Archived - Department of Finance Canada Quarterly Financial Report for the Quarter Ended December 31, 2016 (unaudited)

1. Introduction

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

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 and Supplementary Estimates of the Department of Finance Canada.

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

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

The Department's responsibilities include the following:

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 2015-16.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first nine months of 2015-16 and 2016-17. 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 December 31 of Fiscal Years 2015-16 and 2016-17

In 2016-17, Q3 Authorities were $90,017 million, Q1 Expenditures were $22,590 million, Q2 Expenditures were $21,991 million and Q3 Expenditures were $21,739 million. In 2015-16, Q3 Authorities were $89,651 million, Q1 Expenditures were $22,468 million, Q2 Expenditures were $21,168 million and Q3 Expenditures were $21,124 million.
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 2015-16 to 2016-17 and the decrease in actual expenditures (budgetary and non-budgetary) as at December 31, 2016 compared to December 31, 2015. Full details can be found in Table 1, Statement of Authorities found at the end of this document.

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 December 31 of Fiscal Years 2015-16 and 2016-17

Variance

Authorities Available (in millions) 2016-17 2015-16 $ %
Budgetary
Voted:
Vote 1 - Program Authorities 101.2 107.7 (6.5) -6.0%
Statutory:
Major transfers to other levels of government 66,413.4 63,312.4 3,101.0 4.9%
Interest on Unmatured Debt and Interest on Other Liabilities 22,901.0 25,618.0 (2,717.0) -10.6%
Direct program expenses 601.2 613.0 (11.8) -1.9%
Total statutory 89,915.6 89,543.4 372.2 0.4%
Total Budgetary authorities 90,016.8 89,651.1 365.7 0.4%
Non-Budgetary - - - -
Total authorities 90,016.8 89,651.1 365.7 0.4%

Authorities available in fiscal year 2016-17 are $90,016.8 million at the end of the third quarter as compared to $89,651.1 million at the end of the third quarter of 2015-16, representing an increase of $365.7 million.

Starting in 2016-17, departmental operating expenditures and grants and contributions are consolidated into Vote 1 – Program Expenditures. This change provides a more efficient approach to the management of voted expenditures.

Total 2016-17 Vote 1 program authorities available as at December 31, 2016, are $101.2 million compared to $107.7 million for the same period in 2015-16, representing a decrease of $6.5 million. This decrease is mainly attributable to a reduction in funding for government advertising.

Statutory authorities available in fiscal year 2016-17 are $89,915.6 million at the end of the third quarter compared to $89,543.4 million at the end of the same quarter of 2015-16, representing an increase of $372.2 million.

This increase of $372.2 million relates to three broad categories: an increase of $3,101.0 million in major transfers to other levels of government, offset by a decrease in authorities for direct program expenses of $11.8 million and a decrease of $2,717.0 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, 2016, are $66,413.4 million compared to $63,312.4 million for the same period in 2015-16. The increase of $3,101.0 million is primarily due to the following factors:

Authorities for direct program expenses at the end of the third quarter of fiscal year 2016-17 are $601.2 million as compared to $613.0 million at the same period in 2015-16, representing a decrease of $11.8 million. This decrease is largely due to lower anticipated costs related to Domestic Coinage.

Authorities for the Interest on Unmatured Debt and Interest on Other Liabilities as at December 31, 2016, are $22,901.0 million compared to $25,618.0 million at the same period in 2015-16. The decrease of $2,717.0 million is 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 year.

Comparison of Year to Date Expenditures for the Quarter Ended
December 31 of Fiscal Years 2015-16 and 2016-17

Variance

Year to date expenditures (in millions) 2016-17 2015-16 $ %
Budgetary
Voted:
Vote 1 - Program Expenditures 67.6 72.5 (4.9) -6.8%
Statutory:
Major transfers to other levels of government 50,073.6 47,829.3 2,244.3 4.7%
Interest on Unmatured Debt and Interest on Other Liabilities 16,048.5 17,655.5 (1,607.0) -9.1%
Direct program expenses 130.1 203.5 (73.4) -36.1%
Sub Total Statutory 66,252.2 65,688.3 563.9 0.9%
Total Budgetary expenditures 66,319.8 65,760.8 559.0 0.9%
Non-Budgetary 39,702.4 43,071.4 (3,369.0) -7.8%
Total year to date expenditures 106,022.2 108,832.2 (2,810.0) -2.6%

At the end of the third quarter of the 2016-17 fiscal year, total expenditures were $106,022.2 million compared to $108,832.2 million reported in the same period of 2015-16, representing a decrease of $2,810.0 million or 2.6%.

Total 2016-17 Vote 1 program expenditures at the end of the third quarter were $67.6 million compared to $72.5 million for the same period in fiscal year 2015-16, representing a decrease of $4.9 million or 6.8%. The decrease is mainly attributable to reduced government advertising expenditures.

Total statutory expenditures at the end of the third quarter of 2016-17 are $66,252.2 million as compared to $65,688.3 million at the end of the third quarter of 2015-16 representing an increase of $563.9 million or 0.9%.

