Archived - Department of Finance Canada Quarterly Financial Report for the Quarter Ended September 30, 2018 (unaudited)

ISSN 2562-2617

• 1.1 Authority, Mandate and Program Activities
• 1.2 Basis of Presentation
• 1.3 Department of Finance Canada – Financial Structure

• 2.1 Authorities Analysis
• 2.2 Expenditure Analysis

3. Risks and Uncertainties

4. Significant changes in relation to operations, personnel and programs

5. Approval by Senior Officials

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Directive on Accounting Standards, GC 4400 Departmental Quarterly Financial Reports. This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates of the Department of Finance Canada.

The quarterly financial report has not been subject to an external audit or review.

The Department of Finance Canada (the ‘Department’) provides the Government of Canada with high quality advice on appropriate economic, fiscal, tax, social, security, international and financial sector policies and programs with the goal of strengthening the Canadian economy and maintaining sustainable fiscal policy and social programs.

The Department’s responsibilities include the following:

• Preparing the federal Budget and the Fall Economic Statement;
• Preparing the Annual Financial Report of the Government of Canada and, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for Canada, the Public Accounts of Canada;
• Developing tax and tariff policy and legislation;
• Managing federal borrowing on financial markets;
• Designing and administering major transfers of federal funds to the provinces and territories;
• Developing financial sector policy and legislation; and
• Representing Canada in various international financial institutions and organizations.

The description of the program activities for the Department can be found in Part II of the Main Estimates and the Departmental Plan.

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Department’s spending authorities granted by Parliament and those used by the Department, consistent with the Main Estimates and Supplementary Estimates for both fiscal years as well as transfers from Treasury Board central votes that are approved by the end of the quarter. This quarterly financial report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before monies can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

The Department has three major categories of expenditure authority. These categories are:

• Voted budgetary authorities: Included in this category are the operational expenditures of the Department itself as well as authorized expenditures under grants and contribution programs. These expenditures must be specifically approved by Parliament through an appropriation act.
• Statutory budgetary authorities: Included in this category are expenditure authorities that are granted through an existing Act of Parliament. Further parliamentary approval is not required for expenditures related to statutory amounts and it is within the normal course of business that statutory expenditures may, in some cases, exceed planned spending estimates. Departmental statutory payments include those made under the Federal-Provincial Fiscal Arrangements Act as well as interest incurred in connection with the public debt of Canada.
• Non-budgetary authorities: Included in this category are disbursements made by the Department which do not have a direct budgetary impact to the Government. This includes the value of loans initially disbursed to Crown Corporations participating in the Crown Borrowing Framework.

This departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the 2018–19 Main Estimates as well as transfers from Treasury Board central votes that were approved by the end of the quarter.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first six months of 2017–18 and 2018–19. Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates.

Sections 2.1 and 2.2 below highlight the significant items that contributed to the increase in the resources available from 2017–18 to 2018–19 and the increase in actual expenditures as at September 30, 2018 compared to September 30, 2017. Full details can be found in Table 1, Statement of Authorities at the end of this document.

The following table provides a comparison of cumulative authorities by vote for the current and previous fiscal years.

Total 2018–19 Vote 1 program authorities available as at September 30, 2018 are $100.3 million compared to $89.3 million for the same period in 2017-18, representing an increase of $11 million. This increase is primarily due to the following:

• $4.5 million carry forward from year-end 2017–18;
• $2.9 million for collective agreements and other compensation adjustments;
• $2.1 million related to Budget 2017 initiatives consisting of Financial Sector Policy Funding Renewal, Corporate Assets Review and Canada Infrastructure Bank;
• $1.8 million for hosting the 2018 G7 summit;
• $0.6 million related to the Financial Sector Legislative Review; and
• $0.6 million for the G20 Framework working group.

These increases are partially offset by a $1.8 million decrease in sunsetting funding relating to the Cooperative Capital Market Regulatory System.

Total 2018–19 statutory authorities increased by $3,822.1 million. Statutory authorities are unchanged from what was reported in the published Q1 Quarterly Financial Report. The details describing the factors that caused the increase from 2017–18 can be found on page 92 of Part II of the 2018–19 Main Estimates.

Total 2018–19 non-budgetary authorities increased by $52.3 million for Canada’s purchase of initial shares pursuant to the Asian Infrastructure Investment Bank Agreement Act.

Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates. The borrowing requirements for Crown Corporations are driven by the need to match the term and structure of the borrowing requirements of corporations’ clients. These activities are influenced by current, and expectations of future, economic conditions and can vary greatly over a short period of time. For example, if clients of the Crown Corporation are seeking short-term, floating rate loans, the Crown Corporation will seek to match that with short-term borrowings from the government. This will result in the loan being refinanced several times throughout the year. This can change very quickly should market conditions suggest interest rates are going to rise and their clients seek to lock in their borrowing costs through longer term borrowings. As such, there can be very large and significant variances both inter-year and intra-year. Given the risk of forecast inaccuracy and that the advances to Crown Corporations are a non-budgetary item and do not impact on the net-debt of the government, the Department only reports on actual borrowings by the Crown Corporations.

The following table provides a comparison of cumulative spending by vote for the current and previous fiscal years.

