Quarterly Financial Report (QFR) for the quarter ended September 30, 2024

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board. This report should be read in conjunction with the Main Estimates – 2024–25 Estimates and Supplementary Estimates (A), 2024-25. This report has not been subject to an external audit or review.

Our North, Strong and Free: A Renewed Vision for Canada is Canada’s updated defence policy that seeks to strengthen the foundations of the military as well as deter and defeat new and accelerating threats with new capabilities. The renewed vision is focused on meeting these challenges by:

• Asserting Canadian Sovereignty: The top priority of the Canadian Armed Forces (CAF) is the defence of Canada and Canadians with the overall objective of ensuring Canada’s military has the people, equipment, training and infrastructure needed to detect, deter and defeat threats in, over and approaching Canada – in the air, on land, on and under the sea, and in space and cyberspace.

• Defending North America: Prioritizing the defence of Canada also contributes to deterring and defeating threats to the continent that is shared with the United States, Canada’s closest ally.

• Advancing Canada's Global Interests and Values: The international order that underpins Canada's security and prosperity is endangered by the forces of competition and instability. To help safeguard Canada, the CAF will continue to make valuable contributions to global efforts to deter major power conflict, confront terrorism and insurgency, and address instability.

• A Strategic Approach to National Security: Instability at home and abroad is increasing quickly. Canada will adapt its approach to security and defence to be prepared for these challenges that will include unanticipated developments, with technological disruption and geopolitical shocks complicating the ability to plan. Canada will therefore adapt faster and in a more integrated manner to ensure the advancement of Canadian interests and remain secure and prosperous in years to come.

The Department continues to carry out its mandate to achieve results related to seven core responsibilities. A summary description of these core responsibilities can be found in the Departmental Plan 2024–25.

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 and the Supplementary Estimates (A) for the 2024-25 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.

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 September 30, 2024, 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 $4,017.9 million. As reflected in Table 1: Statement of authorities, the total budgetary authorities available for the year increased from $27,304.1 million in 2023–24 to $31,322.0 million in 2024–25. 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 *
Capital equipment and infrastructure projects	216.8	1,062.9	3.1	11.8	1,294.6
Pay administration – Federal public servants and Canadian Armed Forces	1,006.6	0.0	0.0	260.6	1,267.2
International Operations	797.0	131.2	10.8	115.1	1,054.1
Operation and sustainment (fleet maintenance) of military capabilities and operating requirements	357.8	0.0	0.0	0.0	357.8
Funding for military aid to Ukraine	0.0	0.0	300.0	0.0	300.0
North Atlantic Treaty Organization	5.0	0.0	235.8	0.8	241.6
Heyder-Beattie Class Action	139.8	(0.3)	0.0	0.3	139.8
Canadian Armed Forces digital capabilities	101.1	29.2	0.0	2.9	133.2
Advanced short-range missiles and medium range air-to-air missiles	119.9	0.0	0.0	0.0	119.9
Replenishment and sustainment of ammunitions and explosives	115.8	0.0	0.0	0.0	115.8
Funding for Internal Services and Pre-Definition Phases of North American Aerospace Defence Command Modernization Projects	46.3	0.0	0.0	5.5	51.8
Miscellaneous departmental requirements	(160.9)	10.3	27.5	(321.5)	(444.6)
Refocusing Government Spending	(497.2)	(93.5)	(3.5)	(19.2)	(613.4)
Cumulative variance in authorities available for use	2,248.1	1,139.8	573.7	56.2	4,017.9

Note: Numbers may not add up due to rounding.

The year-to-date net increase in authorities of $4,017.9 million over the second quarter in 2023–24 can be explained by variances in funding for a number of initiatives:

• Capital equipment and infrastructure projects (increase of $1,294.6 million)
  The net increase in funding is due to modifications to the multi-year spending profile of major and minor capital equipment and infrastructure projects. These adjustments serve to align financial resources with project acquisition timelines. The increase is mainly related to the Canadian Multi-Mission Aircraft project, the Strategic Tanker Transport Capability project, the Future Fighter Capability project, and the Canadian Surface Combatant project. These increases are partially offset by decreases related to the Arctic and Offshore Patrol Ship project and the Joint Support Ship project.

• Pay administration – Federal public servants and Canadian Armed Forces (increase of $1,267.2 million)
  The increase is due to adjustments to the rates of pay and allowances for CAF members and adjustments made to the terms and conditions of service or employment of the federal public administration in various collective agreements.

