Financial Reporting Requirements (FRR)

AANDC Information Session 2015

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INTRODUCTION2015-2016 Financial Reporting Requirements (FRR)

• AANDC and Health Canada’s First Nation and Inuit Health Branch have combined their financial year-end reporting requirements into AANDC Reporting Guide’s Financial Reporting Requirements (FRR), previously called Year-end Reporting Handbook (YERH).

https://www.aadnc-aandc.gc.ca/eng/1418410624330/1418410790052

AANDC recipients must prepare their financial reporting using the 2014-2015 FRR and are asked to submit their Audited Consolidated Financial Statements (ACFS) in the Consistent Consolidated Financial Statement format which, is available on AANDC’s Internet Site.

• http://www.aadnc-aandc.gc.ca/eng/1386700365578/1386700453627

FRR Agenda

• Accounting Standards

• Two Types of Financial Reporting

• First Nations Financial Transparency Act (FNFTA)

• FNFTA Packages

• FNFTA 1st Package [Required to be published on the Internet by AANDC and First Nation]:

– Annex B, Schedules of Remuneration and Expenses for Chief and Councilors

• FNFTA 2nd Package [NOT required to be published on the Internet by AANDC]:

– (1) Annex A Schedule of Programs/Services/Activities/Projects Revenues and Expenditures

– (2) Reconciliation of Revenue

– (3) Schedule of Remuneration and Expenses, Unelected Senior Officials, (Annex C)

– (4) Statement of Moveable Assets Reserve (Annex D)

– Auditor’s Management Letter

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FRR AGENDA (continued)

• Financial Reporting Requirements for Recipients Other than First Nations, Tribal Councils and First Nation Political Organizations (includes Non-For-Profit)

• Financial Health/Financial Ratios

– Liquidity

– Sustainability

– Working Capital

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FRRAccounting Standards

• First Nations:

–Public Sector Accounting Handbook (PSA Handbook) applies to all forms of governments in Canada, which includes First Nations.

• Tribal Councils and First Nations Political Organizations:

–Must adhere to the PSA Handbook accounting recommendations of the Common Government Reporting Model unless they are deemed to be profit-oriented enterprises, or not-for-profit organizations, or government not-for-profit organizations (if applicable) by Canadian Accounting Standards definitions and recommendations.

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FRRAccounting Standards (cont’d)

• Recipients other than First Nations, Tribal Councils and First Nations Political Organizations:

–Must adhere to the PSA Handbook accounting standards unless they are deemed to be profit-oriented enterprises, or not-for-profit organizations, or government not-for-profit organizations (if applicable) by Canadian Accounting Standards definitions and recommendations.

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FRRFinancial Reporting Types

Financial reporting type is determined by recipient type, funding amount, and recipient risk level:

1. F-0080 Annual Audited Consolidated Financial Statements package

- (F-0081 Annual Unaudited Schedule of Revenue and Expenses package is NOT applicable to First Nations)

2. F-0190 Annual Audited [Consolidated] Financial Statements package

F-0191 Annual Audited Schedule of Revenue and Expenses package

F-0192 Annual Unaudited Schedule of Revenue and Expenses

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First Nations Financial Transparency Act (FNFTA)

• FNFTA, found at:(http://laws-lois.justice.gc.ca/eng/acts/F-11.66/page-1.html)

• Creates the following new requirements for each First Nation that is a band as defined in subsection 2(1) of the Indian Act (unless it is party to a comprehensive self-government agreement given effect by an Act of Parliament):

– Each First Nation must publish on its Internet site, or cause to be published on an Internet site, both its Audited Consolidated Financial Statements (ACFS) and a Schedule of Remuneration and Expenses of Chief and each of its Councilors for the 2014-2015 fiscal year, within 120 days after the end of the financial year.

– AANDC is required to publish on its internet site once it receives the ACFS and Schedules from First Nations. (http://pse5-esd5.ainc-inac.gc.ca/fnp/Main/Search/SearchFN.aspx?lang=eng)

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F-0080 - Annual Audited Consolidated Financial Statements Packages

• To comply with FNFTA mandates, ALL First Nations are required to send their financial reporting in two (2) distinct packages, which must arrive at AANDC together.

1st packageContains documents to be published on the Internet by AANDC and the First Nation (pursuant to FNFTA requirements).

2nd packageContains documents NOT to be published on the Internet by AANDC.

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F-0080 - Annual Audited Consolidated Financial Statements (1st Package)

Documents to be published on the Internet by AANDC and the First Nation:

1. Annual Audited Consolidated Financial Statements (ACFS) which includes the following:

– Management Responsibility Letter

– Auditor’s Report, signed by auditor

– Consolidated Statement of Financial Position, signed by Chief and Council

– Consolidated Statement of Operations (budget figures, revenues by source, AANDC revenue must reconcile)

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F-0080 - Annual Audited Consolidated Financial Statements (1st Package)

Documents to be published on the Internet: continued

1. Annual Audited Consolidated Financial Statements (ACFS) which includes the following (Cont’d):

– Consolidated Statement of Changes in Net Debt (or Assets)

– Consolidated Statement of Cash Flow; and

– Notes to Financial Statements

Comparative figures for previous year must be presented and a budget column for all revenues and expenditures.

2. Schedule of Remuneration and Expenses (Chiefs and Councillors) – Annex B

An auditor’s report or a review engagement report is required.11

F-0080 Schedules of Remuneration and Expenses

• Two separate Schedules of Remuneration and Expenses

- For Chief and Council (Annex B)

- For Unelected Senior Officials (Annex C)

• Auditor’s report or review engagement report required for both Annexes.