Total 2018–19 Vote 1 program expenditures at the end of the second quarter were $49.8 million compared to $44.6 million for the same period in fiscal year 2017-18, representing an increase of $5.2 million consisting of the following:

• $1.3 million for the G7 summit;
• $1.3 million for collective agreements and other compensation adjustments;
• $0.9 million for IT investments;
• $0.6 million related to timing differences for recoveries of TBS shared services;
• $0.4 million contribution payment related to the potential divestiture of Ridley Terminals Inc.;
• $0.4 million related to purchase of data for Pharmacare; and
• $0.3 million for surge capacity to increase support services to employees with pay issues.

Major transfers to other levels of government increased by $1,219 million, primarily due to the net effect of the following factors:

Increases include:

• $717 million related to Canada Health Transfer;
• $352.3 million related to Fiscal Equalization;
• $206.2 million related to Canada Social Transfer; and
• $61.3 million related to Territorial Financing.

The increases above were offset by:

• $24.2 million increase in recoveries for the Youth Allowances Recovery; and
• $93.5 million increase in recoveries for the Alternative Payments for Standing Programs.

Explanations for the changes in the items listed above are consistent with the explanations found under the statutory budgetary authorities in Section 2.1.

Interest on unmatured debt and interest on other liabilities increased by $1,541.7 million, due to the net impact the following two factors:

• Interest on unmatured debt – An increase of $1,672.7 million, largely reflecting higher Consumer Price Index adjustments on Real Return Bonds and a higher average effective interest rate on the stock of Government of Canada treasury bills; and
• Interest on other liabilities – A decrease of $131 million, largely reflecting a decrease in the average Government of Canada long-term bond rate, which is used to calculate interest on public sector pension obligations pertaining to service pre-April 1, 2000.

Direct program expenses decreased by $426.3 million primarily due to the following factors:

• A payment of $300 million made in 2017–18 related to Funding for Home Care Services and Mental Health Care Services;
• Losses on foreign exchange – A decrease of $119.4 million due to the revaluation of International Monetary Fund related accounts; and
• A payment of $5.6 million made in 2017–18 to the Canada Infrastructure Bank (CIB) that allowed the CIB to commence its business and activities.

Non-budgetary expenditures at the end of the second quarter of 2018–19 increased by $248.6 million primarily due to an increase of $227.6 million in the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework. Gross borrowings by Crown Corporations are based on demand and the business requirements of the participating entities, and also depend on the terms of the Crown Corporation borrowings. As such, amounts can vary significantly from year to year. Also contributing to the increase was a $24 million expenditure made pursuant to Payments under Bretton Woods and Related Agreements Act – International Organizations.

A $3 million decrease in Advances made pursuant to section 13(1) of the Financial Consumer Agency of Canada Act served to slightly offset the increases above.

Significant Changes on the Departmental Budgetary Expenditures by Standard Object Table

Table 2, located at the end of this report, presents budgetary expenditures by standard object (SO). The main variance in year-to-date expenditures between 2018–19 and 2017–18 by standard object are as follows:

• Public debt charges (SO 11) – A net increase of $1,541.7 million attributable to an increase of $1,672.7 million in interest on unmatured debt offset by a decrease of $131 million in interest on other liabilities;
• Transfer payments (SO 10) – An increase of $919.4 million representing the net effect of a $1,219 million increase in statutory expenditures pursuant to major transfers to other levels of government and a $300 million expenditure in direct Program Expense for Home Care Services and Mental Health Services that was made in fiscal year 2017–18; and
• Other subsidies and payments (SO 12) – A decrease of $124.3 million resulting primarily from losses on foreign exchange;

The following table provides a comparison of quarterly spending by vote for the current and previous fiscal years.

Variance explanations of the quarterly spending are in line with year to date variance explanations provided in Section 2.2.

The complex and horizontal issues with which the Department is concerned require ongoing discussions, consultations and coordination with central agencies, other departments and governments, and external stakeholders. In this context, the Department will need to maintain high-level engagement and strong collaborative relationships with domestic and international partners to fulfill its commitments and deliver for Canadians.

The Department operates in an environment where the decisions and actions of its employees can have far-reaching impacts on the Canadian public and economy. As a knowledge–based organization, the Department recognizes that its employees are its strength. The Department will continue to focus on providing its employees with a healthy and enabling work environment, so that it can attract, develop and retain a diverse and high–performing workforce that is fully committed to the success of the organization.

Planned activities in support of the Department’s objectives are also vulnerable to information technology issues. The Department relies on efficient and effective information management and technology to deliver informed policy advice and operate as an agile and responsive knowledge-based institution, while protecting its highly sensitive institutional information. Cybersecurity incidents and failures in supporting systems have been identified as risks that could cause serious disruptions and affect the Department’s ability to execute critical government operations, including tax and transfer payments, and public debt-related transactions. A Business Continuity Plan is in place to ensure that critical services are maintained in case of a system failure. Further, the Department is committed to building on recent improvements to increase the security posture of its information technology (IT) infrastructure and ensure the effective protection of its information assets.

The Department’s Corporate Risk Profile provides a snapshot of the Department’s key corporate risks. The Department monitors its corporate risks and associated risk responses to identify areas of opportunity and to reflect progress made in implementing measures to mitigate risks.

Effective September 28, 2018, Adelle Laniel vacated the position of Chief Financial Officer within the Department of Finance. Darlene Bess was appointed as Chief Financial Officer effective October 22, 2018.

Approved by:

Ottawa, Canada
November 29, 2018