Archived - Department of Finance Canada Quarterly Financial Report for the Quarter Ended June 30, 2012 (unaudited)

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TABLE OF CONTENTS

1. Introduction

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

3. Risks and Uncertainties

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

5. Budget 2012 Implementation

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 Treasury Board Accounting Standard 1.3. This quarterly financial report should be read in conjunction with the Main Estimates, Supplementary Estimates as well as Canada’s Economic Action Plan 2012 (Budget 2012). The quarterly financial report has not been subject to an external audit or review.

The description of the program activities for the Department of Finance Canada (the ‘Department’) can be found in Part II of the Main Estimates (PDF 2.79 MB).

To access a Portable Document Format (PDF) file you must have a PDF reader installed. If you do not already have such a reader, there are numerous PDF readers available for free download or for purchase on the Internet.

1.1 Basis of Presentation 

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.  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. 

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-13 Main Estimates.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

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.

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

2.1 Authorities Analysis 

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 Main Estimates and Supplementary Estimates A of 2011-12.

Total authorities

Total 2012-13 authorities available for use as at June 30, 2012 decreased by $238.4 million compared to the same period in 2011-12. The decrease is reflected in budgetary authorities. There were no changes to non-budgetary authorities. The decrease in budgetary authorities was composed of a decrease in statutory authorities ($285.7 million), offset in part by an increase in voted operating and grants and contributions authorities ($47.3 million).

Voted budgetary authorities

Total 2012-13 operating authorities available for use as at June 30, 2012 increased by $13.7 million compared to the same period in 2011-12, reflecting increases related to:

  • government advertising programs ($12.0 million);
  • review of GST Technical Issues ($2.7 million);
  • funding to support corporate information management/information technology ($1.9 million);
  • maintaining the strength of Canada’s financial system ($1.9 million);
  • implementation of the harmonized value-added tax framework ($1.6 million);
  • funding for G-20 Framework Working Group ($0.9 million);
  • support for corporate finance and asset management ($0.4 million); and
  • personal income tax initiatives ($0.2 million).

These increases were partially offset by:

  • a transfer of funding to Shared Services Canada for the provision of centralized email, data centre and network services to departments as a result of the November 15, 2011, Order-in-Council ($2.8 million);
  • time-limited funding for the Task Force for the Payments System Review, which completed its mandate of assisting the Minister in charting the future of the Canadian payments system ($2.2 million);
  • a decrease in funding for the Canada Securities Regulator for which funds were used to establish a new Division in the Department of Finance and provide the necessary expert legal resources ($1.9 million);
  • sunsetting of the Task Force on Financial Literacy which was funded to support the creation of an independent task force, which made recommendations on a cohesive national strategy on financial literacy ($0.7 million); and
  • litigation related to the application of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ($0.5 million).

Available authorities for voted grants and contributions as at June 30, 2012 increased by $33.6 million compared to the same period in 2011-12. Of this amount, $59.5 million is related to changes in planned bilateral debt relief payments as well as an increase of $5 million related to the Harbourfront Centre. The above increases were offset by a decrease of $30.9 million for scheduled payments to Toronto Waterfront Revitalization Initiative in 2012-13.

Statutory budgetary authorities

Statutory authorities decreased by $285.7 million, as at June 30, 2012, compared to the same period in 2011-12.

This was in part due to an increase in the authorities for the Federal-Provincial Fiscal Arrangement Act of $1.131 billion compared to the same period in 2011-12. This increase is largely attributable to the legislative framework increases in Fiscal Equalization, the Canada Health Transfer, the Canada Social Transfer and Territorial Formula Financing ($3.287 billion); and is partially offset by decreases in:

  • the schedule of payments for transitional assistance related to the harmonized value-added tax framework ($1.880 billion);
  • Alternative Payments for Standing Programs ($276 million) which are forecast based on projected personal income tax data.

Effective 2012-13, the Department of Finance statutory vote for Public Debt–Interest and Other Costs is presented as two distinct categories, Interest on Unmatured Debt and Other Interest Costs. Interest on Unmatured Debt represents the interest resulting from certificates of indebtedness issued by the Government of Canada that have not yet become due. Other Interest Costs represents the interest related to superannuation accounts, deposit and trust accounts and other specified purpose accounts. The purpose of this change was to more clearly distinguish the significant components of interest costs.

