Archived - Department of Finance Canada Quarterly Financial Report for the Quarter Ended December 31, 2014 (unaudited)

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

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 Department of Finance Canada (The ‘Department’) helps the Government of Canada develop and implement strong and sustainable economic, fiscal, tax, social, security, international and financial sector policies and programs. It plays an important central agency role, working with other departments to ensure that the government's agenda is carried out and that ministers are supported with high-quality analysis and advice.

The Department's responsibilities include the following:

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:

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates A and B of 2013-14.

Sections 2.1 and 2.2 below highlight the significant items that contributed to the increase in the resources available from 2013-14 to 2014-15 and the increase in actual expenditures as at December 31, 2013 and December 31, 2014. Full details can be found in Table 1 Statement of Authorities found at the end of this document.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first nine months of 2013-14 and 2014-15.

Comparison of Budgetary Authorities and Year to Date Budgetary Expenditures for the Quarter ended December 31 of Fiscal Years 2013-14 and 2014-15

In 2014-15, Q3 Authorities were $87,956 million, Q3 Expenditures were $21,185 million, Q2 Expenditures were $21,147 million and Q1 Expenditures were $22,908 million. In 2013-14, Q3 Authorities were $87,614 million, Q3 Expenditures were $20,797 million, Q2 Expenditures were $21,153 million and Q1 Expenditures were $22,210 million.

Percentages reflect the utilization of authorities at quarter-end.

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 December 31 of Fiscal Years 2013-14 and 2014-15

Variance

Authorities Available (in millions) 2014-15 2013-14 $ %
Budgetary
Voted:
Vote 1 - Operating Expenditures 120.5 117.6 2.9 2.4%
Vote 5 - Grants and Contributions 5.0 11.4 (6.4) -56.0%
Statutory:
Major transfers to other levels of government 60,561.0 59,737.4 832.6 1.4%
Interest on Unmatured Debt and Interest on Other Liabilities 25,970.1 26,522.0 (551.9) -2.1%
Direct program expenses 1,299.1 682.2 616.9 90.4%
Total statutory 87,830.2 86,941.5 888.7 1.0%
Total Budgetary authorities 87,955.7 87,070.6 885.1 1.0%
Non-Budgetary - - - -
Total authorities 87,955.7 87,070.6 885.1 1.0%
Note: Figures may not add due to rounding.

Authorities available in fiscal year 2014-15 are $87,955.7 million at the end of the third quarter as compared to $87,070.6 million at the end of the third quarter of 2013-14, representing an increase of $885.1 million.

Total 2014-15 Vote 1 operating authorities available as at December 31, 2014 are $120.5 million as compared to $117.6 million at the same period in 2013-14, representing an increase of $2.9 million, which is mainly attributable to the net effect of the following factors:

At the end of the third quarter in 2014-15, Vote 5 authorities are $5.0 million compared to $11.4 million at the end of the third quarter of 2013-14, representing a decrease of $6.4 million. This decrease of $6.4 million is attributable to the conclusion of the interim funding arrangement with the Canadian Securities Regulation Regime Transition Office.

Statutory Authorities available in fiscal year 2014-15 are $87,830.2 million at the end of the third quarter as compared to $86,941.5 million at the end of the same quarter of 2013-14, representing an increase of $888.7 million.

This increase of $888.7 million relates to three broad categories; increases of $823.6 million in major transfers to other levels of government, an increase in authorities for direct program expenses of $616.9 million, offset by a decrease of $551.9 million in Interest on Unmatured Debt and Interest on Other Liabilities. Additional details are provided below.

Authorities for major transfers to other levels of government as at December 31, 2014 are $60,561.0 million compared to $59,737.4 million for the same period in 2013-14. The increase of $823.6 million is mainly due to the net effect of the following factors:

Authorities for the Interest on Unmatured Debt and Interest on Other Liabilities as at December 31, 2014 are $25,970.1 million compared to $26,522.0 million at the same period in 2013-14. The decrease of $551.9 million is mainly due to the following factors:

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 forecast inaccuracy 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 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 December 31 of Fiscal Years 2013-14 and 2014-15

Variance

Year to date expenditures (in millions) 2014-15 2013-14 $ %
Budgetary
Voted:
Vote 1 - Operating Expenditures 79.1 74.1 5.0 6.8%
Vote 5 - Grants and Contributions 3.0 7.2 (4.2) -58.4%
Statutory:
Major transfers to other levels of government 45,638.0 43,803.1 1,834.9 4.2%
Interest on Unmatured Debt and Interest on Other Liabilities 18,599.2 19,544.0 (944.8) -4.8%
Direct program expenses 920.5 731.2 189.3 25.9%
Sub Total Statutory 65,157.7 64,078.3 1,079.4 1.7%
Total Budgetary expenditures 65,239.8 64,159.6 1,080.2 1.7%
Non-Budgetary 61,212.2 53,680.6 7,531.6 14.0%
Total year to date expenditures 126,452.0 117,840.2 8,611.8 7.3%
Note: Figures may not add due to rounding.

