Archived - Department of Finance Canada Quarterly Financial Report for the Quarter Ended September 30, 2019 (unaudited)

1. Introduction

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

2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results

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

1. Introduction

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.

1.1 Authority, Mandate and Program Activities

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 the Public Accounts of Canada, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for 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.

1.2 Basis of Presentation

This Quarterly Financial Report has been prepared by management using an expenditure basis of accounting, and a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. 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.

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 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.

1.3 Department of Finance Canada – Financial Structure

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.

2. Highlights of Fiscal Quarter and Fiscal Year-to-Date (YTD) Results

This departmental Quarterly Financial Report reflects the results of the current fiscal period in relation to the 2019-20 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 2018–19 and 2019-20. 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 2018-19 to 2019-20 and the increase in actual expenditures as at September 30, 2019 compared to September 30, 2018. Full details on authorities and expenditures can be found in Table 1, Statement of Authorities at the end of this document.

2.1 Authorities Analysis

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

2.1.1 Voted Budgetary Authorities

Total 2019–20 Vote 1 program authorities available as at September 30, 2019 are $101.7 million compared to $100.3 million for the same period in 2018–19, representing an increase of $1.4 million, primarily due to the net effect of the following factors:

Total increases were $4.2 million and consist of:

• $1.6 million for Tax Policy Analysis and Development;
• $1.2 million for Enhanced Financial Capacity for Indigenous Policy;
• $0.8 million for Open Banking Review; and
• $0.6 million for Strengthening Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime.

These increases were offset by a decrease of $2.8 million in lapsing funds from 2018-19 that contributed to the operating budget carry forward into 2019-20.

2.1.2 Statutory Budgetary Authorities

Major transfer to other levels of government increased by $3,145.6 million, primarily due to the net effect of the following factors:

Total increases were $3,286.6 million and consist of:

• Canada Health Transfer (CHT) – An increase of $1,788.9 million reflecting a 4.6% annual growth rate of gross domestic product (GDP). This CHT grows based on a 3-year moving average of nominal GDP growth, with funding guaranteed to increase by at least 3% per year;
• Fiscal Equalization – An increase of $879.0 million reflecting the 4.6% GDP-based escalator being applied to the 2018–19 level;
• Canada Social Transfer – An increase of $424.8 million reflecting the 3.0% annual increased funding commitment that commenced in 2009–10 and which continued in the Jobs, Growth and Long-term Prosperity Act, 2012 for 2014–15 and subsequent years;
• Territorial Financing – An increase of $163.1 million reflecting the incorporation of new and updated data for territorial expenditure requirements and revenue capacities into the program's legislated formula; and
• Additional Fiscal Equalization to Nova Scotia and Additional Fiscal Equalization Offset Payment to Nova Scotia– A net increase of $30.8 million for these two transfer payments to Nova Scotia.

Decreases were $141.0 million and consist of:

• Alternative Payments for Standing Programs – A decrease of $118.0 million due to higher recoveries as a result of an increase in the estimated value of personal income tax points that were transferred to Québec; and
• Youth Allowance Recovery – A decrease of $23.0 million due to higher recoveries resulting from an increase in the estimated value of personal income tax points transferred to Québec.

Interest on Unmatured Debt and Interest on Other Liabilities increased by $1,853.0 million, due to the net impact of the following factors:

• Interest on Unmatured Debt – An increase of $2,093.0 million due to the upward revision of forecasted interest rates by private sector economists, consistent with Budget 2019; and
• Interest on Other Liabilities – A decrease of $240.0 million largely reflecting the decrease in the average Government of Canada long-term bond rate forecast for 2019-20.

Direct program expenses decreased by $9.4 million, due to the following factors:

• $7.0 million decrease in the Purchase of Domestic Coinage; and
• $3.1 million decrease in debt payments on behalf of poor countries to International Organizations.

These decreases were slightly offset by $0.7 million in increased authorities for various programs.