• International Operations (increase of $1,054.1 million)
  The increase is mainly due to receiving funding earlier in the year via the 2024-25 Main Estimates whereas, in 2023-24, funding for International Operations was requested later in the year. Incremental funding includes support for the following international operations: REASSURANCE (central and eastern Europe), UNIFIER (Ukraine), HORIZON (Indo-Pacific region), IMPACT (Iraq), and ARTEMIS (Red Sea, Gulf of Aden, Gulf of Oman, Indian Ocean).

• Operation and sustainment (fleet maintenance) of military capabilities and operating requirements (increase of $357.8 million)
  In order to provide ongoing support for operating and capital requirements, the Department received additional funding to offset sustainment growth and the inflationary impact on the defence budget.

• Funding for military aid to Ukraine (increase of $300.0 million)
  Funding to support Ukraine in its efforts to defend its sovereignty from the Russian invasion. In 2023-24, funding was accessed later in the year through Supplementary Estimates (B) and Supplementary Estimates (C).

• North Atlantic Treaty Organization (increase of $241.6 million)
  Net increase is due to the collectively adopted North Atlantic Treaty Organization (NATO) 2030 agenda to guide NATO’s existing and future activities and reinforce collective defence, for the NATO Climate Change and Security Centre of Excellence, and for the NATO Defence Innovation Accelerator for the North Atlantic.

• Heyder-Beattie Class Action (increase of $139.8 million)
  The Heyder-Beattie Class Action sought damages related to gender-based discrimination, sexual assault and sexual harassment. The funding has been used to continue to fulfil obligations and payments under the final agreement, including compensating claimants, the administration of claims, and the implementation of the restorative engagement program. The increase is largely related to the timing of expected payments to claimants. In addition, the increase is also related to a portion of the Operating Budget Carry Forward (OBCF) being allocated for the Heyder-Beattie Class Action, whereas in 2023-24, the full OBCF was allocated to Miscellaneous departmental requirements.

• Canadian Armed Forces Digital Capabilities (increase of $133.2 million)
  Funding for enhancing the technical foundations and strengthening the digital backbone of the CAF. Enhancing the technical foundations will invest in four information technology-related areas: maintaining software, hardware, cyber security, and cloud adoption. Strengthening the digital backbone will invest in improving three areas: data management, enabling data-centric security, and enabling experimentation and innovation.

• Advanced short-range missiles and medium range air-to-air missiles (increase of $119.9 million)
  Funding for the procurement of advanced short-range missiles and medium-range air-to-air missiles, including spare parts, training, software, and technical support.

• Replenishment and sustainment of ammunitions and explosives (increase of $115.8 million)
  To ensure ammunitions and explosives stocks are at a state of readiness and to replenish donations made to Ukraine.

• Funding for Internal Services and Pre-Definition Phases of North American Aerospace Defence Command Modernization Projects (increase of $51.8 million)
  Funding for Canada’s continental defence capabilities, including to modernize the North American Aerospace Defence Command (NORAD) through joint operation with the United States. Funding will be used to progress NORAD modernization by advancing projects in the identification and options analysis phase and for associated internal services.

• Miscellaneous departmental requirements (decrease of $444.6 million)
  The net decrease is due to miscellaneous funding variances. The net decrease in statutory authorities is mainly due to technical adjustments to align the estimated contributions to employee benefit plans for military and civilians to the TBS prescribed rates. In addition, there was a decrease in operating authorities largely due to a portion of the OBCF being allocated for the Heyder-Beattie Class Action, whereas in 2023-24, the full OBCF was allocated to Miscellaneous departmental requirements.

• Refocusing Government Spending (decrease of $613.4 million)
  In support of the Refocusing government spending initiative announced in Budget 2023.

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 $2,051.4 million. As reflected in Table 2: Departmental budgetary expenditures by standard object, the expenditures increased from $11,422.1 million in 2023–24 to $13,473.5 million in 2024–25.

Year-to-date variances in net budgetary expenditures (presented by standard object) (in millions of dollars)

Standard object	2024–25  Year-to-date used at quarter end	2023–24  Year-to-date sed at quarter end	Year-to-date variance
	Acquisition of machinery and equipment	2,509.0	1,422.5	1,086.5
	Personnel	6,184.6	5,834.3	350.3
Professional and special services	2,249.0	1,928.7	320.4
Acquisition of land, buildings and works	320.6	214.8	105.8
Transportation and communications	418.6	362.5	56.1
Other subsidies and payments	203.9	148.3	55.6
Rentals	340.3	302.0	38.3
Transfer payments	167.0	134.1	33.0
Repairs and maintenance	703.2	681.6	21.6
Other net minor items	377.1	393.2	(16.1)
Total net budgetary expenditures	13,473.5	11,422.1	2,051.4

Note: Numbers may not add up due to rounding.

