Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2019, and all information contained in these statements rests with the management of the Northern Pipeline Agency (the Agency). These 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 financial statements. Some of the information in the 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 Agency’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the Agency’s Departmental Results Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its 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 Agency; 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 on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

The Agency will be subject to periodic Core Control Audits performed by the Office of the Comptroller General and will use the results of such audits to adhere to the Treasury Board Policy on Financial Management.

In the interim, the Agency has undertaken a risk-based assessment of the system of ICFR for the year ended March 31, 2019, in accordance with the Treasury Board Policy on Financial Management, results and the action plan are summarized in the Annex.

The financial statements of the Agency have not been audited.

Original signed by:

Northern Pipeline Agency
Statement of Financial Position (unaudited)
As at March 31
(in dollars)

	2019	2018
Liabilities
Accounts payable and accrued liabilities (note 4)	16,866	5,452,174
Total gross liabilities	16,866	5,452,174
Liabilities held on behalf of Government
Accounts payable and accrued liabilities (note 4)	-	(5,315,349)
Total liabilities held on behalf of Government	-	(5,315,349)
Total net liabilities	16,866	136,825
Financial assets
Due from (to) Consolidated Revenue Fund	(13,535)	103,213
Accounts receivable (note 5)	286,019	253,198
Total gross financial assets	272,484	356,411
Financial assets held on behalf of Government
Accounts receivable (note 5)	(260,738)	(227,369)
Total financial assets held on behalf of Government	(260,738)	(227,369)
Total net financial assets	11,746	129,042
Departmental net debt	5,120	7,783
Non-financial assets
Tangible capital assets (note 6)	5,120	7,783
Total non-financial assets	5,120	7,783
Departmental net financial position	-	-

Contractual obligations (note 7)

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

Original signed by:

Northern Pipeline Agency
Statement of Operations and Departmental Net Financial Position (unaudited)
For the year ended March 31
(in dollars)

	2019 Planned Results	2019	2018
Expenses
Professional and special services	247,000	188,218	180,969
Salaries and employee benefits	218,880	28,396	31,508
Rentals	11,000	10,005	9,854
Amortization (note 6)	2,663	2,663	2,663
Transportation and communications	5,000	3,288	2,118
Utilities, materials and supplies	500	574	257
Transfer payments	10,000	-	-
Acquisition of machinery and equipment	500	-	-
Information	500	-	-
Repair and maintenance	500	-	-
Total recoverable expenses	496,543	233,144	227,369
Services provided without charge by other government departments (note 8)	2,407	2,211	4,213
Total expenses	498,950	235,355	231,582
Revenues
Regulatory revenue	496,543	233,144	227,369
Revenue earned on behalf of Government	(496,543)	(233,144)	(227,369)
Total net revenues	-	-	-
Net cost of operations before government funding and transfers	498,950	235,355	231,582
Government funding and transfers
Net cash provided by Government of Canada		349,892	74,067
Change in due from (to) Consolidated Revenue Fund		(116,748)	153,302
Services provided without charge by other government departments (note 8)		2,211	4,213
Net cost of operations after government funding and transfers		-	-
Departmental net financial position - Beginning of year		-	-
Departmental net financial position – End of year		-	-

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

Northern Pipeline Agency
Statement of Change in Departmental Net Debt (unaudited)
For the year ended March 31
(in dollars)

	2019	2018
Net cost of operations after government funding and transfers	-	-
Change due to tangible capital assets
Amortization of tangible capital assets (note 6)	(2,663)	(2,663)
Total change due to tangible capital assets	(2,663)	(2,663)
Net decrease in departmental net debt	(2,663)	(2,663)
Departmental net debt - Beginning of year	7,783	10,446
Departmental net debt - End of year	5,120	7,783

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

Northern Pipeline Agency
Statement of Cash Flows (unaudited)
For the year ended March 31
(in dollars)

	2019	2018
Operating activities
Net cost of operations before government funding and transfers	235,355	231,582
Non-cash items:
Amortization of tangible capital assets (note 6)	(2,663)	(2,663)
Services provided without charge by other government departments (note 8)	(2,211)	(4,213)
Variations in Statement of Financial Position:
Decrease in net accounts receivable	(548)	(23,091)
(Increase) decrease in net accounts payable and accrued liabilities	119,959	(127,548)
Cash used in operating activities	349,892	74,067
Net cash provided by Government of Canada	349,892	74,067

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

Northern Pipeline Agency
Notes to the Financial Statement (Unaudited)
For the year ended March 31

1. Authority and objectives

In 1978, Parliament enacted the Northern Pipeline Act to:

• give effect to an Agreement on Principles applicable to a Northern Natural Gas Pipeline (the Agreement) between the Governments of Canada and the United States of America; and
• establish the Northern Pipeline Agency (the Agency) to oversee the planning and construction of the Canadian portion of the project.

