Quarterly Financial Report (QFR) for the Quarter ended December 31, 2023

Tables

1. Introduction

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. This report should be read in conjunction with the Main Estimates – 2023–24 Estimates, Supplementary Estimates (A), 2023–24 and Supplementary Estimates (B), 2023–24. This report has not been subject to an external audit or review.

Strong, Secure, Engaged (SSE) is the defence policy that presents a vision of and an approach to defence for the government that will make Canada:

The department continues to carry out its mandate to achieve results related to 7 core responsibilities including Internal Services. A summary description of these core responsibilities can be found in the Departmental Plan 2023–24.

1.1 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 the Treasury Board Secretariat which are used by the department consistent with the Main Estimates, Supplementary Estimates (A) and Supplementary Estimates (B) for the 2023-24 fiscal year. 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 money 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 consolidated departmental financial statements, which are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis. The main difference between the quarterly financial reports and the consolidated departmental financial statements is the timing of when revenues and expenses are recognized. The quarterly financial report includes revenues only when the money is received and expenses only when the money is paid out. The consolidated departmental financial statements report revenues when they are earned and expenses when they are incurred. In the latter case, revenues are recorded even if cash has not been received and expenses are incurred even if cash has not yet been paid out.

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2. Highlights of fiscal-quarter and fiscal-year-to-date results

This section provides financial highlights and explanations for differences between the fiscal- quarter and fiscal-year-to-date results for the quarter ended on December 31, 2023, and the results of the same period last year.

2.1 Statement of authorities

When compared to those of the same period of the previous year, the department's year-to- date budgetary authorities available for use have increased by $1,542.0 million. As reflected in Table 1: Statement of authorities, the total budgetary authorities increased from $27,527.9 million in 2022–23 to $29,069.9 million in 2023–24. Major reasons for the changes are outlined below.

Year-to-date variances in authorities available for use (in millions of dollars)
Initiative Operating (Vote 1) Capital (Vote 5) Grants and contributions (Vote 10) Budgetary statutory authorities Total variancesFootnote *
Pay administration – Federal public servants and Canadian Armed Forces 773.0 0 0 163.4 936.4
Operation and sustainment (fleet maintenance) of military capabilities and operating requirements 490.9 0 0 0 490.9
Budget 2021 initiatives 72.6 58.6 0 (0.9) 130.3
Implementation of SSE 79.5 30.0 (2.5) 14.2 121.2
North Atlantic Treaty Organization 2030 Initiative 2.5 0 116.0 0.1 118.6
Ukraine Operation 291.8 0.2 (242.2) 8.6 58.4
Budget 2022 initiatives 42.3 0.7 1.5 6.5 51.0
Miscellaneous departmental requirements (45.3) (6.8) 6.9 58.9 13.7
Major capital equipment and infrastructure projects (27.6) 31.0 0.1 (6.7) (3.2)
Heyder-Beattie Class Action (375.3) 0.4 0 (0.4) (375.3)
Cumulative variance in authorities available for use 1,304.4 114.1 (120.2) 243.7 1,542.0

Note: Numbers may not add up due to rounding.

The 2023-24 year-to-date net increase in authorities of $1,542.0 million indicates an increase in cumulative authorities available for use in the nine-month period ending 31 December 2023 as compared to the same period in 2022–23. This can be explained by variances in funding for a number of initiatives:

2.2 Departmental budgetary expenditures by standard object

When compared to those of the same quarter of the previous fiscal year, the department’s year-to-date total net budgetary expenditures have increased by $2,307.8 million. As reflected in Table 2: Departmental budgetary expenditures by standard object, the expenditures increased from $17,342.9 million in 2022–23 to $19,650.7 million in 2023–24.

