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Quarterly Financial Report - For the period ended September 30, 2017

Statement outlining results, risks and significant changes in operations, personnel and programs
Approval by Senior Officials

Statement outlining results, risks and significant changes in operations, personnel and programs

1. Introduction

This quarterly report for the period ending September 30, 2017 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. The report has not been subject to an external audit or review, and should be read in conjunction with the Main Estimates and the Supplementary Estimates for the current year.

A summary description of the Department's programs can be found in Part II of the Main Estimates.

Basis of Presentation

This quarterly report has been prepared using an expenditure basis of accounting. 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 accompanying Statement of Authorities includes the department's spending authorities granted by Parliament, and those used by the department consistent with the Main Estimates and Supplementary Estimates (as applicable) for the 2017-2018 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.

Global Affairs Canada (GAC) uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results 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

A. Significant changes to Authorities

The following table shows the total budget available for use by the Department. Only authorities available for use and granted by Parliament as at September 30, 2017 are included.

Authorities (in thousands of dollars)	Fiscal Year 2017-2018	Fiscal Year 2016-2017	Variance ($)	Variance (%)
Authorities (in thousands of dollars)	Total available for use for the year ending March 31, 2018^*	Total available for use for the year ending March 31, 2017^*	Variance ($)	Variance (%)
^* Includes only Authorities available for use and granted by Parliament at quarter-end.
Operating Expenditures	1,650,533	1,544,389	106,144	7%
Capital Expenditures	133,343	159,985	(26,642)	(17%)
Grants and Contributions	3,903,487	3,529,677	373,810	11%
Locally engaged staff pensions, insurance and social security	66,273	50,779	15,494	31%
Budgetary statutory authorities
Contributions to employee benefit plans	141,642	108,939	32,703	30%
Ministers' salary and motor car allowance	253	251	2	1%
Payments under the Diplomatic Service (Special) Superannuation Act	250	250	-	0%
Debt forgiveness to Pakistan	84,694	124,640	(39,946)	(32%)
Spending of proceeds from the disposal of surplus Crown assets	2,711	3,160	(449)	(14%)
Refunds of amounts credited to revenues in previous years	-	13	(13)	(100%)
Payments to International Financial Institutions – Direct Payments	227,048	245,000	(17,952)	(7%)
Total Budgetary authorities	6,210,234	5,767,083	443,151	8%
Non-budgetary authorities	56,201	25,086	31,115	124%
Total Authorities	6,266,435	5,792,169	474,265	8%

i. Budgetary Authorities

Operating Expenditures authorities have increased by $106.1 million. This variance is related to salary and operating requirements to address the crises in Iraq and Syria and their impact on the region, for the Peace and Stabilization Operations Program, funding received for inflation on overseas operations as well as an increase in the Operating Budget Carry-Forward amount received in 2017-18 compared to 2016-17. Also contributing to the increase was the funding received to create a new departmental corporation called Investment Promotion Canada and to increase the number of trade commissioners dedicated to investment attraction abroad. This was partially offset by a decrease of funding received for foreign currency fluctuations incurred on expenditures at missions abroad.

Capital Expenditures authorities have decreased by $26.6 million. This is caused by the decrease in funding received for the relocation of the chancery for the combined missions to the European Union and to Belgium, as well as a decrease of the Capital Budget Carry-Forward amount received in 2017-18 compared to 2016-17.

Grants and Contributions authorities have increased by $373.8 million. This is attributable to the funding to address the crises in Iraq and Syria and their impact on the region, the Peace and Stabilization Operations Program, as well as to help developing countries in Asia and the Pacific address impact of climate change through the Climate Fund for the Private Sector. These increases were partially offset by a decrease in the cost of assessed contributions and the timing of the funding renewal for the support to the Global Fund to fight AIDS, Tuberculosis and Malaria.

Locally engaged staff pensions, insurance and social security funding increased by $15.5 million to meet the requirements of the pension, insurance and social security programs and other arrangements for employees locally engaged outside of Canada.

ii. Budgetary Statutory Authorities

Contributions to employee benefits plans (EBP) statutory authorities have increased by $32.7 million. This is mainly attributable to the adjustment to contributions to employee benefit plans. Also contributing to the increase was the salary component of the funding received for the Peace and Stabilization Operations Program, to cover fluctuations for allowances provided to Canadians working at diplomatic missions abroad, as well as funding received to address the crises in Iraq and Syria and their impact on the region.