Year-to-date net increase of $2,051.4 million is attributable mainly to the following:

Acquisition of machinery and equipment (increase of $1,086.5 million)
The increase in spending is primarily due to timing of payments for Canadian Multi-Mission Aircraft Foreign Military Sales case and for Future Fighter Capability Project. In addition, the Armoured Combat Support Vehicles project is in the implementation phase and contract expenditures are increasing. Lastly, the Canadian Surface Combatant project ramped up compared to the same quarter last year.

Personnel (increase of $350.3 million)
The increase in spending is primarily due to pay raises for CAF members and various collective agreements ratified for civilian employees, which resulted in an ongoing increase to personnel costs such as retroactive pay, regular pay, and higher insurance premium rates for military members. In addition, the average military strength is higher in comparison to the same quarter last year which contributed to the increase in spending.

Professional and special services (increase of $320.4 million)
The increase in spending is primarily due to projects in the implementation phase, such as Strategic Tanker Transport Capability, Remotely Piloted Aircraft System, and Logistics Vehicle Modernization Project. Also, the Canadian Surface Combatant project is further advanced compared to the same quarter last year, contributing to higher costs. Lastly, expenses for intellectual property licenses, nonrecurring engineering, and new Foreign Military Sales cases, as well as additional infrastructure projects under Operation REASSURANCE further contributed to the rise in spending.

Acquisition of land, buildings and works (increase of $105.8 million)
The increase in spending is primarily due to infrastructure construction ramp up in Cold Lake and Bagotville, as well as multiple projects now in the implementation stage this fiscal year.

Transportation and communications (increase of $56.1 million)
The increase in spending is primarily due to earlier timeline for military move invoices being received compared to pre-pandemic. Additionally, there has been an increase in contracts related to Mercury Global telecommunication data services projects, contributing to higher expenditures. Lastly, improved invoice processing allowed payments to be made with limited to no delays this year.

Other subsidies and payments (increase of $55.6 million)
The increase in spending is primarily due to increased legal payments toward outstanding claimants of the Heyder-Beattie Class Action settlement in the previous quarter.

Rentals (increase of $38.3 million)
The increase in spending is primarily due to various application/software rental services, and rental of aircraft as part of the Royal Canadian Air Force training.

Transfer payments (increase of $33.0 million)
The increase in spending is primarily driven by changes in foreign exchange rates affecting Ukraine support payments and NATO-related postings. Additionally, the volatility of the situation in Ukraine, along with shifting priorities and projects compared to the same quarter last year, contributed to higher expenditures. Lastly, spending increased due to the Innovation for Defence Excellence and Security program’s realignment and improved efficiency.

Repairs and maintenance (increase of $21.6 million)
The increase in spending is primarily due to fluctuations in payments for the Lightweight Torpedo Upgrade project Foreign Military Sales case, as well as expenditures for the Strategic Tanker Transport Capability project support services contract. This increase is offset by a decrease due to a large purchase order related to Maritime equipment program management that was paid earlier in the previous year.

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, the Department is 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 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.

Our North, Strong and Free addresses the pressing need for Canada to adapt to threats against its sovereignty and national security. Despite past investments in military capabilities and budgets, the new policy acknowledges deficiencies in personnel strength, institutional capacity, industrial strength, operational capabilities, force posture, and readiness. Budget constraints and government spending reductions announced in Budget 2023, and expanded upon in Budget 2024, result in the need for careful consideration to minimize the impact of reductions on CAF readiness as well as the ability to attract, recruit and train new recruits going forward.

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

On July 2, 2024, Jonathan Moor, previously Vice-President, Finance and Corporate Management and Chief Financial Officer at the Canada Border Services Agency, joined National Defence as Assistant Deputy Minister (Finance) and Chief Financial Officer.

General Jennie Carignan was appointed as Canada’s new Chief of the Defence Staff on July 18, 2024, and Lieutenant General Stephen Kelsey started his new role of Vice Chief of the Defence Staff on August 1, 2024.

On September 26, 2024, the Chief of the Defence Staff and the Deputy Minister announced the establishment of the CAF Cyber Command as part of Our North, Strong and Free, which demonstrates Canada’s commitment to operating in the cyber domain and reflecting the essential role of cyber in modern operations. 

