Quarterly Financial Report (QFR) for the Quarter Ended June 30, 2015
Date: September 22, 2015
Location: Table 1: Departmental budgetary expenditures by standard object (unaudited), Expended during the quarter ended June 30, 2015, Year to date used at quarter-end June 30, 2015, Transfer payments.
Revision: “Transfer payments $5,256 thousands” replaces “Transfer payments $33,754 thousands” in both columns.
Rationale for the revision: The original amount reported was incorrect. The correction did not impact the totals previously reported in the table.
This quarterly 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 (TB). This report should be read in conjunction with the Main Estimates. This report has not been subject to an external audit or review.
The Defence mission is to defend Canada and Canadian interests and values, while contributing to international peace and security. On behalf of the people of Canada, the Canadian Armed Forces (CAF) and the Department of National Defence (DND) stand ready to perform three key roles:
- Defend Canada - by delivering excellence at home;
- Defend North America - by being a strong and reliable partner with the United States in the defence of the continent; and
- Contribute to International Peace and Security - by projecting leadership abroad.
The Defence mission is delivered through six program activities. A summary description of these program activities can be found in Section II - Report on Plans and Priorities.
Basis of Presentation
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 for fiscal year (FY) 2015-2016. This quarterly 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 moneys 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.
2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results
In the following section on financial highlights the Department is providing explanations for differences, for the fiscal quarter and fiscal YTD, at June 30, 2015 as compared to the same period last year, exceeding a materiality threshold of $20.0M or for those items with an unusual percentage increase/decrease.
Statement of Authorities
Total budgetary authorities available for use increased in 2015-2016 from those of 2014-2015 by $513.2M (2.8%). This net increase is the result of increases in Vote 1 spending authority of $1,081.4M, decreases in Vote 5 spending authority of $601.0M, decreases in Vote 10 spending authority of $9.4M, and an increase in spending authority for Statutory Payments of $42.2M.
The change in budgetary authority is summarized below:
|Vote||Explanation of Change (thousands of dollars)||Change ($)|
|1||Funding in support of the ongoing implementation of the Canada First Defence Strategy||500,000|
|1||Annual escalator on defence spending as announced in Budget 2008 to provide long-term and predictable funding||353,972|
|1||Funding for projects at Canadian Armed Forces bases and other defence properties (Federal Infrastructure)||111,652|
|1||Canadian Armed Forces Growth under the Canada First Defence Strategy||71,833|
|1||An increase in funding to support Federal Contaminated Sites Action Plan||60,974|
|1||Other miscellaneous departmental requirements||(17,084)|
|1||Total Operating Expenditures||1,081,347|
|5||Net adjustments to the spending profile of major capital equipment and infrastructure projects to align financial resources with project acquisition timelines||(726,800)|
|5||Funding for projects at Canadian Armed Forces bases and other defence properties (Federal Infrastructure)||108,195|
|5||Other miscellaneous departmental requirements||17,624|
|5||Total Capital Expenditures||(600,981)|
|10||Total Grants and Contributions||(9,441)|
|(S)||Total Statutory Expenditures||42,230|
The change in Vote 1 budgetary authority is primarily due to an increase in funding in support of the ongoing implementation of the Canada First Defence Strategy, for the annual escalator on defence spending as announced in Budget 2008, for funding related to Federal Infrastructure projects, for Canadian Armed Forces Growth and for funding to support the Federal Contaminated Sites Action Plan. The change in Vote 5 budgetary authority is primarily due to a decrease in the net adjustments to the spending profile of major capital equipment and infrastructure projects to align financial resources with project acquisition timelines. Specifically, cash requirements for the Family of Land Combat Vehicles, the Medium-Heavy Lift Helicopter project, the Maritime Helicopter project, and the Tank Replacement project are lower in 2015-2016 than in 2014-2015. The decrease in Vote 5 is partially offset by an increase in funding related to Federal Infrastructure projects and other miscellaneous departmental requirements.
The change in Vote 10 budgetary authority is due to a decrease in transfer payments. The increase in statutory budgetary expenditures is largely due to higher Employee Benefit Plan contributions.
Statement of Departmental Budgetary Expenditures by Standard Object
YTD “net budgetary expenditures” decreased $50.1M (1.4%) compared to the first quarter of the last year.
The standard object with the most significant increase in Q1, as compared to the same quarter last year was:
- Acquisition of Machinery and Equipment ($83.8M) – primarily due to milestone payments made for the delivery of the Maritime Helicopter Project in 2015-2016.
The standard objects with the most significant decreases were:
- Personnel ($38.6M) – primarily due to a decrease in “Payments in Lieu” related to the Canadian Forces Severance Pay program;
- Professional, Special and Other Services ($23.3M) – primarily due to the timing difference related to the payment under the major equipment maintenance program;
- Acquisition of Land, Buildings and Works ($21.1M) – primarily due to a delay in number of infrastructure building projects in the implementation phase resulting in lower cost in 2015-2016; and
- Other Subsidies and Payments ($60.8M) – primarily due to a transition payment of $58.3M in 2014-2015 related to the one-time implementation of pay in arrears by the Government of Canada.
Revenue decreased by $21.3M primarily due to a timing difference in payments received from the United Kingdom related to the provision of service to the British Army units training in Canada and changes in quantities of fuel sold to foreign countries.
3. Risks and Uncertainties
To fulfill its mission, National Defence purchases the goods and services necessary to train military forces, conduct operations at the request of the Government of Canada and acquire related infrastructure and equipment both domestically and internationally.
As such, National Defence’s financial transactions are exposed to a broad range of external financial and economic risks such as inflation, foreign exchange and commodity price fluctuations. Depending on how these risks unfold, they could lead to surpluses or shortages. For example, an appreciation of the Canadian dollar or deterioration of commodity prices, oil in particular, could result in lower spending. Conversely, a depreciation of the Canadian dollar or increase in commodity prices could result in increased spending.
National Defence’s capital acquisition program includes a number of large multi-year acquisition projects. Delays in contracting and procurement activities, or delays in deliveries by suppliers for individual projects, can lead to reduced expenditures or budgetary surpluses.
While National Defence considers key economic and financial risk factors including defence specific inflation and foreign exchange in developing expenditure strategies, these risks are outside of the control of National Defence.
Additionally, significant unforecasted operational demands can occur at any time, requiring National Defence to respond anywhere on the globe. Depending on the extent of the operational demand, the cost of unforecasted operations would be mitigated either through internal reallocations or by requesting incremental funding from Government.
4. Significant Changes in Relation to Operations, Personnel and Programs
In the past few years, National Defence has faced a changing fiscal environment. In response, we have launched a number of initiatives, including Defence Renewal, aimed at improving business processes and practices. The implementation of these initiatives is a priority for 2015-16. Defence Renewal is focused on re-evaluating requirements, finding efficiencies and generating savings for reinvestment in military capabilities and readiness, including the internal reinvestment of personnel to higher priority tasks. Despite the challenging economic times, DND/CAF will continue to deliver a combat-effective, multi-role military for Canada and Canadians by enhancing operational capabilities and reducing corporate and institutional overhead.
// SIGNED BY //
// SIGNED BY //
C. Rochette, CPA, CMA
Chief Financial Officer
Dated: 21 August 2015
5. Financial Tables
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