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

ISSN 2562-2617

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, 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.

1.2 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 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.

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 (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.

Comparison of Budgetary Authorities and Year to Date Budgetary Expenditures for the Quarter ended September 30 of Fiscal Years 2017-18 and 2018-19
Comparison of Budgetary Authorities and Year to Date Budgetary  Expenditures for the Quarter ended September 30 of Fiscal Years 2017-18 and 2018-19
Percentages reflect the utilization of authorities at quarter-end.

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.

2.1 Authorities Analysis

Total Authorities

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

Comparison of Authorities Available for Use for the Year
as at September 30 of Fiscal Years 2017-18 and 2018-19
      Variance
     
Authorities Available (in millions) 2018-19 2017-18 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Authorities 100.3 89.3 11.0 12.3%
  Statutory:        
    Major transfers to other levels of government 70,438.9 67,956.4 2,482.5 3.7%
    Interest on Unmatured Debt and Interest on Other Liabilities 22,838.0 21,490.0 1,348.0 6.3%
    Direct program expenses 599.5 607.9 (8.4) -1.4%
  Total statutory 93,876.4 90,054.3 3,822.1 4.2%
Total Budgetary authorities 93,976.7 90,143.6 3,833.1 4.3%
Non-Budgetary 52.3 - 52.3 -
Total authorities 94,029.0 90,143.6 3,885.4 4.3%

Voted Budgetary Authorities

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.

Statutory Budgetary Authorities

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.

Non-Budgetary Authorities

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. 

2.2 Expenditure Analysis

Total Expenditures

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

Comparison of Year to Date Expenditures for the Quarter Ended
September 30 of Fiscal Years 2017-18 and 2018-19
      Variance
     
Year to date expenditures (in millions) 2018-19 2017-18 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Expenditures 49.8 44.6 5.2 11.7%
  Statutory:        
    Major transfers to other levels of government 35,615.2 34,396.2 1,219.0 3.5%
    Interest on Unmatured Debt and Interest on Other Liabilities 11,709.0 10,167.3 1,541.7 15.2%
    Direct program expenses 97.7 524.0 (426.3) -81.4%
  Sub Total Statutory 47,421.9 45,087.5 2,334.4 5.2%
Total Budgetary expenditures 47,471.7 45,132.1 2,339.6 5.2%
Non-Budgetary 22,003.4 21,754.8 248.6 1.1%
Total year to date expenditures 69,475.1 66,886.9 2,588.2 3.9%

Voted Budgetary Expenditures

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.

Statutory Budgetary Expenditures

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

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;

Quarterly Spending

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

Comparison of Quarterly Expenditures for the Second Quarter Ended
September 30 of Fiscal Years 2017-18 and 2018-19
      Variance
     
Expenditures for the Second Quarter (in millions) 2018-19 2017-18 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Expenditures 23.9 23.4 0.5 2.1%
  Statutory:        
    Major transfers to other levels of government 17,696.2 17,084.1 612.1 3.6%
    Interest on Unmatured Debt and Interest on Other Liabilities 5,759.1 4,846.1 913.0 18.8%
    Direct program expenses 48.5 438.8 (390.3) -88.9%
  Sub Total Statutory 23,503.8 22,369.0 1,134.8 5.1%
Total Budgetary expenditures 23,527.7 22,392.4 1,135.3 5.1%
Non-Budgetary 10,931.2 10,445.7 485.5 4.6%
Total expenditures for the second quarter 34,458.9 32,838.1 1,620.8 4.9%

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 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.

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

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.

5. Approval by Senior Officials

Approved by:

Original signed by
Paul Rochon, Deputy Minister
Original signed by
Darlene Bess, Chief Financial Officer

Ottawa, Canada
November 29, 2018

Department of Finance Canada
Quarterly Financial Report for the quarter ended September 30, 2018
Table 1 - Statement of Authorities (unaudited)
(in thousands of dollars)
Fiscal year 2018-2019 Fiscal year 2017-2018
 

Total available for use for the
year ending
March 31, 2019* 
Used during the
quarter ended
September 30, 2018
Year to date used at
quarter-end
Total available for use for the
year ending
March 31, 2018*
Used during the
quarter ended
September 30, 2017
Year to date used at
quarter-end
Budgetary Authorities
  Voted authorities
    Program expenditures 100,252 23,954 49,776 89,280 23,435 44,610
 

