Quarterly Financial Report - For the period ended June 30, 2018

Table of contents

• Statement outlining results, risks and significant changes in operations, personnel and programs
  • 1. Introduction
    • Basis of Presentation
  • 2. Highlights of fiscal quarter and fiscal year to date (YTD) results
    • A. Significant changes to Authorities
    • B. Significant changes to budgetary expenditures by standard object
  • 3. Risks and Uncertainties
  • 4. Significant changes in relation to 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 June 30, 2018 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 2018-2019 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 June 30, 2018 are included.

i. Budgetary Authorities

Operating Expenditures authorities have increased by $174.2 million compared to last year. Items contributing to changes in operating expenditure authorities include:

• Funding received to support mission security abroad to mitigate risks to physical infrastructure, mission readiness, and security of information;
• Funding received for the 2018 G7 Summit in Charlevoix, Quebec;
• Funding received for compensation related to Collective Agreements; and
• Transfers from other government departments to provide support to departmental staff located in missions abroad.

These increases were partly offset by the transfer to the Department of Public Works and Government Services for operating and maintenance costs related to the International Civil Aviation Organization headquarters building in Montreal.

Capital Expenditures authorities have increased by $28.9 million. Items contributing to changes in capital expenditure authorities include:

• Funding received for the New York Chanceries’ co-location and relocation project; and
• Net increase in funding to support mission security abroad.

These increases were partly offset by:

• The 2017-18 funding to relocate the chancery for the combined missions to the European Union and to Belgium; and
• A transfer to the Department of Public Works and Government Services for capital improvement costs related to the International Civil Aviation Organization headquarters building in Montreal.

Grants and Contributions authorities have increased by $379.9 million. Items contributing to changes in grants and contributions expenditures authority include funding received:

• To help developing countries to address the impact of climate change;
• For Maternal, Newborn and Child Health;
• For the Crisis Pool Quick Release Mechanism; 
• To support the Global Fund to fight AIDS, Tuberculosis, and Malaria; and
• For Canada’s contribution to United Nations Peace Operations.

These increases were partially offset by:

• The sunset of current funding for the Food Assistance Convention; and
• A decrease related to the cost of assessed contributions, due to changes in the international organizations’ budgets and the impact of currency fluctuations resulting from the payment in the prescribed foreign currency of these contributions.

Locally engaged staff pensions, insurance and social security authorities have decreased by $15.5 million. This is attributable to the funding received in 2017-18 to meet the expenditure requirements of the pension insurance and social security program and other arrangements for employees locally engaged outside of Canada.

ii. Budgetary Statutory Authorities

Debt forgiveness to Pakistan of $60.1 million represents the available balance from previous years. For 2017-18, the opening balance was $84.7 million of which $24.6 million was used during the year.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have decreased by $25.2 million. This is attributable to a decrease 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.

i. Operating Expenditures

Salaries and employee benefits – The increase of $20.2 million is mainly due to:

• The implementation of new collective agreements last fiscal year which resulted in an increase of Canada based staff regular pay in the first quarter of the current year;
• Salary costs related to the 2018 G7 summit in Charlevoix; and
• The salary component of the initiatives to support mission security abroad; and
• The locally engaged staff salaries and related benefits paid at missions abroad.

Transportation and communications – The increase of $6.2 million this year can be explained by the expenses related to the 2018 G7 summit. These expenses include travel and accommodation costs for employees involved in the summit and the payment for the Host Broadcaster of the event. The increase can also be explained by a timing difference in Canada based employees’ relocation from Canada to missions and from missions to Canada.

Professional and special services – The increase of $7.2 million is mainly a result of a timing difference in the processing of invoices for legal services. Additionally, due to the 2018 G7 summit, expenses related to professional and special services were higher. Contractors were hired to perform moving services and ground handling services at the Bagotville Airport.

Rentals – The increase of $3.9 million can be explained by a timing difference of rental payments processed in the first quarter of 2017-18 compared to the first quarter of the current year. Also contributing to the increase is the rent paid in New York awaiting the end of the New York Chanceries’ co-location and relocation project.

ii. Capital Expenditures

Acquisition of machinery and equipment – The increase of $1.8 million is attributable to the acquisition of audio visual equipment for our new property in Paris and equipment enhancements at Headquarters.

iii. Transfer Payments

The increase of $316.4 million can be explained by a timing difference resulting from the annual funding prioritization process of NGOs. Most of the NGOs’ funding was disbursed earlier this fiscal year. Also contributing to the increase, is the consolidation of the two departmental financial systems that took place in April 2017. It led to some temporary delays in transfer payment processing in the first quarter of last fiscal year.

iv. Revenues

The increase of $8.4 million in revenues originates from a timing difference in the recovery of costs from other organizations that share the department’s space and services at missions abroad (Co-locators).

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 2018-19 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. As a result of an in-depth review of financial and human resources, GAC has reallocated existing resources to support the Departments highest priorities.

GAC continues to be more pragmatic and versatile in its management of risks and uncertainties associated with resources.  The Department is continually looking for opportunities to improve financial management practices, including financial forecasting and ensuring resources are available to implement priority activities.

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 since 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 fraud 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 available to all Gs&Cs programs.

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

During the quarter, the appointment of an Assistant Deputy Minister, Americas 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: August 29, 2018

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2018.

Departmental budgetary expenditures by Standard Object (unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2018.