Interest on Unmatured Debt, for the period ended June 30, 2012, decreased by $1.0 billion compared to the same period in 2011-12. The decrease is due to the revision of forecasted interest rates by private sector economists, consistent with the 2011 Update of Economic and Fiscal Projections. Other Interest Costs decreased by $386 million. The decrease reflects the decrease in the average long-term bond rate, which is used to calculate interest on the superannuation accounts pertaining to pre-April 1, 2000 service.

The remaining statutory authorities (as at June 30, 2012) decreased by $27.8 million compared to the same period in 2011-12 largely due to decreases in a number of areas. There was a decrease related to the establishment of the Canadian Securities Regulator ($161 million). This decrease was mainly due to a Supreme Court ruling that the proposed Canadian Securities Act as drafted was not valid under the general branch of the federal power to regulate trade and commerce under the Constitution for which Budget 2009 set aside $150 million for financial arrangements with participating provinces and territories. The remaining decrease of $11 million relates to payments to the Canadian Securities Regulation Regime Transition Office. The Minister of Finance, under section 14 of the Canadian Securities Regulation Regime Transition Office Act, was authorized to make direct payments to the Canadian Securities Transition Office to fulfill its purpose in an amount not to exceed $33 million for a three-year period. The Transition Office began operating on July 13, 2009. The third and final payment for this statutory vote was made in 2011-12. There was also a decrease of $60.5 million for the Youth Allowances Recovery.

In addition, there was a $10 million decrease in the statutory budgetary authorities for the Purchase of Domestic Coinage to primarily reflect expected lower production costs associated with the introduction of plated $1 and $2 coins that had been referenced in Budget 2011.

The above decreases were partially offset by an increase under the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act ($146 million) and payments to the International Developments Association ($57.4 million). 

Non-Budgetary Authorities

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 gross 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 through the year, with higher gross borrowings associated with a smaller net borrowing amount. 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 significant forecast errors and that the gross 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 authorities related to the Bretton Woods and Related Agreements Act for the purchase of shares of the International Bank for Reconstruction and Development in 2011-12 became the authorities for the statutory vote Payments to International Bank for Reconstruction and Development in 2012-13. The decrease of this authority from 2011-12 is being offset by the same increase of the new statutory vote in 2012-13.

2.2 Expenditure Analysis 

Total Expenditures

Total 2012-13 budgetary expenditures for the first quarter increased by $173.5 million compared to the same quarter in 2011-12. This was due to an increase in statutory expenditures ($182.0 million), which was partially offset by a decrease in voted operating and grants and contributions ($8.5 million). Non-budgetary expenditures for the first quarter 2012-13 increased by $318.4 million compared to the same quarter in 2011-12.

Voted budgetary expenditures

The decrease in voted expenditures for the first quarter of 2012-13 ($8.5 million) compared to the same quarter in 2011-12 is primarily attributable to payments to the Toronto Waterfront Revitalization Initiative ($9.1 million), offset by an increase in payments to the Harbourfront Centre ($1.1 million) under voted grants and contributions. Operating expenditure patterns in the first quarter of 2012-13 are consistent with those of 2011-12. Operating expenditures represent 21% of authorities available for use during the quarter compared to 24% last year.

Statutory budgetary expenditures

Total 2012-13 statutory expenditures for the first quarter increased by $182.0 million compared to the same quarter in 2011-12. This increase is primarily attributable to an increase in transfer payments pursuant to the Federal-Provincial Fiscal Arrangements Act ($801.7 million), as well as an increase in payments to the International Development Association ($57.3 million). This increase was offset by decreases in interest on unmatured debt and other interest costs ($470.7 million), a decrease in Transitional Payment to Newfoundland and Labrador ($124.6 million) pursuant to the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, losses on foreign exchange ($32.1 million), an increase in Youth Allowances Recovery ($24.8 million), decreases in payments to the Canadian Securities Regulation Regime Transition Office ($14.3 million) and payments of Liabilities Previously Recorded as Revenue ($11.9 million).