Debt forgiveness to Pakistan of $84.7 million represents the available balance from previous years. In 2006-2007, the Government of Canada, as represented by the Department, entered into an agreement with the Government of Pakistan to forgive its outstanding $447.5 million loan. In order to expire its debt obligation, the Government of Pakistan is required to make corresponding investments in their education sector. For 2016-17, the opening balance was $124.6 million of which $39.9 million was used during the year.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have increased by $31.1 million. This is attributable to an increase in the anticipated payments to International Financial Institutions for capital subscriptions.

B. Significant changes to budgetary expenditures by standard object

The following table shows the budgetary expenditures and revenues netted against expenditures of the Department for the period and their comparison with the same period last year.

Standard object (in thousands of dollars)	April to September 2017-18	April to September 2016-17	Variance ($)	Variance (%)
Expenditures
Salaries and employee benefits	589,891	542,042	47,849	9%
Transportation and communications	44,251	45,370	(1,119)	(2%)
Information	4,567	3,482	1,085	31%
Professional and special services	87,865	88,982	(1,117)	(1%)
Rentals	102,613	111,311	(8,698)	(8%)
Repair and maintenance	8,554	9,553	(999)	(10%)
Utilities, materials and supplies	17,098	15,637	1,461	9%
Other	38,147	43,725	(5,578)	(13%)
Total Operating Expenditures	892,986	860,102	32,884	4%
Acquisition Expenditures
Acquisition of land, buildings and works	8,407	43,146	(34,739)	(81%)
Acquisition of machinery and equipment	9,748	11,675	(1,927)	(17%)
Total Acquisition	18,155	54,821 /strong>	(36,666)	(67%)
Transfer payments	1,647,021	1,281,508	365,513	29%
Total gross budgetary expenditures	2,558,162	2,196,431	361,731	16%
Less revenues netted against expenditures
Revenue Credited to the Vote	17,244	29,403	(12,159)	(41%)
Total Net Budgetary Expenditures	2,540,918	2,167,028	373,890	17%

i. Operating Expenditures

Salaries and employee benefits – The increase of $47.8 million is mainly attributable to the implementation of the new collective agreements that resulted in increases to Canada based staff regular pay and retroactive salary payments. Also contributing to the increase is the rise in the costs of employee benefits and the salary component related to the Peace and Stabilization Operations Program and the crises in Iraq and Syria.

Information – The increase of $1.1 million is mostly attributable to higher spending to date on trade fairs in addition to timing differences in expenditures related to conferences and access to databases.

Rentals – The decrease of $8.7 million is a result of the acquisition in the third quarter of Fiscal year 2016-17, of the International Civil Aviation Organization (ICAO) building in Montreal, which was previously rented by the department.

Utilities, materials and supplies – The increase of $1.5 million is mainly explained by timing differences in payments, including prepayments, for electricity and fuel at missions abroad.

Others – The net decrease of $5.6 million relates to a lower portion of debt from the Government of Pakistan being forgiven this year compared to last year.

ii. Capital Expenditures

Acquisition of land, building and works – The decrease of $34.7 million can be explained by costs that were incurred in 2016-17 for the lease extension of the Canada High Commission, the purchase of staff quarters in London and the acquisition of the chancery in Bamako.

Acquisition of machinery and equipment – The decrease of $1.9 million is a result of timing differences in the acquisition and installation of equipment in missions.

iii. Transfer Payments

The increase of $365.5 million is attributable to the timing of payments made this year to the Global Fund to Fight Tuberculosis, AIDS and Malaria, the International Bank for reconstruction and Development (IBRD) for the Global Financing Facility (GFF) and the funding in response to the crises in Iraq and Syria. The equivalent payments occurred later during the previous fiscal year.

iv. Revenues

The decrease of $12.2 million can be explained in part by a timing difference in the recovery by GAC of costs from other organizations that share the department’s space and services at missions abroad (Co-locators) as well as reductions in occupancy by other organizations, resulting in less revenues being collected.

3. Risks and Uncertainties

As a federal department delivering a complex mandate in a rapidly changing international environment, Global Affairs Canada’s ability to deliver on its mandate is influenced by many factors. These factors include the political conditions, economic controls, social contexts and shifting global trends, which expose the department to a broad range of risks, both domestically and abroad. Effective risk management is, therefore, critical to the department’s ability to deliver results for Canadians. The department undertakes formal, risk exercises annually at headquarters, missions abroad and regional offices to review and validate the key risks in their operating environment and to assess the progress and effectiveness of their proposed risk responses.

