Quarterly Financial Report (QFR) for the Quarter Ended September 30, 2023

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, 2023, and the results of the same period last year.

2.1 Statement of authorities

When compared to those of the same quarter of the previous year, the department's year-to- date budgetary authorities available for use have increased by $308.3 million. As reflected in Table 1: Statement of authorities, the total budgetary authorities increased from $26,995.8 million in 2022–23 to $27,304.1 million in 2023–24. Major reasons for the changes are outlined below.

*A positive variance indicates an increase in year-to-date cumulative authorities available for use in the six-month period ending 30 September, 2023 as compated to the same period in 2022-23.

*A negative variance indicates a decrease in year-to-date cumulative authorities available for use in the six-month period ending 30 September, 2023 as compared to the same period in 2022-23.

Note: Numbers may not add up due to rounding.

The year-to-date net increase in authorities of $308.3 million over the second quarter in 2022-23 can be explaind by variances in funding for a number of initiatives. 

Operation and sustainment (fleet maintenance) of military capabilities and operating requirements (increase of $490.9 million) 

In order to provide ongoing support for operating and capital requirements, the department recieved additional funding to offset sustainment growth and the inflationary impact on the defence budget.

Miscellaneous departmental requirements (increase of $329.0 million) 

The net increase is due to miscellaneous funding variances. More specifically, the net increase in operating authorities is largely due to the timing of the Operating Budget Carry Foward. In 2023-24, 100% of the operating budget carry forward request was received in the second quarter, whereas only approximately 60% of the carry forward request was received in the second quarter of 2022-23. The net increase in statutory authorities is mainly due to an increase in contributions to employee benefit plans for military and civilians related to negotiated pay increases. 

Budget 2021 Initiatives (increase of $130.3 million) 

Funding for initiatives that were announced in Budget 2021 pertaining to:  

• North American Aerospace Defense Command (NORAD) Modernization Initiative
• Funding to Support the North Warning System 
• Modernizing the department's information management and information technology systems 
• The North Atlantic Treaty Organization (NATO) Readiness Initiatve and the NATO Contribution programs 
• Sustaining health services for the CAF 
• Addressing sexual misconduct and gender-based violence in the military 

Implementation of SSE (increase of $121.2 million)

The net increase in funding is primarily related to incremental demands required to execute the overall SSE policy commitments, including funding requirements for the expansion of the CAF and civilian support and for capital investments. 

Budget 2022 Initiatives (increase of $51.0 million)

Funding for initiatives that were announced in Budget 2022 pertaining to:   

• Women and Diversity Healthcare 
• Funding to support Culture Change in the CAF
• Military Justic Modernization
• Funding for the Implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act 

Heyder-Beattie Class Action Final Settlement Agreement (decrease of $314.1 million) 

The Heyder and Beattie class actions sought damages related to gender-based discrimination, sexual assault and sexual harassment. The funding has been used to continue to fulfill obligations and payments under the final agreement, including compensating claimants, the administration of claims, and the implementation of the restorative engagement program. The decrease is largely related to the timing of expected payments to claimants. 

Contributions to the Ukraine Operation (decrease of $500.0 million) 

The decrease is due to the timing of funding requirements. In 2022-23, funding to support Ukraine in its efforts to defend its sovereignty was received in the first quarter, whereas in 2023-24, funding is expected to be received in the third quarter. 

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 $344.9 million. As reflected in Table 2: Departmental budgetary expenditures by standard object, the expenditures increased from $11,077.2 million in 2022-23 to $11,422.1 million in 2023-24. 

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

Note: Numbers may not add up due to rounding.

Year-to-date net increase of $344.9 million is attributable mainly to the following:

Personnel (increase of $453.4 million)

The increase in spending is primarily due to the general pay increase which impacted expenditures for retroactive pay, pension and tax payments, as well as some increases in full time summer employment and a surge in the Class B Military Reserve compared to previous fiscal year. 

Acquisition of machinery and equipment (increase of $295.0 million) 

The increase in spending was mainly due to the acquisition of aircraft and the ramp up of production in shipbuilding. In addition, there is an increase in spending on ammunition related to the increase costs of fabrication, replenishment of stocks, and an overall increase in the CAF requirements for ammunition. 

Professional and special services (increase of $41.0 million)

The increase in spending is primarily due to a rise in operating and maintenance costs for the Blackjack Unmanned Aircraft System in-service support, as well as increased enrollment of students in both Euro-NATO joint jet pilot training program and International Flight Training School Program, and inflationary impact on utility expenditures and tuition fees. 

Repair and Maintenance (increase of $39.2 million) 

The increase in expenditures is primarily due to the timing of scheduled payments for various aircrafts as well as repairs and maintenance of other equipment. 

Acquistion of land, buildings and works (increase of $31.6 million) 

The increase in spending is primarily due to higher number of projects, many of which are in the implementation phase. 

Other subsidies and payments (decrease of $280.5 million) 

The decrease in expenditures is primarily due to the timing of scheduled payments for settlement agreements. 

Transfer payments (decrease of $229.7 million) 

The decrease in spending is primarily due to the timing variances for the budget and expenditures related to Ukraine. 

Transportation and communications (decrease of $41.7 million) 

The decrease in spending is primarily due to payment timing differences for the Mercury Global telecommunication data services project. 

Revenues netted against expenditures (decrease of $22.2 million) 

The decrease is primarily due to the timing difference of revenue recognition. 

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 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 they are tracked through the department’s reporting.

The COVID-19 pandemic has 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.

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

The Canadian Forces Housing Differential came into effect on July 1, 2023. It is a taxable benefit that is intended to provide equitable assistance to offset basic accommodation costs. It replaces the Post Living Differential and the Transitional Post Living Differential, both of which had not been updated since 2008.

In September 2023, Prime Minister Justin Trudeau announced that Canada is making a multi-year commitment to provide steady support to Ukraine. 

Approved by:

5. Financial tables

• Table 1: Statement of authorities
• Table 2: Departmental budgetary expenditures by standard object