The increase in transfer payments under the Federal-Provincial Fiscal Arrangements Act for the first quarter of 2012-13 ($801.7 million) compared to the same quarter in 2011-12 is primarily the result of the legislative framework increases in Fiscal Equalization, the Canada Health Transfer, the Canada Social Transfer and Territorial Formula Financing and also reflects decreased recoveries under the Alternative Payments for Standing Programs.

The increase of $57.3 million in payment this year to the International Development Association reflects the increased value of payments required under the 16th replenishment compared to the values required under the 15th replenishment.

The total decrease in interest and other costs related to public debt was $470.7 million. This was attributable to decreases in interest on unmatured debt ($347.6 million) and other interest costs ($123.2 million) for the first quarter of 2012-13 compared to the same quarter in 2011-12. The decrease in interest on unmatured debt reflects lower Consumer Price Index adjustments on real return bonds and a lower effective interest rate on the stock of unmatured debt. The decrease in other interest costs reflects the decrease in the average long-term bond rate, which is used to calculate interest on the public sector pensions obligations pertaining to service pre-April 1, 2000.

The $1.2 million increase in Purchase of Domestic Coinage in the first quarter in 2012-13 compared to the same quarter last year is attributable to normal variations in the demand for coinage from businesses and consumers and in the timing of costs incurred for coinage procurement throughout the year.

Non-budgetary expenditures

Non-budgetary expenditures for the first quarter of 2012-13 increased by $318.4 million compared to the same quarter in the prior year. This increase is related to 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.

3. Risks and Uncertainties 

The global economic recovery has recently weakened, becoming more uneven and uncertain, and the world economy continues to face significant challenges, including the European sovereign and banking debt crisis. Going forward, private sector economists are calling for positive, but modest growth in Canada and the United States. With this forecast, the Department's program priorities and associated plans are designed to mitigate the risks to the Canadian economy while seizing opportunities to strengthen economic growth and job creation and to advance Canada's leadership internationally.

In particular, the Department will continue to manage the economic volatility risks by ensuring it has in place the infrastructure, resources and authorities needed to respond to an evolving economic and financial sector environment. The Department will also manage the increased requirement for coordinated international decision making to deal with uncertain world economic conditions, with attention to ensuring that responsible agencies take effective coordinated action to support the soundness, integrity and reputation of the Canadian financial system. 

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

The Department continues to work closely with Shared Services Canada to ensure the successful transfer of responsibilities, resources, and personnel relating to e-mail, data centres, networks, and associated internal services.

5. Budget 2012 Implementation 

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office.

The Department of Finance will achieve Budget 2012 savings of $32.4 million by fiscal year 2014-15 by reconfiguring and modernizing the Department’s internal services and policy analysis functions. It is also taking a further significant step to reduce coinage procurement costs by changing the metal composition of $1 and $2 coins from metal alloys to plated steel cores and eliminating the penny. The estimated cost to the Government of supplying pennies to the economy is about $11 million per year.

The Department’s available funding reflects a reduction of $10 million associated with the introduction of plated $1 and $2 coins. This measure is part of Finance Canada’s contribution to the Government’s deficit reduction action plan. Further savings generated by other measures that comprise the Department’s contribution to the plan have not been reflected in the Estimates or this quarterly financial statement. However these additional amounts have been frozen and are not available for spending.

There are no financial risks or uncertainties related to these savings.

Approved by:

Originally signed by:
Michael Horgan, Deputy Minister

Originally signed by:
Sherry Harrison, Chief Financial Officer

Ottawa, Canada

August 23, 2012


Department of Finance Canada
Quarterly Financial Report
For the quarter ended June 30, 2012

Statement of Authorities (unaudited)
Fiscal year 2012-2013 Fiscal year 2011-2012


(in thousands
of dollars)
Total available
for use for
the year
ending
March 31,
 2013 * **
Used
during the
quarter ended
June 30, 
2012
Year to date
used at
quarter-
end
Total available
for use for
the year
ending
March 31,
2012 *
Used
during the
quarter ended
June 30,
2011
Year to date
used at
quarter-
end
Budgetary
 Authorities
           
