Financial Statements for the Year Ended March 31, 2024 (Unaudited)

a) Indigenous Well-Being and Self-Determination

Indigenous Services provides well-being services support to First Nations, Inuit, and Métis individuals, children, and families throughout their life from childhood to elder years.

These services are informed by the social determinants of health and are intended to fulfill the departmental mandate to close socio-economic gaps through services that include culturally appropriate physical and mental health; safety and social wellness; and education.

Community well-being is part of a continuum that extends to the environment and the land. These services work to create sustainable infrastructure and environments, and economic prosperity.

Support for governance capacity advances self-determination and enable opportunities for service transfer. Service transfer in partnership with Indigenous Peoples can extend across all service areas to support Indigenous self-determination in alignment with the departmental mandate.

b) 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 the corporate obligations of the department.

a) Parliamentary authorities

Indigenous Services is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Indigenous Services 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 Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the basis of reporting.

The planned results amount in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2023-2024 Departmental Plan. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2023-2024 Departmental Plan.

b) Net cash provided by Government

Indigenous Services operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by Indigenous Services is deposited to the CRF and all cash disbursements made by Indigenous Services 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.

c) Amounts due from or to the Consolidated Revenue Fund (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 Indigenous Services is entitled to draw from the CRF without further authorities to discharge its liabilities.

d) Revenues and deferred revenues

Revenues are comprised of revenues earned from non-tax sources. They include exchange transactions where goods or services are provided for consideration where a performance obligation exists, and non-exchange transactions where no performance obligations exist to provide a good or service. These transactions can be recurring or non-recurring in nature. Recurring transactions are viewed as ongoing, routine activities that form part of the normal course of operations and can be used to indicate if they can be reasonably expected to be earned again in future years.

Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned. Other revenues are recognized in the period the event giving rise to the revenues occurred.

Revenues that are non-respendable are not available to discharge Indigenous Services' liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of Indigenous Services' gross revenues. Revenues earned on behalf of Government consist of the other fees and charge, interests and other revenues. These are recognized when earned.

e) Expenses

Transfer payments are recorded as an expense in the year the transfer is authorized, and all eligibility have been met by the recipient. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. 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.

Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.

Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, legal services, and workers' compensation are recorded as operating expenses at their carrying value.

f) Employee future benefits

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. Indigenous Services' 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 contribution. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

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 as a whole.

g) Accounts and loans receivable

Accounts and loans receivable are stated at the lower of cost and net recoverable value.

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.

The amount of allowance on loans receivable is determined based on an assessment of collectability of each loan on an annual basis using a standard set of criteria to assess the default risk. Interest on loans receivable is calculated in accordance with the terms and conditions of each individual program.

If loans and interest receivables cannot be used to discharge Indigenous Services' liabilities or to issue new loans, they are considered to be held on behalf of government and are therefore presented as an offsetting amount to Indigenous Services' financial position.

h) Contingent liabilities

Contingent liabilities, including the allowance for loans guarantees, 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 expenses. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

For loans guarantees, 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, 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.

i) 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 financial statements.

j) 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,
• Indigenous Services is directly responsible or accepts responsibility, and
• it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made.

The liability reflects management' 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, and
• 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 liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

k) Non-financial assets

The costs 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. 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 and Crown land to which no acquisition cost is attributable, and intangible assets.

Purchased intangibles are identifiable non-monetary economic resources without physical substance that are acquired in exchange transactions from arm's length third parties. Purchased intangibles exclude software, which is included in tangible capital assets. Commencing April 1, 2023, the cost of a purchased intangible is capitalized as an asset when the department controls the intangible and the intangible contributes to the capacity of the government to deliver services and products, generate future cash inflows or reduce cash outflows. Purchased intangible assets are amortized to expense over the estimated useful life of the assets. Prior to April 1, 2023, purchased intangibles were expensed as incurred.

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

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.

Inventories are valued at cost and are comprised of supplies held for future program delivery and are not primarily intended for resale. Inventories that no longer have service potential are valued at the lower of cost or net realizable value.

l) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government'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 and the useful life of tangible capital assets.

Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known,

Environmental liabilities and asset retirement obligations are subject to measurement uncertainty as discussed in note 7 due to the evolving technologies used in the estimation of the costs for remediation of contaminated sites or asset retirements, the use of discounted present value of future estimated costs, inflation, interest rates and the fact that not all sites have had a complete assessment of the extent and nature of remediation or asset retirement costs. Changes to underlying assumptions, the timing of the expenditures, the technology employed, or the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the environmental liabilities recorded.

m) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

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 financial statement purposes at the carrying amount.

Indian Band Funds

These accounts were established to record moneys belonging to First Nation bands throughout Canada pursuant to sections 61 to 69 of the Indian Act.