2.1.3 Non-Budgetary Authorities

Total 2019–20 non-budgetary authorities decreased by $0.9 million, from $52.3 million to $51.4 million, due to the following factor:

• A decrease in authorities for Canada's purchase of initial shares pursuant to the Asian Infrastructure Investment Bank Agreement Act.

2.2 Expenditure Analysis

The following table provides a comparison of Year-to-Date spending as at September 30 by vote for the current and previous fiscal years.

2.2.1 Voted Budgetary Expenditures

Total 2019–20 Vote 1 program expenditures at the end of the second quarter were $48.0 million compared to $49.8 million for the same period in fiscal year 2018–19, representing a decrease of $1.8 million. This decrease is primarily attributable to:

• $1.3 million for the G7 summit held in 2018-19; and
• $0.5 million for various, individually immaterial, expenditures.

2.2.2 Statutory Budgetary Expenditures

Major transfers to other levels of government increased by $1,427.7 million, primarily due to increases for the following:

• $894.5 million related to the Canada Health Transfer;
• $439.5 million related to Fiscal Equalization;
• $212.4 million related to the Canada Social Transfer;
• $96.5 million related to Territorial Financing;
• $3.1 million related to a payment under subsection 24(1) of the Financial Administration Act resulting from a remission order issued pursuant to subsection 23(2.1) of that Act; and
• $0.2 million for various, individually immaterial, expenditures.

The increases above were offset primarily by higher recoveries in the Alternative Payments for Standing Programs, decreases in the Additional Fiscal Equalization to Nova Scotia and higher Youth Allowances Recovery.

Interest on unmatured debt and interest on other liabilities increased by $885.4 million, due to the net impact of the following two factors:

• Interest on unmatured debt – An increase of $1,035.9 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 $150.5 million, largely reflecting a decrease in the average Government of Canada long-term bond rate.

Direct program expenses increased by $222.8 million primarily due to the following factors:

• A payment of $237.6 million made to the Canada Infrastructure Bank;
• A payment of $2.5 million made to the Canadian Commercial Corporation; and
• $0.6 million for various, individually immaterial, expenditures.

These increases were offset by a decrease of $17.9 million in the losses on foreign exchange, due to the revaluation of International Monetary Fund related accounts.

2.2.3 Non-Budgetary Expenditures

Non-budgetary expenditures at the end of the second quarter of 2019-20 increased by $543.5 million primarily due to the following factors:

• An increase of $545.3 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; and
• An increase of $2.0 million in advances made pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross).

These increases were offset by a decrease of $3.8 million in payments under the Bretton Woods and Related Agreements Act – International Organizations (Gross)

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. The main variances of $2,536.4 million in year-to-date expenditures between 2019–20 and 2018-19 by standard object are as follows:

• Public debt charges – A net increase of $885.4 million attributable to an increase of $1,035.9 million in interest on unmatured debt offset by a decrease of $150.5 million in interest on other liabilities;
• Transfer payments – An increase of $1,428.3 million attributable to the increase in statutory expenditures pursuant to major transfers to other levels of government; and
• Other subsidies and payments – An increase of $222.7 million primarily attributable to a $237.6 increase in the payment to the Canada Infrastructure Bank (CIB).

Quarterly Spending

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.

3. Risks and Uncertainties

The complex and horizontal issues of the Department require ongoing discussions, consultations and coordination with central agencies, other departments and governments, and external stakeholders. In this context, the Department maintains 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 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.

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 mitigation strategies.

The Department relies on efficient and effective information management (IM) 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 information technology (IT) 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 (BCP) 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 IT infrastructure and ensure the effective protection of its information assets.  

4. Significant Changes in Relation to Operations, Personnel and Programs

There have been no significant changes in relation to operations, personnel, and programs.

5. Approval by Senior Officials

Approved by:

Ottawa, Canada
November 29, 2019