This increase is explained by $2,244.3 million more in major transfers to other levels of government offset by a decrease of $1,607.0 million in Interest on Unmatured Debt and Interest on Other Liabilities (decrease of $1,191.7 million and decrease of $415.3 million, respectively) and a decrease of $73.4 million in direct program expenses.

Expenditures related to major transfers to other levels of government as at December 31, 2016 are $50,073.6 million compared to $47,829.3 million for the same period in 2015-16 representing an increase of $2,244.3 million. This increase is due to the net effect of the following factors:

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

Direct Program Expenditures at the end of the third quarter of fiscal year 2016-17 are $130.1 million as compared to $203.5 million at the same period in 2015-16, representing a decrease of $73.4 million. This decrease is primarily due to the net effect of the following factors:

Expenditures for the Interest on Unmatured Debt and Interest on Other Liabilities as at December 31, 2016 are $16,048.5 million compared to $17,655.5 million at the same period in 2015-16 representing a decrease of $1,607.0 million. The decrease is due to the following factors:

Non-budgetary expenditures at the end of the third quarter of 2016-17 are $39,702.4 million compared to $43,071.4 million at the end of the same quarter in the prior year representing a decrease of $3,369.0 million. This decrease is due to the following factors:

Table 2, located at the end of this report, presents Budgetary Expenditures by Standard Object (SO). The main variance in expenditures between 2016-17 and 2015-16 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 2016-17 were $34,660.6 million compared with $34,561.3 million for the third quarter of 2015-16, representing an increase of $99.3 million or 0.3% in quarterly spending.

Comparison of Quarterly Expenditures for the Third Quarter Ended
December 31 of Fiscal Years 2015-16 and 2016-17

Variance

Expenditures for the Third Quarter (in millions) 2016-17 2015-16 $ %
Budgetary
Voted:
Vote 1 - Program Expenditures 20.7 23.5 (2.8) -11.9%
Statutory:
Major transfers to other levels of government 16,532.9 15,854.1 678.8 4.3%
Interest on Unmatured Debt and Interest on Other Liabilities 5,117.2 5,220.3 (103.1) -2.0%
Direct program expenses 67.7 26.1 41.6 159.4%
Sub Total Statutory 21,717.8 21,100.5 617.3 2.9%
Total Budgetary expenditures 21,738.5 21,124.0 614.5 2.9%
Non-Budgetary 12,922.1 13,437.3 (515.2) -3.8%
Total expenditures for the third quarter 34,660.6 34,561.3 99.3 0.3%

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

The Canadian economy continues to adjust to lower oil prices and a soft global economic backdrop. Non-oil related sectors of the economy have been broadly resilient and household consumption has held steady.

With respect to the fragile global economic situation, the Department will continue to monitor developments and risks in key regions and countries. The global economy is undergoing a fundamental structural shift. Populations in advanced economies are aging, thereby reducing workforce growth. Some emerging economies, notably China, are undergoing transitions away from investment- and trade-intensive industrialization toward more moderate consumption-based growth. At the same time, the decision of the United Kingdom (U.K.) to leave the European Union (EU) and growing numbers of anti-trade measures among major economies point to an increasing trend toward protectionism globally. Finally, the global economy continues to be affected by the 2008–2009 financial crisis and its aftermath—namely the build-up of debt in some countries and the need for financial system repair in others. These factors are being increasingly reflected in slower growth in global trade and investment, persistently low commodity prices and slower global growth.

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.

During the quarter, Tim Sargent, Associate Deputy Minister and G7/20 Deputy, left the department on October 21, 2016. Rob Stewart was appointed to the role as of October 24, 2016. In addition, Chris Forbes was appointed Associate Deputy Minister as of November 14, 2016.

Approved by:

Original signed by
Paul Rochon, Deputy Minister
Original signed by
Christopher Meyers, Chief Financial Officer

Ottawa, Canada
February 28, 2017

Department of Finance Canada
Quarterly Financial Report for the quarter ended December 31, 2016
Table 1 - Statement of Authorities (unaudited)
(in thousands of dollars)

Fiscal year 2016-2017 Fiscal year 2015-2016


Total available for use for the
year ending
March 31, 2017 *
Used during the
quarter ended
December 31, 2016
Year to date used at
quarter-end
Total available for use for the
year ending
March 31, 2016 *
Used during the
quarter ended
December 30, 2015
Year to date used at
quarter-end
Budgetary Authorities
Voted authorities
Program expenditures 101,190 20,743 67,646 107,705 23,517 72,486