The Corporate Risk Profile (CRP) guides the department in managing risks that affect the department’s strategic plans and priorities. It is integrated into the department’s business planning process and feeds into both the Departmental Plan and Departmental Results Report. The 2017-18 CRP identifies unique pressures associated with resource management and fiduciary oversight due to its geographically dispersed operations. Business planning, resource allocation and prioritization are fundamental to the achievement of GAC’s strategic priorities.

GAC continues to be more pragmatic and versatile in its management of risks and uncertainties associated with resources. It has improved financial forecasting and continues to find ways to absorb or fund activities, always within approved budgets. As part of its new resource reallocation initiative and in-year financial exercises, the department reassesses the needs and demands of various program areas without compromising on the delivery of results. This approach has reinforced the importance of aligning financial and non-financial resources to departmental priorities.

Branches and program areas have also grown more attentive to the department’s financial limitations as they are identifying their pressures earlier, reviewing their activities and available funds more frequently, and are increasingly utilizing forward planning. The department also continues to closely monitor its salary expenditures in light of the federal government’s transition to centralized pay services.

Global Affairs Canada also applies a range of measures to manage the risks associated with fraud. Examples of these measures include a recent update of its Values and Ethics Code and the management practice of auditing fraud risks at missions coordinated by the Office of the Chief Audit Executive. The department is also taking steps to develop and implement a Fraud Risk Management (FRM) Action Plan that will provide a more integrated and coordinated approach to addressing fraud-related risk. The FRM Action Plan will focus on three key elements: prevention and training; monitoring and detection; and, mitigation and response. Specialized training promoting sound management, increased risk awareness and good management practices will also be conducted at missions.

In addition to these tools, Global Affairs Canada’s Fiduciary risk Evaluation Tool (FRET) which supports a consistent and systematic approach to evaluate, mitigate, monitor and manage fiduciary risk for the department’s development assistance investments is currently being redesigned to create a Harmonized Risk Management Tool (RMT) for projects and programs. The RMT will offer a more tailored, streamlined approach to managing fiduciary risk as well as all other relevant programming risks and will be used by all Gs&Cs programs.

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

During the quarter, the following appointments were made:

Assistant Deputy Minister, Sub-Saharan Africa.
Assistant Deputy Minister, Strategic Policy.
Assistant Deputy Minister, Global Issues and Development.
Assistant Deputy Minister, Europe, Middle East and Maghreb.
Assistant Deputy Minister, Public Affairs.
Head of the Legal Bureau.

Subsequent to the end of the quarter, the appointment of the Associate Deputy Minister of Foreign Affairs was made.

Approval by Senior Officials

Approved, as required by the TB Policy on Financial Management:

Ian Shugart
Deputy Minister of Foreign Affairs

Arun Thangaraj
Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology

Ottawa, Ontario
Date: November 29, 2017

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at September 30, 2017.

Authorities (in thousands of dollars)	Fiscal Year 2017-2018			Fiscal Year 2016-2017
Authorities (in thousands of dollars)	Total available for use for the year ending March 31, 2018^*	Used during the quarter ended September 30, 2017	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2017^*	Used during the quarter ended September 30, 2016	Year-to-date used at quarter-end
^* Includes only Authorities available for use and granted by Parliament at quarter-end.
Operating Expenditures	1,650,533	401,659	748,455	1,544,389	366,382	700,270
Capital Expenditures	133,343	17,124	24,000	159,985	38,264	63,839
Grants and Contributions	3,903,487	1,027,332	1,535,906	3,529,677	577,450	1,053,794
Locally engaged staff pensions, insurance and social security	66,273	12,793	25,543	50,779	14,597	25,220
Budgetary statutory authorities
Contributions to employee benefit plans	141,642	42,787	71,189	108,939	27,084	54,130
Ministers' salary and motor car allowance	253	85	127	251	80	101
Payments under the Diplomatic Service (Special) Superannuation Act	250	162	187	250	89	175
Debt forgiveness to Pakistan	84,694	24,584	24,584	124,640	39,946	39,946
Spending of proceeds from the disposal of surplus Crown assets	2,711	-	-	3,160	2,000	2,000
Refunds of amounts credited to revenues in previous years	-	-	-	13	8	13
Payments to International Financial Institutions – Direct Payments	227,048	72,675	110,927	245,000	16,705	227,540
Total Budgetary authorities	6,210,234	1,599,201	2,540,918	5,767,083	1,082,605	2,167,028
Non-budgetary authorities	56,201	43,654	48,131	25,086	2,283	10,813
Total Authorities	6,266,435	1,642,855	2,589,049	5,792,169	1,084,888	2,177,841

Departmental budgetary expenditures by Standard Object (unaudited)