• Annex B is required to be published on both AANDC and First Nation websites, Annex C is NOT required to be published online

• Format must meet (or exceed) the minimum Financial Reporting Requirements found in the guide Annexes B & C

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F-0080 Schedule of Remuneration and Expenses

For Chief and Council (Annex B) • Section 6(1) FNFTA requires the public disclosure of

remuneration (salaries and expenses) paid to the Chief and Councilor(s) by the First Nation and its entities, which are required to be consolidated in its audited financial statements.

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F-0080 Schedule of Remuneration and Expenses For Chief and Council (Annex B)

–“Remuneration” is defined in the Act as any salaries, wages, commissions, bonuses, fees, honoraria and dividends and any other monetary benefits — other than the reimbursement of expenses — and non-monetary benefits, paid by the First Nation and by any entity that, in accordance with generally accepted accounting principles, is required to be consolidated with the First Nation.

– “Expenses” are defined in the Act as including costs of transportation, accommodation, meals, hospitality and incidental expenses.

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Annex B: Schedule of Remuneration and Expenses – (Chiefs and Councillors)

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F-0080 - Annual Audited Consolidated Financial Statements (2nd Package)

Documents NOT required to be published on the Internet by AANDC:

1.Program/Service/Activity[/Project] Revenue and Expenses Schedules (Annex A)

– With signed approval by Chief and Council and/or senior management; OR

– An accountant’s Notice to Reader.

– Formats are set out in Financial Reporting Requirements.

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F-0080 Schedule of Programs/Services/Activities/Projects Revenues

and Expenditures (ANNEX A)(Documents NOT required to be published on the Internet)

• Each AANDC Revenue by program code should be reported separately.

• Disclose ALL revenues/funding received by all sources for each AANDC-funded activity/program.

• AANDC will prorate its portion/percentage of the total revenue applied to total expenditures to determine surpluses and deficits.

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F-0080 Schedule of Programs/Services/Activities/Projects Revenues

and Expenditures (ANNEX A) – Cont’d (Documents NOT required to be published on the Internet)

• Each capital project (including housing) should be reported separately.

• SET, FLEX, FIXED, and BLOCK funding and matching expenditures should also be presented separately.

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F-0080 Schedule of Programs/Services/Activities/Projects Revenues

and Expenditures (ANNEX A) – Cont’d (Documents NOT required to be published on the Internet)

• Disclose Budget figures and Prior-year Unexpended Funds, where applicable and presented separately as Fixed, Flex, and Block Funding.

• Annex A must be approved by an authorized representative of the recipient, indicated by a signature on the submitted package.

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F-0080 - Annual Audited Consolidated Financial Statements (2nd Package)

(Documents NOT required to Be Published on the Internet)

2. Reconciliation of Revenue

–Reconciliation of AANDC revenue on Statement of Operations to AANDC Funding Confirmation.

–Reconciliation is NOT based on cash flow.

–AANDC and/or Health Canada must be able to reconcile funding provided to the recipient. The following reconciliation is to be submitted as part of the F-0080 reporting package:

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F-0080 - Annual Audited Consolidated Financial Statements (2nd Package)

(Documents NOT required to be published on the Internet)

3. Schedule of Remuneration and Expenses - (Unelected Senior Officials) (Annex C) – An auditor’s report or a review engagement report is required.

4. Statement of Moveable Assets Reserve (Annex D) – An auditor’s report or a review engagement report is required, where applicable (required by Health Canada).

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Annex C: Schedule of Remuneration and Expenses – (Unelected Senior Officials)

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F-0080 – Auditor’s Management Letter

Auditor’s Letter to Management (Internal Control Letter)

(NOT required to be published on the Internet)

• The Canadian Institute of Chartered Accountants (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.”

• It is strongly recommended that the “Auditor’s Letter to Management” or “Internal Control Letter” be provided to AANDC in all instances.

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F-0080 – Auditor’s Management Letter – Cont’d

• However, its provision becomes a mandatory reporting requirement when a recipient is in default of their funding agreement terms and conditions.

• AANDC has notified, or will notify, the recipient when a remedy for a default is required and will request the “Auditor’s Letter to Management” or “Internal Control Letter”.

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F-0190 – Annual Audited Financial Statements

Recipients Other than First Nations, Tribal Councils and First Nation Political Organizations (including Not-For-Profit) using the General Reporting Model

1. Annual Audited Consolidated Financial Statements

Same requirements as F-0080 not including Annex B & C (Schedules of Remuneration and Expenses)

2. Program/Service/Activity[/Project] Revenues and Expenses Schedules (Annex A)

Same requirements as F-0080

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Financial Health Default (Using Financial Ratios)

• For recipients using the non-profit presentation model, we still use the cumulative operating surplus/deficit divided by total revenue; default management may be triggered at <0%

• For recipients using the common government or Pubic Sector Accounting Board (PSAB) model (including all First Nations), three (3) financial ratios are used to determine financial health:

- Liquidity: < 0.90 is unfavourable

- Sustainability: < 0.50 is unfavourable

- Working Capital: < 0.08 is unfavourable

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Financial Ratios - Liquidity

• The liquidity ratio calculates whether the recipient has assets sufficient to cover liabilities. It is a measure of short-term financial health.

• Liquidity Ratio = Current assets divided by current liabilities.

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Financial Ratios - Sustainability

• The sustainability ratio calculates the recipient's ability to service operational and capital obligations over the long term. It is a measure of longer term financial health.

• Sustainability Ratio = [total financial assets less Government Business Enterprise and Trust Funds] divided by total liabilities.

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Financial Ratios – Working Capital

• This ratio tests to see if current working capital deficiency can be covered with one month's revenues.

• Working Capital Ratio = [current assets less current liabilities] divided by total revenue.

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Questions??

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