6.0 INDIAN AND NORTHERN AFFAIRS CANADA FINANCIAL REPORTING REQUIREMENTS FOR RECIPIENTS

6.1 Program / Service Revenues and Expenditures Schedules (see Annex A for example)

In addition to the consolidated financial statements required by GAAP, INAC requires that Recipients prepare separate schedules of revenue and expenditure for programs and services specified in the funding agreement.

At a minimum, the Program/Service Revenue and Expenditure Schedules shall:

• present the information for the Program/Service identified as a Contribution in the Funding Agreement separately and shall not combine the information for the Programs/Services identified as Flexible Transfer Payments with the information for the Programs/Services identified as Contribution;
• account for revenues by source;
• disclose expenditures by object. Objects of expenditures represent items such as employee salaries and benefits, debt servicing, material and supplies and professional fees;
• present cumulative surpluses (deficits); and
• detail opening and closing balances of deferred revenue;

Although Program/Service and Revenue and Expenditure Schedules need not be individually audited, the overall balances must be audited as part of the auditor's attestation on the summary/consolidated financial statements.

6.2 Presentation of Member's Equity in the Recipient's Summary (consolidated) Statement of Financial Position

The Member's Equity section (or retained earnings / net assets for recipients reporting under CICA accounting recommendations rather than PSA Handbook recommendations) presented in the recipients Summary (consolidated) Statement of Financial Position (balance sheet for recipients reporting under CICA accounting recommendations rather than PSA Handbook recommendations) should disclose the following separately, where applicable:

Equity in physical assets fund (fixed assets)
Equity in trust fund
Equity in enterprise fund
Equity in operating fund.

Equity in physical assets fund (fixed assets) means the value/cost of assets in investments such as social housing, building of roads and of other permanent long-term infrastructure. Also, equity derived from other capitalization that do not affect the day to day operations of the recipient should be included in this amount.

Equity in trust fund means the cumulative surplus which results from the funds held in trust on behalf of the recipient. These trust funds include trust funds held by INAC in the Government of Canada's Consolidated Revenue Fund (CRF) and other privately held trusts such as Treaty Land Entitlement trust funds. Where the recipient owns both privately held trusts and trust funds held in the CRF, these should be presented separately.

Equity in enterprise fund means the cumulative surplus/deficit which results from the operations of businesses in the reporting entity that are considered "Government Business Enterprises" as defined in the PSA Handbook. The operations of these business activities should be accounted for using the modified equity method rather than the full line-by-line consolidation method.

Equity in operating fund means the cumulative surplus/deficit which results from the activities relating to the delivery of programs and services. Therefore, the equity in the operating fund incorporates the cumulative results that are not included in the physical assets fund, the trust fund and the enterprise fund.

6.3 Funds Held in Trust (Annexes B-C)

There are two categories of Funds Held in Trust (FHIT) - those held by INAC in the Government of Canada's Consolidated Revenue Fund (CRF) and those held in private trusts outside of the CRF. These two types of FHIT should be disclosed separately in the recipient's financial statements.

FHIT withdrawn from the CRF in accordance with sections 64, 66 and 69 of the Indian Act must be accounted for and reported on in the financial statements. A "Statement of Receipt and Expenditure of Indian Moneys - Capital Trust Moneys" (see Annex B) or a "Statement of Receipt and Expenditure of Indian Moneys - Revenue Trust Moneys" (see Annex C) must be completed. These statements are to be audited by the auditor and form part of the audited financial statements to be submitted to INAC. This requirement is based on the Indian Act and on the Indian Bands Revenue Money Regulations.

FHIT withdrawn from the CRF can only be withdrawn based on the Indian Act and the Indian Bands Revenue Moneys Regulations by way of a Band Council Resolution (BCR). First Nations submit BCRs to INAC requesting the release of their Band Capital and Revenue Trust funds. These funds are to be expended for the purposes outlined in the BCR. The BCR should be used as the source document to ensure the expenditures reported in Annexes B and C have been expended for the purposes intended and in the appropriate service or program area. Where First Nation Trust Funds have been released to a First Nation, the level of detail contained in the audited financial statements must be sufficient to enable departmental officials to confirm that these moneys were used for the purpose for which they were authorized. Therefore, withdrawals from Trust funds must be separately identified as being a source of revenue within the particular program or service schedule (see Annex A). It should be noted that INAC provides recipients with a monthly statement of accounts detailing the transactions of their FHIT in the CRF.