  Total voted authorities 100,252 23,954 49,776 89,280 23,435 44,610
 

  Statutory authorities
  Major transfers to other levels of government
    Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 38,583,703 9,645,926 19,291,852 37,149,703 9,287,425 18,574,851
    Canada Social Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 14,160,847 3,540,211 7,080,423 13,748,395 3,437,099 6,874,198
    Fiscal arrangements
      Fiscal Equalization (Part I - Federal-Provincial Fiscal Arrangements Act) 18,958,259 4,739,565 9,479,130 18,253,657 4,563,415 9,126,829
      Territorial Financing (Part I.1 - Federal-Provincial Fiscal Arrangement Act) 3,785,322 772,205 2,240,910 3,681,831 751,094 2,179,644
      Statutory Subsidies (Constitution Acts, 1867-1982, and Other Statutory Authorities) 42,356 19,941 21,178 42,356 19,941 21,178
      Youth Allowances Recovery (Federal-Provincial Fiscal Revision Act, 1964) (909,825) - (454,913) (888,654) - (430,712)
    Other major transfers
      Addtional Fiscal Equalization Offset Payment to Nova Scotia (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act) 18,092 - - 19,957 - -
      Additional Fiscal Equalization to Nova Scotia (Part I - Federal-Provincial Fiscal Arrangements Act) (113,203) - - (27,918) - -
    Alternative Payments for Standing Programs (Part VI - Federal-Provincial Fiscal Arrangements Act) (4,086,656) (1,021,664) (2,043,328) (4,022,927) (974,899) (1,949,797)
 

  Total major transfers to other levels of government 70,438,895 17,696,184 35,615,252 67,956,400 17,084,075 34,396,191
  Interest on Unmatured Debt and Interest on Other Liabilities
    Interest on Unmatured Debt and Other Public Debt Costs 16,591,000 4,183,622 8,518,302 14,924,000 3,195,333 6,845,553
    Interest on Other Liabilities 6,247,000 1,575,498 3,190,719 6,566,000 1,650,806 3,321,766
 

  Total Interest on Unmatured Debt and Interest on Other Liabilities 22,838,000 5,759,120 11,709,021 21,490,000 4,846,139 10,167,319
  Direct program expenses
    Operating expenses
      Purchase of Domestic Coinage 95,000 25,111 50,584 104,000 27,539 52,561
      Contributions to Employee Benefit Plans 11,628 2,888 5,777 11,037 2,759 5,518
      Minister of Finance - Salary and motor car allowance 86 21 43 84 21 42
    Transfer payments
      Payments to International Development Association 441,610 - - 441,610 - -
      Debt payments on behalf of poor countries to International Organizations pursuant to section 18(1) of the Economic Recovery Act 51,200 - - 51,200 - -
      Funding for Home Care Services and Mental Health Care Services (Budget Implementation Act, 2017 No. 1) - - - - 300,000 300,000
    Other
      Losses on Foreign Exchange - 19,657 39,571 - 101,931 158,963
      Payment of Liabilities Previously Recorded as Revenue - 775 1,685 - 951 1,268
      Payment to the Canada Infrastructure Bank (Canada Infrastructure Bank Act) - - - - 5,610 5,610
 

  Total direct program expenses 599,524 48,452 97,660 607,931 438,811 523,962
 

  Total statutory authorities 93,876,419 23,503,756 47,421,933 90,054,331 22,369,025 45,087,472
 

Total budgetary authorities 93,976,671 23,527,710 47,471,709 90,143,611 22,392,460 45,132,082
 

Non-budgetary authorities
  Purchase of initial shares pursuant to the Asian Infrastructure Investment Bank Agreement Act 52,300
  Advances to Crown corporations (Gross) - 10,912,520 21,973,408 - 10,439,672 21,745,775
  Advances pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross) - 3,000 6,000 - 6,000 9,000
  Payments under Bretton Woods and Related Agreements Act - International Organizations (Gross) 15,738 23,991 - - -
 

Total non-budgetary authorities 52,300 10,931,258 22,003,399 - 10,445,672 21,754,775
 

Total authorities 94,028,971 34,458,968 69,475,108 90,143,611 32,838,132 66,886,857
* Includes only Authorities available for use and granted by Parliament at quarter-end.

 

Department of Finance Canada
Quarterly Financial Report for the quarter ended September 30, 2018
Table 2 - Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)
  Fiscal year 2018-2019 Fiscal year 2017-2018
 

Planned expenditures for the year
ending
March 31, 2019
Expended during the
quarter ended
September 30, 2018
Year to date
used at
quarter-end
Planned expenditures for the year
ending
March 31, 2018
Expended during the
quarter ended
September 30, 2017
Year to date
used at
quarter-end
Expenditures:            
  Personnel 90,320 21,595 43,329 81,419 23,313 43,394
  Transportation and communications 3,312 784 1,574 2,802 423 952
  Information 1,856 557 919 2,133 335 487
  Professional and special services 12,064 3,311 5,767 11,759 1,375 3,624
  Rentals 1,177 23 1,908 1,292 107 494
  Repair and maintenance 648 98 110 189 74 83
  Utilities, materials and supplies 95,560 25,230 50,735 104,361 27,617 52,652
  Acquisition of machinery and equipment 2,102 66 417 525 191 225
  Transfer payments 70,931,762 17,696,229 35,615,697 68,449,245 17,384,211 34,696,327
  Public debt charges 22,838,000 5,759,120 11,709,021 21,490,000 4,846,139 10,167,319
  Other subsidies and payments 20 20,697 42,232 36 108,675 166,525
 

Total gross budgetary expenditures 93,976,821 23,527,710 47,471,709 90,143,761 22,392,460 45,132,082
Less Revenues netted against expenditures 150     150    
 

Total net budgetary expenditures 93,976,671 23,527,710 47,471,709 90,143,611 22,392,460 45,132,082