At the end of the third quarter of the 2014-15 fiscal year, total expenditures were $126,452.0 million compared to $117,840.2 million reported in the same period of 2013-14, representing an increase of $8,611.8 million or 7.3%.

Total 2014-15 Vote 1 operating expenditures at the end of the third quarter were $79.1 million as compared to $74.1 million at the same period of fiscal year 2013-14, representing an increase of $5.0 million or 6.8%. The increase is mainly attributable to the Government-wide Payment in Arrears initiative and the cost associated with the move to 90 Elgin.

Total 2014-15 Vote 5 grants and contribution expenditures at the end of the third quarter were $3.0 million as compared to $7.2 million at the same period of fiscal year 2013-14, representing a decrease of $4.2 million. This decrease is attributable to interim funding of $4.2 million last fiscal year to the Canadian Securities Regulation Regime Transition Office (CSTO).

Total statutory expenditures at the end of the third quarter of 2014-15 are $65,157.7 million as compared to $64,078.3 million at the end of the third quarter of 2013-14 representing an increase of $1,079.4 million, or 1.7%.

This increase is primarily attributable to an increase of $1,834.9 million in major transfers to other levels of government, an increase of $189.3 million in direct program expenses and a decrease of $944.8 million in Interest on Unmatured Debt and Interest on Other Liabilities (decrease of $684.4 million and $260.4 million, respectively).

Expenditures related to major transfers to other levels of government as at December 31, 2014 are $45,638.0 million compared to $43,803.1 million at the same period in 2013-14 representing an increase of $1,834.9 million. This increase is mainly due to the net effect of the following factors:

Explanations for all but one of the items listed above are consistent with the explanations found under the statutory budgetary authorities in Section 2.1. The decrease of $10.1 million in 2014-15 in payments to Ontario related to the Canada Health Transfer is due to the sunsetting of this item in 2013-14.

Expenditures for the Interest on Unmatured Debt and Interest on Other Liabilities as at December 31, 2014 are $18,599.2 million compared to $19,544.0 million at the same period in 2013-14 representing a decrease of $944.8 million. The decrease is mainly due to the following factors:

Direct Program Expenditures at the end of the third quarter of fiscal year 2014-15 are $920.5 million as compared to $731.2 million at the same period in 2013-14, representing an increase of $189.3 million. This increase is primarily due to the net effect of the following factors:

Non-budgetary expenditures at the end of the third quarter of 2014-15 are $61,212.2 million compared to $53,680.6 million at the end of the same quarter in the prior year representing an increase of $7,531.6 million. This change is due to an increase of $7,041.1 million 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. There is also an increase of $200.0 million related to a payment to the Ukraine for financial assistance under the Bretton Woods and Related Agreements Act and an increase of $285.0 million in payments to the International Monetary Fund New Arrangement to Borrow.

Table 2, located at the end of this report, presents Budgetary Expenditures by Standard Object (SO). The main variance in expenditures between 2014-15 and 2013-14 by standard object are as follows:

The year over year variances are explained in detail in the preceding Section 2.2.

Expenditures in the third quarter of fiscal 2014-15 were $41,047.3 million compared with $38,039.0 million for the third quarter of 2013-14, representing an increase of $3,008.3 million or 7.9% in quarterly spending.

Comparison of Quarterly Expenditures for the Third Quarter Ended
December 31 of Fiscal Years 2013-14 and 2014-15

Variance

Expenditures for the Third Quarter (in millions) 2014-15 2013-14 $ %
Budgetary
Voted:
Vote 1 - Operating Expenditures 29.6 28.1 1.5 5.4%
Vote 5 - Grants and Contributions 0.5 0.5 0.0 0.0%
Statutory:
Major transfers to other levels of government 15,139.5 14,498.1 641.4 4.4%
Interest on Unmatured Debt and Interest on Other Liabilities 5,836.7 6,170.4 (333.7) -5.4%
Direct program expenses 178.3 100.0 78.3 78.2%
Sub Total Statutory 21,154.6 20,768.6 386.0 1.9%
Total Budgetary expenditures 21,184.6 20,797.2 387.4 1.9%
Non-Budgetary 19,862.7 17,241.7 2,621.0 15.2%
Total year to date expenditures 41,047.3 38,039.0 3,008.3 7.9%
Note: Figures may not add due to rounding.