  Voted authorities            
    Operating expenditures 114,591 23,581 23,581 100,883 24,054 24,054
    Grants and
     contributions
215,000 2,005 2,005 181,416 10,052 10,052
 

  Total voted
   authorities
329,591 25,586 25,586 282,299 34,106 34,106
 

  Statutory
   authorities
           
  Federal-
   Provincial Fiscal
   Arrangements
   Act payments
           
    Fiscal Equalization
    (Part I - Federal-
    Provincial Fiscal
    Arrangements Act)
15,422,503 3,855,626 3,855,626 14,658,570 3,664,642 3,664,642
    Canada Health
     Transfer (Part V.1 -
     Federal-Provincial
     Fiscal Arrangements 
     Act)
28,568,975 7,142,244 7,142,244 26,951,863 6,737,966 6,737,966
    Canada Social
     Transfer (Part V.1 -
     Federal-Provincial
     Fiscal Arrangements
     Act)
11,859,486 2,964,872 2,964,872 11,514,064 2,878,516 2,878,516
    Territorial Financing
     (Part I.1 - Federal-
     Provincial Fiscal
     Arrangement Act)
3,110,680 1,206,944 1,206,944 2,876,083 1,115,920 1,115,920
    Wait Times Reduction
     Transfer (Part V.1 -
     Federal-Provincial
     Fiscal Arrangements
     Act)
250,000 62,500 62,500 250,000 62,500 62,500
    Alternative Payments
     for Standing Programs
     (Part VI - Federal-
     Provincial Fiscal
     Arrangements Act)
(3,388,677) (841,604) (841,604) (3,112,956) (870,646) (870,646)
    Transitional assistance
     to provinces entering
     into the harmonized
     value-added tax
     framework
     (Part III.1 - Federal-
     Provincial Fiscal
     Arrangements Act)
- - - 1,880,000 - -
    Additional Fiscal
     Equalization to Nova
     Scotia (Part I -
     Federal-Provincial
     Fiscal Arrangements
     Act)
325,779 - - - - -
 

  Total Federal-Provincial
   Fiscal Arrangements
   Act payments
56,148,746 14,390,582 14,390,582 55,017,624 13,588,898 13,588,898
  Interest on
   Unmatured Debt 1
19,703,000 4,760,208 4,760,208 20,706,000 5,107,778 5,107,778
  Other Interest Costs 1 9,159,000 2,278,083 2,278,083 9,545,000 2,401,264 2,401,264
  Transitional Payment to
   Newfoundland and
   Labrador (Nova Scotia
   and Newfoundland and
   Labrador Additional Fiscal
   Equalization Offset
   Payments Act)
- - - - 124,590 124,590
  Addtional Fiscal
   Equalization Offset
   Payment to Nova Scotia
   (Nova Scotia and
   Newfoundland and
   Labrador Additional
   Fiscal Equalization
   Offshore Payments Act)
146,059 - - - - -
  Youth Allowances
   Recovery (Federal-
   Provincial Fiscal
   Revision Act, 1964)
(746,180) (371,616) (371,616) (685,644) (346,799) (346,799)
  Payments to
   International
   Development
   Association
441,620 441,620 441,620 384,280 384,280 384,280
  Debt payments on behalf
   of poor countries to
   International
   Organizations
   pursuant to section 18(1)
   of the Economic
   Recovery Act
51,200 - - 51,200 - -
  Establishment of a
   Canadian Securities
   Regulation Regime and
   Canadian Regulatory
   Authority (Budget
   Implementation Act, 2009)
  - - 150,000 - -
  Canadian Securities
   Regulation Regime
   Transition Office
   (Canadian Securities
   Regulation Regime
   Transition Office Act)
  - - 11,000 14,345 14,345
  Purchase of
   Domestic Coinage
120,000 29,037 29,037 130,000 27,798 27,798
  Statutory Subsidies
   (Constitution Acts,
   1867-1982, and Other
   Statutory Authorities)
32,149 1,375 1,375 32,149 1,238 1,238
  Contributions to
   Employee Benefit
   Plans
13,143 3,286 3,286 12,790 3,197 3,197
  Minister of
   Finance - Salary
   and motor car
   allowance
78 20 20 78 20 20
  Other            
    Losses on Foreign
     Exchange
- 33,488 33,488 - 65,624 65,624
    Payment of Liabilities
     Previously Recorded
     as Revenue
- 405 405 - 12,275 12,275
 

