Quarterly financial report for the quarter ended December 31, 2017

1.1 Authority, mandate and programs

The mission of Employment and Social Development Canada (ESDC), including the Labour Program and Service Canada, is to build a stronger and more inclusive Canada, to support Canadians in helping them live productive and rewarding lives and improving Canadians’ quality of life.

ESDC delivers a range of programs and services that affect Canadians throughout their lives. The Department provides seniors with basic income security, supports unemployed workers, helps students finance their post-secondary education and assists parents who are raising young children. The Labour Program contributes to social and economic well-being by fostering safe, healthy, fair and inclusive work environments and cooperative workplace relations in the federal jurisdiction. Service Canada helps citizens access ESDC's programs, as well as other Government of Canada programs and services.

The Minister of Families, Children and Social Development, the Minister of Employment, Workforce Development and Labour and the Minister of Sport and Persons with Disabilities are responsible for this organization.

To fulfill its mission, the Department is responsible for:

• developing policies that ensure all can use their talents, skills and resources to participate in learning, work and their community
• delivering programs that help Canadians move through life's transitions, from school to work, from one job to another, from unemployment to employment, from the workforce to retirement
• providing income support to seniors, families with children and Employment Insurance beneficiaries
• fostering inclusive growth by providing opportunity and assistance to Canadians with distinct needs, such as Indigenous people, people with disabilities, homeless people, and recent immigrants
• overseeing labour relations, occupational health and safety, labour standards, employment equity and workers' compensation in the federal jurisdiction; and
• delivering programs and services on behalf of other departments and agencies, such as passport services delivered on behalf of Immigration, Refugees and Citizenship Canada and services to veterans delivered on behalf of Veterans Affairs Canada

Included in these core roles are responsibilities for the design and delivery of some of the Government of Canada's most well-known programs and services, including:

• Old Age Security (OAS)
• the Canada Pension Plan (CPP)
• Employment Insurance (EI)
• Canada Student Loans and Grants and Canada Apprentice Loans Program
• the Canada Education Savings Program (Canada Education Savings Grant and Canada Learning Bond)
• the Wage Earner Protection Program; and
• passport services

These direct benefits to Canadians are part of Canada's social safety net and represent 95 percent of the Department's expenditures.

Further details on ESDC's authority, mandate and programs may be found in Part II of the Main Estimates and in the Departmental Plan.

1.2 Basis of presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities (Table 1) includes ESDC’s spending authorities granted by Parliament, consistent with the Main Estimates and the budgetary authorities used by the Department for the 2017-18 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 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 authorities for specific purposes.

As part of the departmental performance reporting process, ESDC prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

1.3 ESDC’s financial structure

ESDC has a complex financial structure, with various funding mechanisms used to deliver its mandate. This includes budgetary authorities, comprised of voted and statutory authorities, as well as non-budgetary authorities. The voted budgetary authorities include Vote 1 (Operating Expenditures), vote-netted revenues, and Vote 5 (Grants and Contributions), while the statutory authorities are mainly comprised of the Old Age Security Program, the Canada Student Loans and Grants and Canada Apprentice Loans Program, the Canada Education Savings Program, the Canada Disability Savings Program, the Wage Earner Protection Program, Federal Workers' Compensation and employee benefit plans (EBP). The non-budgetary authorities consist of loans disbursed under the Canada Student Financial Assistance Act and the Apprentice Loans Act.

It should be noted that EI and CPP benefits and related administrative costs are administered through specified purpose accounts and not through appropriations from government. The EI Operating Account and the CPP are financed by employers and employees. Federal administrative costs incurred by departments in the delivery of programs related to EI and CPP are charged to the respective accounts and reported as revenues credited to the vote. The EI Operating Account and the CPP are excluded from ESDC's Main and Supplementary Estimates. However, they are presented in the Departmental Plan. Accordingly, these accounts are not reflected in the Quarterly Financial Report.

2.1 Significant changes to authorities

ESDC’s budgetary authorities available for use increased by $1,974 million compared to the third quarter of 2016-17 (Tables 1 and 2).

This increase is primarily associated with statutory items. In particular, forecasted OAS pension and Guaranteed Income Supplement (GIS) payments represent an increase of $1,724 million and $1,044 million respectively owing to changes in average benefit payments and in the number of beneficiaries. This increase is mainly offset by a decrease of $1,901 million from the Universal Child Care Benefit (UCCB), as planned spending was adjusted to include only retroactive payments pertaining to benefits paid prior to July 2016. The UCCB has been replaced by the Canada Child Benefit announced in Budget 2016, and administered by the Canada Revenue Agency as of July 2016. Other factors contributing to the increase include:

• An increase of $472 million in Voted Grants and Contributions to fund government initiatives announced in Budget 2016, mainly to support early learning and child care
• An increase of $461 million in Canada Student Loans and Grants for Students and Apprentices mostly explained by an increase to Canada Student Grants as a result of Budget 2016 measures to make post-secondary education more affordable for low- and middle-income families
• An increase of $107 million to Registered Disability Savings Grants and Bonds which is due to a steady increase in total registered Canada Disability Savings Plans and participation in the program
• An increase of $74 million to Vote 1 - Operating expenditures, is made up of different changes to funding and mainly involves new funds to address the Old Age Security workload, an increase in the carry-forward received in 2017-18 compared to the one received in 2016-17 and funding for collective bargaining agreements recently signed. Funds received for the Government Advertising Plan is also a contributing factor in the increase of Operating Expenditures for this quarter ending December 31st, 2017; and
• a decrease of $7 million for other items

For non-budgetary loans, there is a net decrease in authorities of $621 million from 2016-17 mainly as a result of Budget 2016 measures which increased Canada Student Grants and reduced the disbursement of Canada Student Loans as more borrowers will have their financial needs met by the increase in grants.