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

Private sector economists expect moderate growth in the Canadian economy, as ongoing strength in domestic demand is expected to be moderated by a fragile global recovery and sharp declines in global crude oil prices. In the euro area, the recovery is uncertain and the risk of deflation is increasing. In China, the challenges that the authorities face in introducing necessary policy reforms while maintaining their targeted growth objectives could lead to slower and more-variable-than-expected growth. Furthermore, volatility in other global commodity markets also poses challenges and risks to Canada’s economy. In contrast to these developments, the U.S. economic recovery appears to be gaining traction.

The Department of Finance Canada’s Corporate Risk Profile provides a snapshot of the Department’s key corporate risks. It focuses the attention and action of senior management on measures to mitigate the adverse effects of global economic uncertainty and their impact on the Canadian economy. 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 November 3rd , 2014, Timothy Sargent was appointed to the position of Associate Deputy Minister of Finance and G7 Deputy of Canada.

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 further significant steps to reduce coinage costs including, for example, measures such as eliminating the penny.

All savings measures are on track to meet their planned savings. Staff reductions were fully completed in 2012-13.

Administration costs related to the phase out of the penny in 2013-14 were significantly lower than previously estimated. The Royal Canadian Mint contracted an external company to carry out the processing of the pennies, which significantly reduced capital and processing costs. These savings are expected to continue into 2014-15 and 2015-16.

Approved by:

Paul Rochon,
Deputy Minister

Randy Larkin,
Chief Financial Officer

Ottawa, Canada
February 26, 2015

Department of Finance Canada
Quarterly Financial Report for the quarter ended December 31, 2014
Table 1 - Statement of Authorities (unaudited)
(in thousands of dollars)

Fiscal year 2014-2015 Fiscal year 2013-2014


Total available for use for the
year ending
March 31, 2015 *
Used during the
quarter ended
December 31, 2014
Year to date used at
quarter-end
Total available for use for the
year ending
March 31, 2014 *
Used during the
quarter ended
December 31, 2013
Year to date used at
quarter-end
Budgetary Authorities
Voted authorities
Operating expenditures 120,502 29,555 79,080 117,630 28,127 74,064
Grants and contributions 5,035 500 3,000 11,435 500 7,210


Total voted authorities 125,537 30,055 82,080 129,065 28,627 81,274


Statutory authorities
Major transfers to other levels of government
Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 32,114,033 8,028,594 24,085,611 30,283,114 7,570,779 22,712,336
Canada Social Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 12,581,729 3,145,433 9,436,297 12,215,271 3,053,818 9,161,454
Fiscal arrangements
Fiscal Equalization (Part I - Federal-Provincial Fiscal Arrangements Act) 16,669,278 4,167,320 12,501,959 16,105,194 4,026,299 12,078,896
Territorial Financing (Part I.1 - Federal-Provincial Fiscal Arrangement Act) 3,469,215 707,720 2,761,496 3,288,282 670,809 2,617,472
Statutory Subsidies (Constitution Acts, 1867-1982, and Other Statutory Authorities) 34,119 1,237 18,426 32,149 1,237 17,312
Youth Allowances Recovery (Federal-Provincial Fiscal Revision Act, 1964) (814,071) - (407,036) (776,742) - (388,371)
Other major transfers
Addtional Fiscal Equalization Offset Payment to Nova Scotia (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act) 64,481 - - 89,461 - -
Additional Fiscal Equalization to Nova Scotia (Part I - Federal-Provincial Fiscal Arrangements Act) 138,275 - - 245,785 - -
Additional Fiscal Equalization Payment - Total Transfer Protection (Part I - Federal-Provincial Fiscal Arrangements Act) - - - 55,806 - 55,806
Payments to Provinces Regarding Sales Tax Harmonization (Part III.1 — Federal-Provincial Fiscal Arrangements Act) - - - 1,481,000 - 14,000
Wait Times Reduction Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) - - - 250,000 62,500 187,500
Payments to Ontario related to the Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) - - - - 10,052 10,052
Alternative Payments for Standing Programs (Part VI - Federal-Provincial Fiscal Arrangements Act) (3,696,022) (910,791) (2,758,802) (3,531,960) (897,351) (2,663,331)


Total major transfers to other levels of government 60,561,037 15,139,513 45,637,951 59,737,360 14,498,142 43,803,125
Interest on Unmatured Debt and Interest on Other Liabilities
Interest on Unmatured Debt and Other Public Debt Costs 17,817,322 3,768,733 12,404,579 17,845,000 4,034,158 13,088,917
Interest on Other Liabilities 8,152,756 2,068,010 6,194,649 8,677,000 2,136,262 6,455,048