Total voted authorities 101,190 20,743 67,646 107,705 23,517 72,486


Statutory authorities
Major transfers to other levels of government
Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 36,067,673 9,016,919 27,050,755 34,026,107 8,505,241 25,518,295
Canada Social Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 13,347,956 3,336,989 10,010,967 12,959,181 3,239,795 9,719,386
Fiscal arrangements
Fiscal Equalization (Part I - Federal-Provincial Fiscal Arrangements Act) 17,880,415 4,470,103 13,410,311 17,341,310 4,335,328 13,005,983
Territorial Financing (Part I.1 - Federal-Provincial Fiscal Arrangement Act) 3,602,980 721,411 2,881,569 3,561,034 726,451 2,834,583
Statutory Subsidies (Constitution Acts, 1867-1982, and Other Statutory Authorities) 42,363 1,238 22,419 34,378 1,237 18,419
Youth Allowances Recovery (Federal-Provincial Fiscal Revision Act, 1964) (824,634) - (412,317) (853,046) - (417,261)
Other major transfers
Addtional Fiscal Equalization Offset Payment to Nova Scotia (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act) 33,255 - - 36,779 - -
Additional Fiscal Equalization to Nova Scotia (Part I - Federal-Provincial Fiscal Arrangements Act) 16,026 - - 79,348 - -
Alternative Payments for Standing Programs (Part VI - Federal-Provincial Fiscal Arrangements Act) (3,752,650) (1,013,741) (2,890,066) (3,872,657) (954,002) (2,850,075)


Total major transfers to other levels of government 66,413,384 16,532,919 50,073,638 63,312,434 15,854,050 47,829,330
Interest on Unmatured Debt and Interest on Other Liabilities
Interest on Unmatured Debt and Other Public Debt Costs 15,812,000 3,390,737 10,757,996 17,988,000 3,351,060 11,949,705
Interest on Other Liabilities 7,089,000 1,726,420 5,290,541 7,630,000 1,869,279 5,705,844


Total Interest on Unmatured Debt and Interest on Other Liabilities 22,901,000 5,117,157 16,048,537 25,618,000 5,220,339 17,655,549
Direct program expenses
Operating expenses
Purchase of Domestic Coinage 96,000 27,878 80,839 108,000 14,356 62,978
Contributions to Employee Benefit Plans 12,304 3,055 9,166 12,097 3,024 9,073
Minister of Finance - Salary and motor car allowance 83 21 56 82 15 56
Minister of State – Motor car allowance - - - 2 - 1
Transfer payments
Incentive for Provinces to Eliminate Taxes on Capital (Part IV - Federal-Provincial Fiscal Arrangements Act) - - - - 24,100 52,100
Payments to International Development Association 441,620 - - 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 - -
Other
Losses on Foreign Exchange - 35,943 36,761 - (16,061) 77,235
Payment of Liabilities Previously Recorded as Revenue - 767 3,163 - 671 1,941


Total direct program expenses 601,207 67,664 129,985 612,991 26,105 203,384


Total statutory authorities 89,915,591 21,717,740 66,252,160 89,543,425 21,100,494 65,688,263


Total budgetary authorities 90,016,781 21,738,483 66,319,806 89,651,130 21,124,011 65,760,749


Non-budgetary authorities
Advances to Crown corporations (Gross) - 12,919,124 39,693,408 - 13,348,832 42,774,027
Advances pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross) - 3,000 9,000 - 3,000 8,000
Payments under Bretton Woods and Related Agreements Act - International Organizations (Gross) - - - - 67,173 160,761
Payments to the International Monetary Fund New Arrangements to Borrow - - - - 18,247 128,631


Total non-budgetary authorities - 12,922,124 39,702,408 - 13,437,252 43,071,419


Total authorities 90,016,781 34,660,607 106,022,214 89,651,130 34,561,263 108,832,168
* 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, 2016
Table 2 - Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)

Fiscal year 2016-2017 Fiscal year 2015-2016


Planned expenditures for the year
ending
March 31, 2017
Expended during the
quarter ended
December 31, 2016
Year to date
used at
quarter-end
Planned expenditures for the year
ending
March 31, 2016
Expended during the
quarter ended
December 31, 2015
Year to date
used at
quarter-end
Expenditures:
Personnel 86,309 19,837 60,599 88,791 21,035 62,149
Transportation and communications 3,317 746 1,926 2,309 582 1,619
Information 1,754 305 743 8,763 1,391 6,934
Professional and special services 15,063 1,817 7,415 13,159 2,417 6,450
Rentals 1,586 463 965 1,156 104 574
Repair and maintenance 200 46 89 79 29 77
Utilities, materials and supplies 96,487 27,940 80,992 108,363 14,530 63,266
Acquisition of land, buildings and works - - - 115 114 114
Acquisition of machinery and equipment 912 25 145 2,217 137 228
Transfer payments 66,910,239 16,532,929 50,077,648 63,808,279 15,878,650 47,884,432
Public debt charges 22,901,000 5,117,157 16,048,537 25,618,000 5,220,339 17,655,549
Other subsidies and payments 64 37,273 40,829 49 (15,291) 79,408

Total gross budgetary expenditures 90,016,931 21,738,538 66,319,888 89,651,280 21,124,037 65,760,800
Less Revenues netted against expenditures 150 55 82 150 26 51

Total net budgetary expenditures 90,016,781 21,738,483 66,319,806 89,651,130 21,124,011 65,760,749
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