Approved by:

Dated: 26 November 2024

Ottawa, Canada

Table 1: Statement of authorities (unaudited) for the quarter ended September 30, 2024

	Fiscal year 2024-25			Fiscal year 2023-24
Amounts are expressed in thousands of dollars	Total available for use for the year ending  Mar 31, 2025Footnote *	Used during the quarter ended Sept 30, 2024	Year-to-date used at quarter-end Sept 30, 2024	Total available for use for the year ending Mar 31, 2024Footnote *	Used during the quarter ended Sept 30, 2023	Year-to-date used at quarter-end  Sept 30, 2023
Vote 1 - Net Operating expenditures	20,954,326	4,876,456	8,878,477	18,706,207	4,563,241	8,350,518
Vote 5 - Capital expenditures	7,216,408	1,942,375	3,402,630	6,076,583	1,271,873	1,865,126
Vote 10 - Grants and contributions	893,526	135,429	167,129	319,809	133,117	134,066
Vote 15 - Payments in respect of the long-term disability and life insurance plan for members of the Canadian Forces	446,728	120,733	205,099	446,728	117,057	169,741
Budgetary Statutory Authorities:
Contributions to employee benefit plans - Members of the Military	1,427,471	346,301	636,145	1,402,014	435,532	729,279
Contributions to employee benefit plans	363,661	90,947	181,914	330,464	82,652	165,297
Spending of Amounts Equivalent to Proceeds from Disposal of Surplus Crown Assets	19,194	389	389	21,545	79	79
Payments under the Supplementary Retirement Benefits Act	500	95	173	550	155	259
Court awards - Crown Liability and Proceedings Act	0	1,450	1,450	0	7,439	7,627
Payments under Parts I-IV of the Defence Services Pension Continuation Act (R.S.C., 1970, c. D-3)	110	20	36	120	31	52
Minister and Associate Minister of National Defence - Salary and Motor Car Allowance	99	25	49	95	24	47
Total Budgetary statutory authorities	1,811,035	439,227	820,156	1,754,788	525,912	902,640
Total Budgetary Authorities	31,322,023	7,514,220	13,473,491	27,304,115	6,611,200	11,422,091
Non-budgetary Authorities	77,191	6,456	45,784	74,474	6,722	40,699
Total Authorities	31,399,214	7,520,676	13,519,275	27,378,589	6,617,922	11,462,790

Note: Numbers may not add up due to rounding.

Table 2: Departmental budgetary expenditures by standard object (unaudited) for the quarter ended September 30, 2024

Amounts are expressed in thousands of dollars.	Fiscal year 2024-25			Fiscal year 2023-24
	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, 2025	Sept 30, 2024	Sept 30, 2024	Mar 31, 2024	Sept 30, 2023	Sept 30, 2023
Expenditures:
Personnel	13,082,028	3,164,868	6,184,565	11,600,708	3,067,325	5,834,315
Transportation and communications	755,090	282,104	418,609	758,029	207,077	362,541
Information	33,079	5,638	8,823	28,043	7,399	11,680
Professional and special services	5,705,906	1,365,149	2,249,013	5,166,425	1,213,239	1,928,651
Rentals	795,142	173,625	340,346	699,481	152,809	302,049
Repair and maintenance	2,217,905	467,691	703,247	2,052,122	436,332	681,640
Utilities, materials and supplies	1,395,217	249,481	477,418	1,289,383	274,918	476,371
Acquisition of land, buildings and works	828,887	211,567	320,649	705,757	157,736	214,818
Acquisition of machinery and equipment	5,525,541	1,403,962	2,509,048	4,667,794	937,300	1,422,541
Transfer payments	894,136	135,544	167,038	320,479	133,527	134,077
Public debt charges	3,577	628	1,216	3,840	518	1,366
Other subsidies and payments	424,157	131,050	203,879	368,695	85,697	148,280
Total gross budgetary expenditures	31,660,665	7,591,307	13,583,851	27,660,756	6,673,877	11,518,329
Less Revenues netted against expenditures:
Recoveries from Members	(154,697)	(39,763)	(65,748)	(168,688)	(38,570)	(64,129)
Recoveries from OGDs	(13,748)	(1,753)	(1,990)	(11,075)	(2,370)	(3,182)
Recoveries from Other Governments/UN/NATO	(69,781)	(13,401)	(16,148)	(93,659)	(1,913)	(2,732)
Other Recoveries	(100,416)	(22,170)	(26,474)	(83,219)	(19,824)	(26,195)
Total Revenues netted against expenditures	(338,642)	(77,087)	(110,360)	(356,641)	(62,677)	(96,238)
Total net budgetary expenditures	31,322,023	7,514,220	13,473,491	27,304,115	6,611,200	11,422,091

Note: Numbers may not add up due to rounding.