As shown in Table 2, total authorities related to personnel expenditures have increased by $172 million mainly due to new funds to address the Old Age Security workload and additional funding received for the collective bargaining agreements recently signed.

The increase of $71 million in authorities recoverable from the Employment Insurance Operating Account and the increase of $ 47 million in authorities recoverable from the Canada Pension Plan are mostly attributable to new funding approved for the collective agreements recently signed.

As well, variances to other operating expenditures (standard objects 02, 03, 04, 05, 06, 07 and 09) are the result of adjustments made to authorities available for use to bring them more in line with actual historical spending trends.

2.2 Significant changes to expenditures

Overall, the proportion of ESDC’s total budgetary expenditures as of December 31, 2017 is comparable to the usual spending presented at the third quarter, with approximately 75% of the authorities available for use expensed.

Compared to the previous year, total budgetary expenditures as of the quarter ending December 31, 2017 have increased by $585 million (1.4%), from $42,777 million to 43,362 million (refer to Tables 1 and 2).

This 1.4% increase is primarily explained by the rise in statutory expenditures from $40,846 million for the third quarter in 2016-17 to $41,194 million for the same period in 2017-18, representing a $348 million increase as of the end of the third quarter. The main reason for this increase relates to OAS pension payments ($1,461 million) and to GIS payments ($606 million). The main factors explaining these increases are the aging population thus the greater number of seniors receiving OAS and GIS benefits in addition to higher average amounts paid to beneficiaries, mainly explained by an increase of the GIS top-up amount for single seniors in July 2016, and the indexation of benefits.

In addition, payments under the Canada Student Loans and Grants and Canada Apprentice Loans Program have increased by $212 million compared to the spending as at December 31, 2016, mostly due to implementation in 2017 of Budget 2016 measures that increased the number of low and middle-income students eligible for the Canada Student Grants.

An increase of $48 million in payments by third quarter of 2017-18 compared to the third quarter of 2016-17 for the Canada Education Savings Program can be mainly attributed to more Canadians opening Registered Education Savings Plans and requesting the education savings incentives for their children.

These statutory increases are partly offset by a decrease of $1,945 million in relation with the Universal Child Care Benefit, which was replaced by the new Canada Child Benefit introduced in Budget 2016 and administered by the Canada Revenue Agency effective July 1, 2016.

Other smaller decreases partly offset the increase in statutory spending. Injury compensation benefits related to the Government Employees Compensation Act (GECA) have decreased by $16 million mainly due to higher recoveries from Crown corporations in this third quarter compared to the same period last year.

The Canada Disability Savings Program (CDSP) also shows an overall decrease of $12 million. CDSP experienced a higher than expected take-up in 2016-17 resulting from a very successful mail-out campaign, as a result, grant and bond payments raised above normal as of December 31st, 2016.   Over the 2017-18 fiscal year, grant and bond payments returned to normal levels, which is why we there is an overall decrease of $12M in bond and grant payments from December 31st 2016 to December 31st 2017.

Other changes to statutory expenditures, equating $5 million, also contribute to the variance.

The total variance of $585 million also includes an increase of $79 million to Vote 1 – Operating Expenditures and an increase of $157 million in Vote 5 — Grants and Contributions. The increase in operating expenditures, as compared to the same period last year, is mainly attributable to retroactive payments for earnings to employees in relation with collective agreements recently signed. For voted grants and contributions, the increase of $157 million is mostly attributable to the new transfer agreements with provinces and territories to support Early learning and Child care (ELCC). These new transfers are responsible for an increase of $162 million between the two years.

3.1 Human resource management

There is a risk that the Department will not be able to sustain a sufficient workforce or attract skilled employees with the appropriate competencies to meet current and future organizational needs.

Risk response strategies:

• A 2017-18 Workforce Action Plan has been developed
• Significant progress has been made in the implementation of the 2017-18 Workforce Action Plan with particular emphasis on increasing senior leadership capacity and innovative hiring approaches

3.2 Investment planning and project management

There is a risk that major projects may be over budget, face substantial delays and/or not be completed within scope.

Risk response strategy

• An Investment Advisory Group was formalized to provide investment recommendations to senior management through the use of a new investment prioritization methodology

3.3 Policy on results

There is a risk that ESDC may not adequately meet the objectives or expected results of Treasury Board Secretariat's Policy on Results thereby limiting its ability to effectively achieve and communicate results to Canadians.

Risk response strategy:

• The 2018-19 Departmental Results Framework has been developed and approved by the Minister