control over financial management

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 Framework for ICFM, approved by the Deputy Minister (DM), is in place and comprises:

  • organizational accountability structures relating to internal control management to 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 to guide employees in all activities related to their professional duties;
  • ongoing communication and training on the legislative and policy requirements for sound financial management and control; and
  • at least semi-annual monitoring and regular updates on the implementation progress of outstanding corrective actions, current year assessment results, and action plans to the DM, Chief Financial Officer (CFO), and the Departmental Audit Committee (DAC).

The DAC provides advice to the DM on the effectiveness 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 processing certain transactions that are recorded in its financial statements, as follows.

2.2.1 Common service arrangements

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

2.2.2 Specific arrangements

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

  • 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 (ICFR) related to these specific services.

3. Departmental internal control assessment results for fiscal year 2022-23

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

Progress during fiscal year 2022-23

Previous fiscal year’s rotational ongoing monitoring plan for current fiscal year Status
  • Audit of IT Service Management
  • Continuous Audit on Pay and Benefits
  • Audit of Capital and Attractive Asset Management

Performed by the Audit and Evaluation Branch (AEB).

Design effectiveness (DE) and operating effectiveness (OE) testing completed as planned for each key control area; remedial actions started.

Audit reports for 2023 are published on NRCan’s Website.

  • Financial close and reporting (FCR)
  • Procure to pay (P2P)
  • Environmental liabilities (EL)
  • Integrated business planning (IBP)

Performed by the Financial Management Internal Control (FMIC) unit.

FCR, P2P, and EL: DE and OE testing completed as planned; remedial actions started.

IBP: Documentation completed.

The key remedial actions are summarized in Section 3.2.

3.1 New or significantly amended key controls

3.1.1 Fraud risk management

NRCan is developing a fraud risk management framework (FRMF) to formally establish the roles, responsibilities and processes for fraud risk governance and reporting, undertaking a periodic fraud risk assessment, deploying mitigating fraud preventative and detective control activities, conducting fraud investigations and developing and implementing corrective actions, and monitoring the overall effectiveness of the fraud risk management program.

3.1.2 Integrated business planning

The IBP process was launched for the first year in 2022-23 and integrates NRCan’s strategic and operational priorities and risks with its financial and non-financial resources to provide senior management with useful information on changing demands and support rapid resource reallocations to key organizational priorities. In 2023-24, NRCan intends to integrate the investment planning process into the 2024-25 IBP cycle to continue to build a stronger planning culture and increase horizontal engagement.

3.1.3  Capital Assets

In 2022-23, the Public Sector Accounting Standard 3280 Asset Retirement Obligations (ARO) was implemented to report on legal obligations associated with the retirement of tangible capital assets. Given its recent implementation, NRCan will document the process to recognize, measure, and report on ARO as part of the capital asset business process in 2024-25.

3.2 Ongoing monitoring program

As per the previous year’s rotational ongoing monitoring plan (OMP), the FMIC unit completed its reassessment of the key control areas listed below. In general, key controls were effective, with remediation required as follows.

3.2.1 Financial close and reporting

  • Develop and implement a risk based periodic review process of the departmental chart of accounts.
  • Restrict user access to post to certain high-risk general ledger accounts in SAP to the corporate reporting group.

3.2.2 Procure to pay

  • Strengthen the process to monitor the completion and revalidation of the mandatory financial delegation training by managers and executives.
  • Update the Quality Assurance of Account Verification Plan using a risk-based sampling and testing approach.
  • Strengthen the analysis of pre and post payment verification results and timeliness of reporting to senior management for effective oversight and prompt corrective actions.
  • Strengthen the pre-payment verification of high-risk interdepartmental settlements (IS).
  • Strengthen the segregation of duties between transaction authority and s.34 of the Financial Administration Act for the same IS.

3.2.3  Environmental liabilities

  • Review and update departmental policy instruments for the management and accounting of contaminated sites.
  • Reconcile contaminated sites information between the Federal Contaminated Sites Inventory and internal real property and building management systems, contaminated site management systems, and financial systems.

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

NRCan’s rotational OMP for the next three fiscal years, based on an annual validation of the high-risk key control areas and related adjustments, as required, is shown in the following table. The OMP includes planned projects as per the NRCan 2023-28 Integrated Audit Evaluation Plan (IAEP) to provide additional assurance on the effectiveness of risk management, control, and governance processes related to the system of ICFM.

