National Defence Consolidated Future-Oriented Statement of Operations 2019-20 Departmental Plan (unaudited)

Consolidated Future-Orientated Statement of Operations (unaudited)

For the year ending March 31

(in thousands of dollars)

	Forecast results 2018-19	Planned results 2019-20
Expenses
Operations	1,277,656	1,196,904
Ready forces	8,828,149	9,684,275
Defence team	2,938,676	3,427,821
Future force design	621,715	808,851
Procurement of capabilities	2,895,646	2,951,918
Sustainable bases and information technology systems and platforms	3,354,626	3,075,209
Internal services	1,947,362	698,521
Total expenses	21,863,830	21,843,499
Revenues
Sale of goods and services	418,382	392,002
Other	40,996	38,411
Gains on disposals of assets	21,736	20,366
Interest and gains on foreign exchange	18,391	17,232
Revenues earned on behalf of government	(12,695)	(11,895)
Total revenues	486,810	456,116
Net cost of operations	21,377,020	21,387,383

The accompanying notes form an integral part of the Future-Oriented Statement of Operations.

Notes to the Consolidated Future-Oriented Statement of Operations (unaudited)

1. Methodology and significant assumptions (in thousands of dollars)

The Consolidated Future-Oriented Statement of Operations has been prepared on the basis of government priorities and departmental plans as described in the Departmental Plan.

The information in the forecast results for fiscal year 2018-19 is based on actual results as at December 31, 2018 and on forecasts for the remainder of the fiscal year. Forecasts have been made for the planned results for fiscal year 2019-20.

The main assumptions underlying the forecasts are as follows:

• Forecast and planned spending corresponds to the department’s mandated activities.
• 2018-19 Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical data and trends, up-to-date Annual Reference Level Update (ARLU) information and supplementary estimates. The general historical pattern is expected to continue.
• 2019-20 Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical data and trends, up-to-date Annual Reference Level Update (ARLU) information. Figures for the planned results do not include items such as carry-forward funding. The general historical pattern is expected to continue.

These assumptions are made as at December 31, 2018.

2. Variations between actual and forecast financial results

Although every attempt has been made to forecast final results for the remainder of 2018-19 and for 2019-20, actual results achieved for both years are likely to differ from the forecast information presented, and this variation could be material.

In preparing this Consolidated Future-Oriented Statement of Operations, the department has made estimates and assumptions about the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually evaluated.

Factors that could lead to material differences between the Consolidated Future-Oriented Statement of Operations and the historical statement of operations include:

• the timing and the amount of acquisitions and disposals of property, plant and equipment, which may affect gains, losses and amortization expense
• the implementation of new collective agreement
• economic conditions, which may affect both the amount of revenue earned and the collectability of receivables
• the interest rates in effect at the time of issue, which will affect the net present value of non-interest-bearing loans; and
• other changes to the operating budget, such as new initiatives or technical adjustments later in the fiscal year

After the Departmental Plan is tabled in Parliament, the department will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Results Report.

3. Summary of significant accounting policies

The Consolidated Future-Oriented Statement of Operations has been prepared using the Government of Canada's accounting policies in effect for fiscal year 2018-19, and is based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Consolidation

This Consolidated Future-Oriented Statement of Operations includes the accounts of the sub-entities that the deputy head is accountable for. The accounts of these sub-entities have been consolidated with those of the department and all inter-organizational balances and transactions have been eliminated. The Consolidated Future-Oriented Statement of Operations therefore includes the accounts of the Department of National Defence, the Canadian Armed Forces and several related organizations and agencies in the Defence Portfolio, which carry out the Defence mission and are part of the Defence Services Programme.

Organizations and agencies that are part of the Consolidated Future-Oriented Statement of Operations include the following:

• Canadian Cadet Program and the Junior Canadian Rangers
• Canadian Forces Housing Agency
• Defence Research and Development Canada
• Office of the Ombudsman for the Department of National Defence and Canadian Forces
• Office of the Judge Advocate General

The organizations below are excluded from the consolidation because these organizations are not part of the Defence Services Programme, although they fall under the responsibility of the Minister of National Defence.

• Military Grievance External Review Committee
• Military Police Complaints Commission
• Communications Security Establishment Canada
• Office of the Communications Security Establishment Commissioner

b) Expenses

The department records expenses on an accrual basis. Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility (or the entitlements) criteria (for grants) or the performance conditions (for contributions) established for the transfer payment program. In situations where grant payments do not form part of an existing program, payments are recorded as expenses when the government announces a decision to make a non-recurring transfer, provided that the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.  

Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.

Services provided without charge by other government departments for accommodation, employee contributions to health and dental insurance plans, worker's compensation coverage and legal services are recorded as operating expenses at their estimated cost.  

c) Revenues

Revenues from regulatory fees are recognized in the accounts based on the services provided in the fiscal year.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.

Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned.

Other revenues are recognized in the period the event giving rise to the revenues occurred. Revenues that are non-respendable are not available to discharge the department's liabilities. Although the deputy head is expected to maintain accounting control, he or she has no authority over the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the entity’s gross revenues.

4. Parliamentary authorities

The Department is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the department differs from financial reporting according to generally accepted accounting principles because authorities are based mainly on cash flow requirements. Items recognized in the Consolidated Future-Oriented Statement of Operations in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the department has different net cost of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a) Reconciliation of net cost of operations to requested authorities:

(in thousands of dollars)

	Forecast 2018-19	Planned 2019-20
Net cost of operations	21,377,020	21,387,383
Adjustments for items affecting net cost of operations but not affecting authorities
Amortization of tangible capital assets	(2,552,043)	(2,630,843)
Services provided without charge by other government departments	(836,286)	(929,770)
Decrease (increase) in employee future benefits	113,319	125,986
Refund of previous years' expenses	67,992	75,592
Vacation Pay and Compensatory Leave	(14,943)	(8,877)
Loss on disposals of capital assets	(123,649)	(123,649)
Adjustments of tangible capital assets	53,144	59,085
Refund of program expenses	3,144	3,144
Deferred Revenues	(1,561)	471
Decrease (increase) in accrued liabilities not charged to authorities	(1,088,114)	87,150
Bad debt expense	(2,528)	(2,528)
Proceeds from sale of assets	(19,066)	(21,197)
Change in environmental liabilities	89,845	98,398
Miscellaneous	102,853	114,422
Total items affecting net cost of operations but not affecting authorities	(4,207,893)	(3,152,616)
Adjustments for items not affecting net cost of operations but affecting authorities
Acquisition of tangible capital assets	4,061,741	3,767,570
Decrease (increase) in lease obligations for capital assets	71,424	79,409
Increase (decrease) in inventory purchases net of usage and adjustments	(181,464)	(201,749)
Increase (decrease) in prepaid expenses	62,229	(10,228)
Revenues collected from prior years' receivables	(14,608)	(4,913)
Total for items not affecting net cost of operations but affecting authorities	3,999,322	3,630,089
Requested authorities	21,168,449	21,864,856

b) Authorities requested

 (in thousands of dollars)

	Forecast 2018-19	Planned 2019-20
Vote 1: Operating expenditures	16,071,131	16,058,006
Vote 5: Capital expenditures	4,211,741	3,767,570
Vote 10: Grants and contributions	210,303	181,365
Vote 15: Payments in respect of the long- term disability and life insurance plan for members of the Canadian ForcesFootnote 1	0	435,458
Debt Write-Off	15	0
Statutory amounts	1,250,510	1,422,457
Sub Total	21,743,700	21,864,856
Less:
Authorities available for future years	539,856	0
Frozen Allotments	35,395	0
Requested authorities	21,168,449	21,864,856