The Agency is designated as a department and named under Schedule I.1 of the Financial Administration Act, reporting to Parliament through the Minister of Natural Resources.

The Agency has a single program. The object of the program is to oversee and regulate the planning and construction of the Canadian portion of the Alaska Highway Natural Gas Pipeline Project.

In accordance with Section 29 of the Northern Pipeline Act (the Act), the Agency is required to recover all of its annual operating costs from the companies holding certificates of public convenience and necessity. Currently, Foothills Pipe Lines Ltd. (Foothills), a wholly owned subsidiary of TC Energy (formerly TransCanada PipeLines Limited), is the sole holder of such certificates.

The Agency is reimbursed all recoverable expenses by Foothills and the funds are deposited in the Consolidated Revenue Fund (CRF) of the Government of Canada. The Government of Canada, in turn, provides funds for working capital through an annual Parliamentary appropriation which is paid from the CRF.

Foothills has put the Alaska Highway gas pipeline project on hold pending further study of an alternative project that would exclude Canada. Since 2013-14, and to align with the continued reduced project activities, the Agency remained ramped down in its operations while continuing to fulfil Canada’s obligations as set out in the Agreement and the Act.

2. Summary of significant accounting policies

These financial statements are prepared using the Agency’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.

(a) Parliamentary authorities:

The Agency is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Agency 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 bases of reporting. The planned results amounts 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 2018-2019 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 2018-2019 Departmental Plan.

(b) Net cash provided by Government of Canada:

The Agency operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Agency is deposited to the CRF and all cash disbursements made by the Agency are paid from the CRF. The net cash provided by the Government is the difference between all cash receipts and all cash disbursements including transactions between the Agency and departments of the federal government.

(c) Amount 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 Agency is entitled to draw from CRF without further authorities to discharge liabilities.

(d) Revenue/Deferred revenue:

Revenues from regulatory fees recovered from Foothills are recognized in the year in which the expenses are incurred.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.

Revenues that are non-respendable are not available to discharge the Agency’s liabilities. While the Commissioner is expected to maintain accounting control, she has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the Agency’s gross revenues.

(e) Expenses:

Expenses are recorded on an accrual basis.

Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.

Services provided without charge by Natural Resources Canada for Management Services are recorded as expenses at their estimated cost.

(f) Employee future benefits:

All employees of the Agency are seconded from other government departments. Future benefits for seconded employees, including pension benefits, providing services to the Agency are funded by the employee’s home-base department. Estimated costs charged by Treasury Board Secretariat are included in the employee benefits charged to the Agency.

(g) Accounts receivable:

Accounts receivable are initially recorded at cost. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.

(h) Non-financial assets – Tangible Capital Assets:

The costs of acquiring machinery and equipment and other assets are capitalized as tangible capital assets and are amortized to expense over the estimated useful lives of the assets, as describe in Note 6. All tangible capital assets having an initial cost of $1,000 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.

(i) 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 Agency's best estimate of the related amount at the end of the reporting period. The most significant item where estimates are used is 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.

(j) 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 financial statement purposes at the carrying amount.

3. Parliamentary authorities

The Agency receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the Agency has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled as follows:

a) Reconciliation of net cost of operations to current year authorities used:

	2019	2018
	(in dollars)
Net cost of operations before government funding and transfers	235,355	231,582
Adjustments for items affecting net cost of operations but not affecting authorities:
Services provided without charge by other government departments	(2,211)	(4,213)
Amortization of tangible capital assets	(2,663)	(2,663)
Refund to prior years' expenditure	-	1,100
Other adjustment	-	-
Total items affecting net cost of operations but not affecting authorities	(4,874)	(5,776)
Adjustments for items not affecting net cost of operations but affecting authorities:
Remission of deferred revenues	-	5,315,360
Total items not affecting net cost of operations but affecting authorities	-	5,315,360
Current year authorities used	230,481	5,541,166

b) Authorities provided and used:

	2019	2018
	(in dollars)
Authorities Provided:
Vote 1 – Program expenditures	465,000	465,000
Statutory amounts	3,599	5,319,361
Less:
Lapsed – Program expenditures	(238,118)	(243,195)
Current year authorities used	230,481	5,541,166

4. Accounts payable and accrued liabilities

The following table presents details of the Agency’s accounts payable and accrued liabilities balances:

	2019	2018
	(in dollars)
Accounts payable – Other government departments and agencies	16,866	136,825
Accounts payable – External parties	-	5,315,349
Total accounts payable	16,866	5,452,174
Accrued liabilities
Total accounts payable and accrued liabilities	16,866	5,452,174
Accounts payables held on behalf of Government	-	(5,315,349)
Net Accounts payable and accrued liabilities	16,866	136,825

5. Accounts receivable

The following table presents details of the Agency’s accounts receivable balances:

	2019	2018
	(in dollars)
Receivables - Other government departments and agencies	25,281	25,829
Receivables - External parties	260,738	227,369
Gross accounts receivable	286,019	253,198
Accounts receivable held on behalf of Government	(260,738)	(227,369)
Total net accounts receivable	25,281	25,829

6. Tangible capital assets

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

Asset Class	Amortization period
Machinery and equipment	10 years
Office furniture and equipment	10 years
Informatics hardware	4 years

Capital asset class	Cost				Accumulated amortization				Net book value
	Opening balance	Acquisitions	Disposals, write-offs and adjustments	Closing balance	Opening balance	Amortization	Disposals, write-offs and adjustments	Closing balance	2019	2018
	(in dollars)
Machinery and equipment	24,829	-	-	24,829	17,394	2,483	-	19,877	4,952	7,435
Office furniture and equipment	8,038	-	-	8,038	7,690	180	-	7,870	168	348
Informatics hardware	2,760	-	-	2,760	2,760	-	-	2,760	-	-
Total	35,627	-	-	35,627	27,844	2,663	-	30,507	5,120	7,783

7. Contractual obligations

The nature of the Agency’s activities may result in multi-year contracts whereby the Agency will be obligated to make future payments when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

	2020	2021	Total
	(in dollars)
Operating Leases	9,471	9,471	18,942

8. Related party transactions

The Agency 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 Agency enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Agency has an agreement with Natural Resources Canada related to the provision of internal services, including human resources management, financial management, information management, information technology, real property, material, and acquisitions.

(a)Services provided without charge by other government department:

During the year, the Agency received management services provided without charge from Natural Resources Canada for $2,211 ($4,213 in 2018).

The Government 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 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 are not included in the Agency’s Statement of Operations and Departmental Net Financial Position.

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

	2019	2018
	(in dollars)
Expenses	218,832	213,740

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

9. Easement fee

In 1983, the Government of Canada, pursuant to Subsection 37(3) of the Act, granted Foothills a twenty-five year easement upon and under lands in the Yukon Territory. For the right of easement, Foothills is to pay the Agency an annual amount of $30,400; of this annual amount, $2,806 ($2,806 in 2018) is collected on behalf of and forwarded directly to the Government of the Yukon Territory. The balance of $27,594 ($27,594 in 2018) was remitted to the Government of Canada by the Agency. The $30,400 is not recorded in the Statement of Operations and Departmental Net Financial Position.

10. Financial instruments

The Agency’s financial instruments consist of accounts receivable, accounts payable, deferred revenues and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Agency is not exposed to significant interest, currency or credit risk arising from these financial instruments. Unless otherwise disclosed in these financial statements, management estimates that the carrying values of the financial instruments approximate their fair value due to their impending maturity.

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of the Northern Pipeline Agency for fiscal year 2018-19 (unaudited)

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

1. Introduction

This document provides summary information on the measures taken by the Northern Pipeline Agency (the Agency) to maintain an effective system of internal control over financial reporting (ICFR), including information on assessment results and related assessment plan.

Note that the Agency receives internal services from Natural Resources Canada (NRCan), including human resources management, financial management, information management, information technology, real property, material, and acquisitions, as defined in the service letter of agreement effective April 1, 2017.

As a result of this specific arrangement, where applicable, the Agency relies on the effectiveness of NRCan’s risk-based system of ICFR and leverages the corresponding assessment results for key control areas subject to ongoing monitoring. A summary of these key control areas assessed during 2018-2019 is provided in subsection 2.

The Agency also leverages the results of the periodic core control audits performed by the Office of the Comptroller General, when performed.

Detailed information on the Agency’s authority, mandate and program can be found in the 2018-2019 Departmental Results Report and the 2019-2020 Departmental Plan.

2. Assessment results for fiscal year 2018-2019 and assessment plan for future years

During 2018-2019, NRCan completed the reassessment of key controls within the business processes of financial close and reporting, revenue and accounts receivable, including costing and pricing (external charging agreements), offshore royalty revenues/statutory transfers, grants and contributions, including repayable contributions.

Information on the results of the assessments mentioned above and the action plan for next fiscal year and subsequent years can be found in the NRCan’s 2018-2019 Annex.