Department of Finance Canada Quarterly Financial Report for the quarter ended June 30, 2024 (unaudited)

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 2024-25 Main Estimates and Supplementary Estimates of the Department of Finance Canada.

This 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) helps the Government of Canada (the government) 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 groups.

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 Financial Report has been prepared by management using an expenditure basis of accounting, and a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. 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 (2023-24 and 2024-25) as well as transfers from Treasury Board central votes that are approved by the end of the quarter.

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 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 grant 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.
• Non-budgetary authorities: Included in this category are disbursements made by the Department that do not have a direct budgetary impact on the government. This includes the value of loans initially disbursed to Crown corporations participating in the Crown Borrowing Program.

2. Highlights of Fiscal Quarter Results

The following section highlights the financial results and provides explanations for the fiscal quarter ended June 30, 2024 as compared to the same period last year.

2.1 Statement of Authorities

As per Table 1 – Statement of Authorities (unaudited), the total authorities available for use increased by $16,179 million, as compared to the same quarter in 2023-24, from $130,044 million to $146,223 million.

The following table provides a detailed explanation of the significant changes in the authorities available for use:

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

As per Table 2 – Departmental budgetary expenditures by Standard Object (unaudited), the total net budgetary expenditures in the first quarter of 2024-25 increased by $1,665.8 million, as compared to the same quarter in 2023-24 largely due to the following:

• Expenditures related to Public debt charges increased by $2,823.3 million, primarily due to an increase in interest rates and an increase in the stock of debt of approximately $90 billion over the same quarter of the previous year.
• Expenditures related to Other subsidies and payments increased by $332.9 million, primarily due to payments to the Canada Infrastructure Bank ($444.7 million) as a result of increased needs over last year. This increase was offset by decreases in revaluation of International Monetary Fund related accounts ($60.4 million) and foreign exchange on sovereign loans ($55.2 million).
• Expenditures related to Transfer payments decreased by $1,496.2 million, primarily due to decreases in major transfer payments to the provinces and territories ($1,340 million) and reduced payments to the International Monetary Fund (IMF) Resilience and Sustainability Trust ($57 million). These decreases were partially offset by recoveries for the Youth Allowance Recovery and Alternative Payments for Standing Programs ($99.3 million).

2.3 Non-Budgetary Expenditures

Total net non-budgetary expenditures in the first quarter of 2024-25 increased by $13.4 billion, as compared to the same quarter in 2023-24. This is largely due to payments to the Bank of Canada to purchase Canada Mortgage Bonds ($7.7 billion), an increase in the value of loans disbursed to Crown corporations participating in the Crown Borrowing Program ($3.8 billion), loans to the International Monetary Fund's Poverty Reduction and Growth Trust ($1.3 billion) and payments for the acquisition of shares in the Canada Growth Fund ($800 million).

3. Risks and Uncertainties

The most significant risk in the first quarter of 2024-25 is interest rate risk on the Public debt (the risk that cash flows of the Public debt will change because of movements in market interest rates). As noted above, expenditures related to Public debt charges increased by $2,823.3 million over the same quarter last year. The Department's Debt Management Strategy, developed in consultation with market participants, sets out a prudent approach to Public debt management to help mitigate interest rate risk in the face of rising interest rates and global volatility. Interest rate risk and other financial risks are discussed further in the notes to the Department of Finance Canada's Annual Financial Statements.

Following the implementation of the Department's updated Internal Control Framework on February 1, 2024, Finance Canada put in place a plan to monitor financial reporting controls. While monitoring is ongoing, with assessments continuing throughout 2024-25, no control weaknesses have been identified to date. The updated framework aims to reinforce controls around the prudent use of public resources throughout the organization and to effectively manage inherent risks associated with planning, program costing and procurement.

The Department remains vigilant in preparing for risks, situations, and events impacting its operating environment. We maintain effective security and business continuity plans and monitor changes to domestic and global economic and social conditions. At the same time, we proactively manage related risks through ongoing cooperation, engagement, and sharing of expertise and best practices with other federal departments and agencies, provincial and territorial governments, as well as stakeholders and international counterparts. These strategies enable the Department, as a central agency, a policy department, and a knowledge-based organization, to mitigate adverse impacts on the government's capacity to advance Canada's domestic and international fiscal, economic, and social policy interests.

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

Heather Beaton vacated the position of Acting Assistant Deputy Minister, Law Branch, effective June 24, 2024, with Riri Shen being appointed to the position of Assistant Deputy Minister.

5. Approval by Senior Officials

Approved by:

Chris Forbes, Deputy Minister
Ottawa, Canada
August 27, 2024

Christopher Veilleux CPA, CMA, PMP
Chief Financial Officer
Ottawa, Canada
August 27, 2024