Rotational ongoing monitoring plan

Key control areas 2023-24 2024-25 2025-26
Entity level controls (ELCs)
  1. Control environment
  2. Risk assessment
  3. Control activities
  4. Information and communication
  5. Monitoring activities
Yes – AEB (2) No AEB (1)

IT general controls (ITGCs)
IT Systems

  1. Internal: Network, Application for Modules and Interfaces, and Oracle Database, ConneXus platform, Specimen Signature Record and etools (e.g., e-procurement, epayment, and epaye)
  2. External: SAP, Standard Payment System, MyGCHR, Phoenix, and Expense Management Tool: Amex Global Business Travel (note)

ITGC Control Areas

  1. Change management: program changes and development.
  2. Logical security: access to programs and data.
  3. Computer operations: incident management, third-party service management, job scheduling, and backups/recoveries.

Note: For external IT systems, NRCan relies on common services providers for the effectiveness of ITGCs, and so only user access (Logical security) and third-party IT service management (Computer operations) controls are tested.

Yes – AEB Yes – FMIC
and AEB
Yes – FMIC
and AEB
Financial close and reporting No No No
Grants and contributions (G&C), including repayable contributions Yes – AEB Yes – AEB Yes – AEB
Payroll and benefits Yes – AEB Yes – FMIC and AEB No

Procure to pay (P2P)

  1. P2P
  2. Acquisition cards
  3. Contractor and supplier payments
Yes – AEB (2) Yes – AEB (3) No
Offshore royalty revenues/statutory transfers (ORST) No No Yes – AEB
Revenue and accounts receivable, including costing for charging agreements No No Yes – FMIC
Environmental liabilities No No No

Contingent liabilities (CL)

  1. Lower Churchill projects loan guarantees
  2. Nuclear liability account
  3. Claims and litigation
No No Yes – FMIC

Capital assets (CA)

  1. Material, fleet, and real property management
  2. Assets under constructions
  3. Asset retirement obligations (ARO)
Yes – FMIC (3) Yes- FMIC
(1 and 2)
Yes – AEB

Budgeting and forecasting (B&F), including integrated business planning (IBP)

  1. Annual reference level update, budget transfers, and financial situation report
  2. IBP
Yes – FMIC (2) No Yes- FMIC (1)
Investment planning (IP), including project management (PM) Yes – FMIC Yes – AEB No
Chief financial officer attestation (included in TB submissions), and related costing No Yes – FMIC No

The OMP was amended as follows:

  • OMP Duration: Changed the duration of the plan from five to three years to better align with the IAEP.
  • Planned AEB Projects: Updated the OMP to align with the planned AEB audit projects as per the NRCan 2023-28 IAEP.
  • ELCs and B&F: Deferred the ELC assessment planned for 2025-26 to future years to prioritize the ongoing monitoring of the B&F.
  • ITGCs: Expanded and reorganized the scope of ITGCs to include key internal and external IT systems and application that support FM.
  • G&Cs: Deferred the G&C, including repayable contributions assessment planned for 2023-24 and 2025-26 to future fiscal years given the planned Continuous Audit of Selected G&Cs being evaluated in the same year for the next three years.
  • ORST: Deferred the ORST assessment planned for 2023-24 to future fiscal years to prioritize the development of the FRMF.
  • CL and ARO: Deferred the CL assessment planned for 2023-24 to 2025-26 to prioritize the assessment of the newly implemented ARO process, which forms part of the capital asset business process.
  • IBP: Advanced from 2026-27 to 2023-24 to build on the assessment completed in 2022-23.

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 the full assessment of its system of ICFM by 2023-24. At that time, NRCan will fully meet the requirements of the TB Policy on Financial Management and will continue to apply its rotational ongoing monitoring plan to reassess control performance on a risk basis across all key control areas. The status and action plan for the completion of the identified key 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 2023-24 and 2025-26
IT general controls under departmental management Complete Complete 2023-24, 2024-25, and 2025-26
Financial close and reporting Complete Complete Future fiscal years
Grants and contributions, including repayable contributions Complete Complete 2023-24, 2024-25, and 2025-26
Payroll and benefits Complete Complete 2023-24 and 2024-25
Procure to pay Complete Complete 2023-24 and 2024-25
Offshore royalty revenues/statutory transfers Complete Complete 2025-26
Revenue and accounts receivable, including costing for charging agreements Complete Complete 2025-26
Environmental liabilities Complete Complete Future fiscal years
Contingent liabilities Complete Complete 2025-26
Capital assets Complete Complete 2023-24, 2024-25, and 2025-26
Budgeting and forecasting, including integrated business planning Complete Complete 2023-24 and 2025-26
Investment planning 2023-24 2023-24 2024-25
Chief financial officer attestation (included in TB submissions), and related costing. Complete Complete 2024-25

* Ongoing monitoring rotation means that key controls have been documented, assessed for DE and OE, and remedial actions to address weaknesses have been implemented. Once ongoing monitoring stage is reached, it will remain at this stage to ensure the continued effectiveness of key controls, even when new processes are implemented, or the scope of the program is adjusted to reflect changes in the department’s operations or to incorporate new elements of ICFM.

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