  Total statutory
   authorities
85,068,815 21,566,488 21,566,488 85,354,477 21,384,508 21,384,508
 

Total budgetary
   authorities
85,398,406 21,592,074 21,592,074 85,636,776 21,418,614 21,418,614
 

Non-budgetary
   authorities
           
    Pursuant to section 8(2)
     of the Bretton Woods
     and Related Agreements
     Act, the amount of
     financial assistance
     provided by the Minister
     of Finance for the
     purchase of shares of
     the International Bank for
     Reconstruction and
     Development shall not
     exceed an amount of
     $98,141,398 in United
     States dollars over the
     period 2011-12
     to 2015-16.
- - - 20,611 - -
    Advances to Crown
     corporations (Gross)
- 16,653,878 16,653,878 - 16,335,495 16,335,495
    Advances pursuant to
     section 13(1)
     of the Financial
     Consumer Agency
     of Canada Act (Gross)
- 2,000 2,000 - 2,000 2,000

    In accordance with the
     Bretton Woods and
     Related Agreements
     Act, the issuance
     and payment of non-
     interest bearing, non-
     negotiable demand
     notes in an amount not
     to exceed
     $441,610,000
     to the International
     Development
     Association

- - - - - -
    Payment to
     International
     Bank for
     Reconstruction
     and Development
20,611 - - - - -
 

Total
 non-budgetary
 authorities
20,611 16,655,878 16,655,878 20,611 16,337,495 16,337,495
 

Total
 authorities
85,419,017 38,247,952 38,247,952 85,657,387 37,756,109 37,756,109
* Includes only Authorities available for use and granted by Parliament at quarter-end
** Total available for use does not reflect measures announced in Budget 2012
1 Effective 2012-13, the Department of Finance’s statutory vote for Public Debt–Interest and Other Costs has been divided into two categories, Interest on Unmatured Debt and Other Interest Costs. 

 

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)
  Fiscal year 2012-2013 Fiscal year 2011-2012
 

(in thousands of dollars) Planned
expenditures
for the year
ending
March 31, 2013 *
Expended during the
quarter ended
June 30, 2012
Year to
date
used at
quarter-end
Planned expenditures
for the year
ending
March 31, 2012
Expended during the
quarter ended
June 30, 2011
Year to
date
used at
quarter-end
Expenditures:            
  Personnel 87,898 23,673 23,673 83,922 24,147 24,147
  Transportation
   and
   communications
4,500 561 561 5,600 745 745
  Information 17,100 239 239 5,500 85 85
  Professional
   and special
   services
14,800 1,162 1,162 14,000 1,356 1,356
  Rentals 500 487 487 800 134 134
  Repair and
   maintenance
500 3 3 600 27 27
  Utilities,
   materials
   and supplies
120,900 29,253 29,253 131,200 27,917 27,917
  Acquisition of
   machinery and
   equipment
2,013 49 49 2,529 659 659
  Transfer
   payments
56,288,595 14,490,855 14,490,856 55,131,025 13,762,257 13,762,257
  Public debt
   charges
28,862,000 7,038,291 7,038,291 30,251,000 7,509,042 7,509,042
  Other subsidies
   and payments
- 7,531 7,531 11,000 92,245 92,245
 

Total gross
 budgetary
 expenditures
85,398,806 21,592,104 21,592,104 85,637,176 21,418,614 21,418,614
Less
 Revenues
 netted against
 expenditures
400 30 30 400 - -
 

Total net
 budgetary
 expenditures
85,398,406 21,592,074 21,592,074 85,636,776 21,418,614 21,418,614
* Planned expenditures do not reflect measures announced in Budget 2012