These schedules (Annexes B and C) must be audited by the auditor and forms part of the audited financial statements to be submitted to INAC.

6.4 Schedule of Salaries, Honoraria, Travel Expenses and Other Remuneration (Annexes D - E - F)

6.4.1 Requirement for Schedules of Salaries, Honoraria, Travel and Other Remuneration

The recipient must disclose to community members and to INAC compensation earned or accrued by elected or appointed officials and by unelected senior officials. At a minimum, the schedules must include the information described below in the Elected or Appointed Officials (Annex D) and Unelected Senior Officials (Annexes E - F) sections.

6.4.2 Elected or Appointed Officials (Annex D)

A "Schedule of Salaries, Honoraria, Travel Expenses and Other Remuneration" must be prepared in accordance with Annex D.

The amounts to be disclosed must be from all sources within the recipient's financial reporting entity including amounts from, but not limited to, economic development and other types of business corporations. The amounts included in this schedule must have been earned or accrued by elected or appointed officials and could include amounts such as travel expenses, debt write-offs, salaries and benefits from other employment in the reporting entity, and dividends or other such amounts received from businesses included in the recipient's reporting entity.

For the purposes of this section, the elected or appointed officials are:

• The elected Chief and Council;
• In organizations with a Board of Directors, either the elected and/or appointed representatives in charge of the organization; and
• In instances where additional amounts are earned or accrued by any other elected Chiefs and Councils, that are not elected officials of the reporting entity, then the amounts earned or accrued by these individuals should also be disclosed.

6.4.3 Unelected Senior Officials (Annexes E - F)

A "Schedule of Salaries, Honoraria, Travel Expenses and Other Remuneration", must be prepared in accordance with either Annex E or Annex F.

Option 1 - Annex E

The schedule in Annex E must disclose salary, honoraria, travel and other remuneration that have been earned or accrued by the Recipient's unelected officials such as Executive Directors, Band Managers and Senior Program Directors by virtue of the position held.

Option 2 - Annex F

This option may only be used when approved salary ranges are in place. The schedule in Annex F requires for each position disclosure of the approved salary range and the actual expenses for honoraria, travel and other remuneration that have been earned or accrued by the Recipient's unelected officials such as Executive Directors, Band Managers and Senior Program Directors by virtue of the position held.

6.4.4 Auditor's Attestation

The schedules described above (Annexes D-E-F) must be accompanied by one of the following auditor's attestations:

• an auditor's report;
• an auditor's review engagement report; or
• an auditor's derivative report containing, at a minimum, the following elements:
  • that the auditor has audited and reported separately on the consolidated financial statements;
  • that an audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole;
  • that the attached supplementary information is presented for purposes of additional information to the Membership and does not form part of the consolidated financial statements; and
  • that the schedule has been subjected to the auditing procedures applied to the audit of the consolidated financial statements taken as a whole.

6.5 Auditor's Management Letter

CICA Handbook assurance recommendation 5220.07 states that "The auditor should communicate to the audit committee or equivalent, significant weaknesses in internal control which the auditor identifies during the course of the financial statement audit". This communication is either referred to as an "Auditor's Management Letter" or an "Internal Control Letter". These Auditor's Management Letters and the recommendations contained therein are valuable management tools to help build recipient financial and administrative capacity.

It is strongly recommended that this information be provided to INAC in all instances. However, the recipient must submit this information to INAC in all cases where a recipient is in default of its Funding Agreement and INAC deems that an intervention is required. When INAC has already imposed an intervention on the recipient, this requirement is mandatory. When the recipient has just become in default of its Funding Agreement, INAC will request this information upon communication of the intervention.

6.6 Funding Reconciliation (Mandatory)

INAC must be able to reconcile funds provided to the Recipient. As a result, the following reconciliation must be submitted:

In addition, the following information must be submitted in the funding reconciliation:

• amounts due to / from INAC;
• detailed explanation of the discrepancies between the amounts stated in the agreement and the amounts in the financial statements;
• reference of the correspondent page of the Financial Statements;
• for Block Funded or Core Funded Services, details regarding transfers of INAC funding between Block Funded or Core Funded services; and
• other adjustments.

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