The funds are classified as either capital moneys or revenue moneys. Capital moneys of the band include all moneys derived from the sale of surrendered lands or the sale of band capital assets. Moneys from the sale of surrendered lands can include land sales, timber sales, oil and gas royalties, and sale of gravel. Revenue moneys are all moneys not classified as capital moneys.

Moneys are generally disbursed from these accounts pursuant to an authorized request from a band.

Indian Savings Accounts

These accounts were established to record moneys belonging to certain registered individuals pursuant to sections 52 and 52.1 to 52.5 of the Indian Act.

Sources of moneys include inheritances and per capita distribution of band funds. Moneys are generally disbursed from these accounts pursuant to an authorized request from an individual and upon reaching the age of majority.

Indian Estate Accounts

These accounts were established to record moneys belonging to dependent adults and deceased individuals pursuant to sections 42 to 51 of the Indian Act.

Sources of moneys belonging to dependent adults include insurance proceeds, per capita distribution of band funds, and federal and provincial payments. Payments are made from these accounts for the maintenance and care of the individuals.

Estate accounts for deceased individuals (who were registered and ordinarily resident on reserve at the time of their passing) include the proceeds of their liquidated assets that are held pending the settlement of the estate. The closing of an account usually corresponds with the final distribution to their heirs.

a) Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories: claims and litigation and loan guarantees.

The total of both categories of contingent liabilities recorded for Indigenous Services as of March 31, 2024, was $1,157 million ($24,010 million in 2023).

b) Contingent assets

Contingent assets arise in the normal course of operation and their ultimate disposition is unknown. The Department has made claims against external parties for which a recovery or gain is likely to materialize in the amount of $300 thousand ($237 thousand in 2023). The estimate is based on the range of possible outcomes, associated risks, and legal precedents. The department has conditionally repayable contributions for which the amounts that will become repayable cannot be currently estimated as contributions agreements are subject to specific programs requirements. Contingent assets are not recognized in the financial statements.

a) Remediation of contaminated sites

The Government's "Federal Approach to Contaminated Sites" set 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 aides in the 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.

Indigenous Services has identified a total of 2,147 sites (1,950 sites in 2023) where contamination may exist and assessment, remediation and/or monitoring may be required. Of these, Indigenous Services has identified 729 sites (770 sites in 2023) where action is required and for which a gross liability of $308 million ($337 million in 2023) has been recorded. This liability estimate has been determined based on sites assessments performed by environmental experts.

In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there are 1,348 unassessed sites (1,122 sites in 2023) where a liability estimates of $180 million ($151 million in 2023) has been recorded using this model.

These two estimates combined, totaling $488 million ($488 million in 2023), 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 financial statement date.

For the remaining 70 sites (58 sites in 2023), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, Indigenous Services does not expect to give up any future economic benefits (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following tables present the total estimated amounts of these liabilities by nature and source, and the total undiscounted future expenditures as at March 31, 2024 and March 31, 2023. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using an expected CPI rate of 2.0% (2.0% in 2023). 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.

* See endnotes for description of nature and source

* See endnotes for description of nature and source

b) Asset retirement obligations

The Department has recorded asset retirement obligations for the removal of asbestos and other hazardous materials in buildings, and retirement activities linked to machinery and equipment.

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

The undiscounted future expenditures, adjusted for inflation, for the planned projects comprising the liability are $717 thousands.

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

a) Pension benefits

Indigenous Services' 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 Indigenous Services contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to 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 2024 expense amounts to $70.4 million ($62.3 million in 2023). For Group 1 members, the expense represents approximately 1.02 times (1.02 times in 2023) the employee contributions and, for Group 2 members, approximately 1.00 times (1.00 times in 2023) the employee contributions.

Indigenous Services' responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the consolidated financial statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits

Severance benefits provided to Indigenous Services' 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, 2024, all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

Guarantee deposits

In fulfilling its duties under various acts that govern the use of federal Crown land, including land use activities, water resources, and water rights, Indigenous Services may issue licences, permits, and other instruments to individuals and organizations that propose to undertake resource exploration and other types of development projects.

In accordance with the terms and conditions of the instrument, Indigenous Services may require security deposits to ensure the lands and waters are returned in a condition acceptable to Indigenous Services. These guarantee deposits are received in the form of cash and are deposited to and held in the Consolidated Revenue Fund.

Other specified purpose accounts

These accounts are established to receive, hold, and disburse moneys in accordance with relevant statutes, departmental policies and agreements. The most significant of these accounts is the Indian Moneys Suspense Account. This statutory account was established to hold moneys received for individuals and bands pending execution of the related lease, permit or licence, settlement of litigation, registration, or identification of the recipient, and for locatees pursuant to land tenure instruments issued by Indigenous Services. These moneys are eventually disbursed to Indigenous recipients, credited to Band Fund or individual Trust Fund accounts, or returned to the payers, as appropriate.