Year-to-date variances in net budgetary expenditures (presented by standard object) (in millions of dollars)
Standard object 2023–24
Year-to-date used at quarter end
2022–23
Year-to-date used at quarter end
Year-to-date variance
Personnel 9,067.9 8,067.2 1,000.7
Acquisition of machinery and equipment 2,861.7 1,899.1 962.6
Professional and special services 3,425.0 3,186.0 239.0
Repair and maintenance 1,191.6 1,054.9 136.7
Acquisition of land, buildings and works 417.1 317.3 99.9
Transportation and communications 603.2 549.8 53.4
Rentals 477.5 445.5 32.1
Transfer payments 464.9 653.6 (188.7)
Other subsidies and payments 518.4 572.2 (53.9)
Other net minor items 800.1 800.9 (0.8)
Revenues netted against expenditures (176.7) (203.6) 26.8
Total net budgetary expenditures 19,650.7 17,342.9 2,307.8

Note: Numbers may not add up due to rounding.

Year-to-date net increase of $2,307.8 million is attributable mainly to the following:

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3. Risks and uncertainties

The department’s financial transactions are exposed to a broad range of external financial and economic risks such as inflation, foreign exchange commodity price fluctuations and global supply chain. Currently, we are seeing economic risks give rise to increases in costs of goods and services, labour shortages, and supply chain delays. Depending on how these risks unfold, they could lead to significant fluctuations in anticipated spending.

While the department considers key economic and financial risk factors (including defence- specific inflation and foreign exchange) in developing expenditure strategies, these risks are outside the control of the department.

The department continues to address the financial risks associated with Phoenix pay issues through the implementation of new controls as required and the strengthening of existing ones. The Civilian Quality Assurance program continues to leverage the use of robotic process automation to analyze the current pay environment and lead to more timely corrective actions with the help of compensation agents. Initiatives such as the centralized data entry capability continue to ensure sustained payment accuracy.

The department’s capital acquisition program includes a number of large multi-year acquisition projects, mainly comprising of advanced fighter aircrafts, naval ships and armored vehicles. Delays in contracting and procurement activities or delays in deliveries by suppliers for individual projects can reduce the CAF operational capability and lead to reduced expenditures or budgetary surpluses.

Risks also flow from claims and litigations involving the department’s normal operations. When the department receives a claim or litigation alleging liability in tort or extra contractual responsibility to cover losses, expenditures or damages, it is analyzed and an appropriate position is developed, based on legal advice. Litigation or settlement may be pursued and these are tracked through the department’s reporting.

The COVID-19 pandemic exacerbated the CAF’s ability to grow its Force. As a result, the CAF is applying reconstitution measures at the tactical, operational, and strategic levels to restore units to an acceptable level of readiness to excel as a modern and combat-ready military force. This is intended to enable the CAF to adapt quickly to action when called for significant unexpected operational demands, which can occur at any time anywhere around the globe.

Additionally, significant unforecasted operational demands can occur at any time, requiring the department to respond anywhere in the world. 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 the government.

The government is currently refocusing its spending and has announced that this initiative will roll out in two phases. Phase 1 was announced in Budget 2023 with spending being refocused in professional services and travel as well as operations and transfer payments. Phase 2 was announced in the 2023 Fall Economic Statement indicating that the government will expand its Phase 1 efforts. Specific details about Phase 2 are still being developed and are not yet known to the department. This creates future uncertainty in operations as the department works to implement its share of the planned spending reductions going forward.

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4. Significant changes in relation to programs, operations and personnel

In October 2023, Hamas conducted an attack on Israel. This attack and the ensuing conflict between Israel and Hamas have resulted in efforts by the government to put in place measures to help Canadians get to safety, including assisted departures. The CAF were involved in transporting Canadian citizens, permanent residents and their families leaving the region.

Approved by:

Bill Matthews
Deputy Minister of National Defence

Cheri Crosby, CPA, CMA
Chief Financial Officer

Dated: 28 February 2024

Ottawa, Canada

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Table 1: Statement of authorities (unaudited) for the quarter ended December 31, 2023
Amounts are expressed in thousands of dollars Fiscal year 2023-24 Fiscal year 2022-23
Total available for use for the year ending Used during the quarter ended Year-to-date used at quarter-end Total available for use for the year ending Used during the quarter ended Year-to-date used at quarter-end
Mar 31, 2024Footnote * Dec 31, 2023 Dec 31, 2023 Mar 31, 2023Footnote * Dec 31, 2022 Dec 31, 2022
Vote 1 - Net Operating expenditures 19,674,598 5,208,373 13,558,891 18,370,042 4,346,819 12,413,601
Vote 5 - Capital expenditures 6,072,854 1,888,392 3,753,518 5,958,765 1,136,365 2,832,373
Vote 10 - Grants and contributions 944,128 330,667 464,734 1,064,401 289,576 653,467
Vote 15 - Payments in respect of the long-term disability and life insurance plan for members of the Canadian Forces 446,728 112,694 282,436 446,728 105,974 284,432
Budgetary Statutory Authorities:
Contributions to employee benefit plans - Members of the Military 1,573,859 321,321 1,050,600 1,321,784 302,342 900,299
Contributions to employee benefit plans 330,763 82,660 247,957 336,665 83,950 251,840
Spending of Amounts Equivalent to Proceeds from Disposal of Surplus Crown Assets 26,193 270 349 28,370 474 1,446
Payments under the Supplementary Retirement Benefits Act 550 140 399 800 148 338
Court awards - Crown Liability and Proceedings Act 0 284,053 291,680 0 0 5,000
Payments under Parts I-IV of the Defence Services Pension Continuation Act (R.S.C., 1970, c. D-3) 120 29 81 200 32 65
Minister and Associate Minister of National Defence - Salary and Motor Car Allowance 95 24 71 93 23 69
Total Budgetary statutory authorities 1,931,580 688,497 1,591,137 1,687,912 386,969 1,159,057
Total Budgetary Authorities 29,069,888 8,228,623 19,650,716 27,527,848 6,265,703 17,342,930
Non-budgetary Authorities 74,474 (2,254) 38,445 73,226 (785) 36,095
Total Authorities 29,144,362 8,226,369 19,689,161 27,601,074 6,264,918 17,379,025

Note: Numbers may not add up due to rounding.

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Table 2: Departmental budgetary expenditures by standard object (unaudited) for the quarter ended December 31, 2023
Amounts are expressed in thousands of dollars. Fiscal year 2023-24 Fiscal year 2022-23
Planned expenditures for the year ending Expended during the quarter ended Year-to-date used at quarter-end Planned expenditures for the year ending Expended during the quarter ended Year-to-date used at quarter-end
Mar 31, 2024 Dec 31, 2023 Dec 31, 2023 Mar 31, 2023 Dec 31, 2022 Dec 31, 2022
Expenditures:
Personnel 12,582,414 3,233,562 9,067,877 11,239,012 2,686,234 8,067,188
Transportation and communications 762,059 240,626 603,168 861,861 145,547 549,812
Information 28,043 4,461 16,142 26,372 5,437 13,814
Professional and special services 5,158,057 1,496,379 3,425,030 4,897,049 1,298,295 3,185,981
Rentals 702,343 175,483 477,531 729,852 153,715 445,473
Repair and maintenance 2,051,176 509,971 1,191,611 2,029,765 412,496 1,054,949
Utilities, materials and supplies 1,309,628 305,645 782,017 1,323,178 309,751 785,058
Acquisition of land, buildings and works 705,757 202,320 417,138 671,818 134,015 317,269
Acquisition of machinery and equipment 4,665,718 1,439,132 2,861,673 4,726,578 771,515 1,899,059
Transfer payments 944,798 330,837 464,914 1,065,401 289,756 653,569
Public debt charges 3,840 622 1,988 6,426 605 2,076
Other subsidies and payments 512,696 370,077 518,356 311,809 143,501 572,238
Total gross budgetary expenditures 29,426,529 8,309,115 19,827,445 27,889,121 6,350,867 17,546,486
Less Revenues netted against expenditures:
Recoveries from Members (168,688) (40,076) (104,204) (163,427) (44,131) (115,644)
Recoveries from OGDs (11,075) (4,367) (7,548) (12,333) (5,149) (8,416)
Recoveries from Other Governments/UN/NATO (93,659) (17,872) (20,605) (98,194) (15,435) (36,194)
Other Recoveries (83,219) (18,177) (44,372) (87,319) (20,449) (43,302)
Total Revenues netted against expenditures: (356,641) (80,492) (176,729) (361,273) (85,164) (203,556)
Total net budgetary expenditures 29,069,888 8,228,623 19,650,716 27,527,848 6,265,703 17,342,930

Note: Numbers may not add up due to rounding.

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