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

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

• 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 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.

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:

• 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.

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:

• 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 reflects the results of the current fiscal period in relation to the Main Estimates of 2017-18.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first three 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.

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 June 30, 2018 compared to June 30, 2017. Full details can be found in Table 1, Statement of Authorities located at the end of this document.

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

Total 2018-19 Vote 1 program authorities available as at June 30, 2018 are $95.8 million compared to $89.3 million for the same period in 2017-18, representing an increase of $6.5 million. This increase is primarily due to the following:

• Collective agreements and other compensation adjustments $2.9 million;
• Budget 2017 initiatives consisting of Financial Sector Policy Funding Renewal, Corporate Assets Review and Canada Infrastructure Bank $2.1 million;
• Hosting G7 summit 2018 $1.8 million;
• Financial Sector Legislative Review $0.6 million; and
• G20 Framework working group in the amount of $0.6 million.

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 increased by $3,822.1 million. The details describing the factors that caused this increase can be found in Part II of the 2018-19 Main Estimates.

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 through 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.

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

Total 2018-19 Vote 1 program expenditures at the end of the first quarter were $25.8 million compared to $21.2 million for the same period in fiscal year 2017-18, representing an increase of $4.6 million consisting of the following:

• $1.7 million for collective agreements and other compensation adjustments;
• $1.5 million for the G7 summit;
• $1.0 million for Budget 2017 initiatives consisting of Financial Sector Policy Funding Renewal, Corporate Assets Review, and Canada Infrastructure Bank; and
• $0.4 million contribution payment related to the potential divestiture of Ridley Terminals Inc.

Major transfers to other levels of government increased by $607 million, primarily due to the net effect of following factors:

Increases include:

• Canada Health Transfer $358.5 million;
• Fiscal Equalization $176.2 million;
• Canada Social Transfer $103.1 million; and
• Territorial Financing $40.2 million.

Decreases include:

• Youth Allowances Recovery – An increase in recoveries of $24.2 million; and
• Alternative Payments for Standing Programs – An increase in recoveries of $46.8 million.

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 $628.7 million, due to the net impact the following two factors:

• Interest on Unmatured Debt – A increase of $684.5 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 $55.7 million, largely reflecting a reduction in the balance of public sector pension obligations pertaining to service pre-April 1, 2000.

Direct program expenses decreased by $35.9 million primarily due to a decrease in the Losses on Foreign Exchange caused by the revaluation of International Monetary Fund related accounts.

Non-budgetary expenditures at the end of the first quarter of 2018-19 decreased by $237 million and is primarily due 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.

Table 2, located at the end of this report, presents the budgetary expenditures by standard object (SO). The main variances in expenditures between 2018-19 and 2017-18 by SO are as follows:

• Public Debt Charges (SO 11) – An increase of $628.7 million;
• Transfer Payments (SO 10) – An increase of $607.4 million primarily attributable to major transfers to other levels of government; and
• Other Subsidies and Payments (SO 12) – A decrease of $36.3 million primarily resulting from decreases in foreign exchange losses.

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 of Finance Canada 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 payments 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 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.

The Associate Deputy Minister of Finance, Ava Yaskiel, joined the department on February 5, 2018.

Approved by:

Ottawa, Canada
August 29, 2018