Total Interest on Unmatured Debt and Interest on Other Liabilities 25,970,078 5,836,743 18,599,228 26,522,000 6,170,420 19,543,965
Direct program expenses
Operating expenses
Purchase of Domestic Coinage 122,500 27,972 82,837 126,500 25,330 84,611
Contributions to Employee Benefit Plans 12,115 2,985 8,954 12,203 3,051 9,153
Minister of Finance - Salary and motor car allowance 80 20 60 79 20 58
Minister of State – Motor car allowance 2 1 2 2 - 2
Transfer payments
Incentive for Provinces to Eliminate Taxes on Capital (Part IV - Federal-Provincial Fiscal Arrangements Act) 95,042 4,942 95,042 34,780 - 1,405
Canadian Millenium Scholarship Foundation (Budget Implementation Act, 1998) - - - - - (11)
Payments to International Development Association 883,220 - 441,610 441,610 - 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 - -
Canadian Securities Regulation Regime Transition Office (Canadian Securities Regulation Regime Transition Office Act) 9,100 - - 5,800 - -
Establishment of a Canadian Securities Regulation Regime and Canadian Regulatory Authority (Budget Implementation Act, 2009) 115,800 108,900 154,700 - - -
Payment to the International Bank for Reconstruction and Development for the Agriculture Advance Market Commitment (Bretton Woods and Related Agreements Act, section 8) 10,000 - - 10,000 - -
Other
Losses on Foreign Exchange - 32,719 134,723 - 71,013 190,225
Refunds of Previous Years Revenue - - 127 - - -
Payment of Liabilities Previously Recorded as Revenue - 766 2,487 - 623 4,150


Total direct program expenses 1,299,060 178,305 920,542 682,174 100,037 731,203


Total statutory authorities 87,830,175 21,154,561 65,157,721 86,941,534 20,768,599 64,078,293


Total budgetary authorities 87,955,712 21,184,616 65,239,801 87,070,599 20,797,226 64,159,567


Non-budgetary authorities
Advances to Crown corporations (Gross) - 19,647,422 60,576,973 - 17,200,349 53,535,853
Advances pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross) - 4,000 10,000 - 2,000 8,000
Payments under Bretton Woods and Related Agreements Act - National Governements (Gross) - - 200,000 - - -
Payments under Bretton Woods and Related Agreements Act - International Organizations (Gross) - - 3,481 - - -
Payments to the International Monetary Fund New Arrangements to Borrow - 211,245 421,778 - 39,381 136,768


Total non-budgetary authorities - 19,862,667 61,212,232 - 17,241,730 53,680,621


Total authorities 87,955,712 41,047,283 126,452,033 87,070,599 38,038,956 117,840,188
Numbers may not add due to rounding
* Includes only Authorities available for use and granted by Parliament at quarter-end

Department of Finance Canada
Quarterly Financial Report for the quarter ended December 31, 2014
Table 2 - Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)

Fiscal year 2014-2015 Fiscal year 2013-2014


Planned expenditures for the year
ending
March 31, 2015
Expended during the
quarter ended
December 31, 2014
Year to date
used at
quarter-end
Planned expenditures for the year
ending
March 31, 2014
Expended during the
quarter ended
December 31, 2013
Year to date
used at
quarter-end
Expenditures:
Personnel 87,908 21,524 63,695 82,432 21,553 64,310
Transportation and communications 2,689 769 2,015 3,890 607 1,813
Information 11,072 3,001 3,732 11,300 3,196 5,319
Professional and special services 18,905 3,233 7,640 18,053 4,911 9,194
Rentals 1,757 505 924 400 225 876
Repair and maintenance 42 16 69 5,431 434 1,101
Utilities, materials and supplies 123,737 28,090 83,112 127,500 25,422 84,883
Acquisition of land, buildings and works 2,031 629 2,082 - - -
Acquisition of machinery and equipment 7,188 2,729 4,767 7,808 126 227
Transfer payments 61,730,434 15,313,437 46,407,336 60,292,185 14,549,826 44,324,359
Public debt charges 25,970,078 5,836,743 18,599,228 26,522,000 6,170,420 19,543,965
Other subsidies and payments 20 (26,010) 65,251 - 20,547 123,581

Total gross budgetary expenditures 87,955,862 21,184,666 65,239,851 87,070,999 20,797,267 64,159,628
Less Revenues netted against expenditures 150 50 50 400 41 61

Total net budgetary expenditures 87,955,712 21,184,616 65,239,801 87,070,599 20,797,226 64,159,567
Note: Numbers may not add due to rounding.
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