Defaulted guaranteed loans portfolio

Loan guarantees are issued under the On-Reserve Housing Guarantee and Indian Economic Development Guarantee programs. The objective of these loan guarantees is to encourage lending institutions to make loans for properties located on First Nations lands and to support access to credit markets for First Nations and First Nations organizations. According to the Indian Act, transfer of properties situated on reserve are restricted unless with the consent of Her Majesty or a transfer between members of a First Nation Band. As such, lending institutions are exposed to greater business risk when issuing loans associated with these properties since they cannot foreclose them in the event of a borrower default.

When a loan is defaulted, as guarantor, Indigenous Services is required to honour issued loan guarantees at the request of a lending institution. As a result, the Department makes payment to the lending institution and subsequently establishes a receivable from the First Nation or First Nation organization.

Indigenous Services has access to an annual $2 million statutory authority to fund payments to lending institutions to honour loan guarantees. Payments made in excess of the $2 million authority limit are charged as program expenses and are funded by budgetary authorities. There were no loan defaults in 2023-2024 ($0 in 2022-2023).

The significant terms and conditions of the two loan guarantee programs are as follows:

On-Reserve Housing Guarantee program

Payments of principal and interest for loans issued under this program are amortized over a period of maximum 25 years. The interest rates on the guaranteed loans are consistent with conventional mortgage interest rates offered by the major banks. On a semi-annual basis, any accrued interest receivable outstanding is compounded as part of the principal amount owing on the loan.

To control the occurrence of defaulted loans under this program, the Department restricts the eligibility of recipients for further loans until such time as a recovery plan has been reached and has been in operation in accordance with its terms and conditions for a period of six months.

Indian Economic Development Guarantee program

Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Accrued interest on loans issued under this program is not compounded. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of Indigenous Services.

a) Common services provided without charge by other government departments

During the year, Indigenous Services received services without charge from certain common service organizations related to accommodation, employer's contribution to the health and dental insurance plans, legal services and workers' compensation coverage. These services provided without charge have been recorded in Indigenous Services' Statement of Operations and Departmental Net Financial Position as follows:

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economical delivery of programs to the public. As a result, the Government 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 the payroll and cheque issuance services provided by Public Services and Procurement Canada, audit services provided by the Office of the Auditor General and information technology infrastructure services provided by Shared Services Canada are not included in Indigenous Services' Statement of Operations and Departmental Net Financial Position.

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

(c) 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 $711 million ($725 million in 2023) in payments on behalf of the other government departments. These expenses are reflected in the financial statements of the other government departments and are not recorded in these financial statements.

Contingent Liabilities- Claims and Litigation

Subsequent to year-end, ISC has settled claims amounting to $2,403 million for pending and threatened litigation claims.

2.1 Internal control management

ISC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its systems of internal control. A departmental internal control management framework, approved by the Deputy Minister, is in place and comprises:

• Organizational accountability structures as they relate to internal control management to support sound financial management, including the roles and responsibilities of senior departmental managers for control management in their areas of responsibility;
• Values and ethics;
• Ongoing communication and training on the legislative and policy requirements for sound financial management and control; and
• Monitoring and regular updates on internal control management, as well as provision of related assessment results and action plans to the deputy head and senior departmental management and, as applicable, the Departmental Audit Committee.

The Departmental Audit Committee is an independent advisory committee to the deputy head. It is responsible to provide advice to the deputy head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

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

3.1 New or significantly amended key controls

In the current fiscal year, ISC transitioned to a distinct human resources (HR) function, which ended the shared service model of HR activities between ISC and CIRNAC. The distinct HR function will be effective starting in 2024-25 and this business process is planned for assessment. All the other shared internal services remain as they were in previous years. Management recognizes that there is an increased risk in financial reporting due to the continued transition of ISC into a standalone department, while operating under a shared services model for internal services.

3.2 Ongoing monitoring program

As part of its risk-based rotational ongoing monitoring plan, ISC completed a reassessment of the financial controls within the business processes of:

• Information Technology and General Controls (ITGCs) – Phase 2
• Grants and Contributions
• Trust Accounts
• Revenue Management & Guarantee Deposits

ISC also conducted an initial assessment of the financial management process for: CFO Attestation (included in Cabinet Submissions) and Investment Planning.

In addition to the ongoing monitoring plan, ISC conducted the assessments of the financial controls of the following processes:

• Indian Oil and Gas Canada (IOGC)
• Departure Process
• Jordan's Principle payment process (vote 1)

For the most part, the key internal controls that were tested performed as intended, with some opportunities for improvements. Management action plans addressing the recommendations were developed by the business process owners.