Quarterly Financial Report - For the period ended September 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 September 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 September 30, 2018 are included.

i. Budgetary Authorities

Authorities for Operating Expenditures have increased by $188.1 million compared to last year. Items contributing to changes in these 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;
• 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 Public Services and Procurement Canada for operating and maintenance costs related to the International Civil Aviation Organization headquarters building in Montreal.

Capital Expenditures authorities have increased by $37.1 million. Items contributing to the increase include:

• Funding received for the New York Chanceries’ co-location and relocation project;
• Net increase in funding to support mission security abroad; and
• Increase in the Capital Budget Carry-Forward amount received in 2018-19 compared to 2017-18.

These increases were partly offset by:

• The sunset of the funding received in 2017-18 to relocate the chancery for the combined missions to the European Union and to Belgium; and
• A transfer to Public Services and Procurement Canada 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 $30.5 million is due to:

• The implementation of new collective agreements which resulted in an increase of Canada based staff regular pay in the first quarter;
• Temporary hiring and overtime required for the 2018 G7 summit;
• The salary component of the initiatives to support mission security abroad; and
• The regular increase in locally engaged staff salaries and related benefits paid at missions abroad.

Transportation and communications – The increase of $13 million is attributable to an increase in spending for the 2018 G7 summit. This includes travel and accommodation costs for employees involved in the summit and broadcasting services for the event. The increase is also due to a timing difference in Canada based employees’ relocation from Canada to missions and from missions to Canada, as well as additional travel required by trade negotiations during the first two quarters of this fiscal year.

Information – The increase of $2.9 million is due to the audio and visual services required during the 2018 G7 summit, as well as an increase in spending for expositions during the period as part of the Enhanced Trade Commissioner Service investment.

Professional and special services – The increase of $11.2 million is due to the 2018 G7 summit for services such as airport, security, management services and setting up and dismantling of exhibits. Additionally, a timing difference in the payments made this year to the Department of National Defence for security services contributed to the increase.

Rentals – The increase of $12.8 million is caused by the addition of housing units for Canadian employees abroad, rent payments inherent to the New York Chanceries’ co-location and relocation project, and rent disbursements made in advance to take advantage of rental discounts and exchange rates, as well as the rental of motor vehicles for the 2018 G7 summit.

Repair and maintenance – The increase of $1.1 million is explained by increased spending in the maintenance of real-property abroad during the first two quarters of this year, compared to last year.

Utilities, materials and supplies – The increase of $1 million is explained by the expenses related to the preparation for the 2018 G7 summit. In addition, an increase in housing units for Canadian employees abroad resulted in higher utilities expenses and non-recoverable property taxes. 

Other – The decrease of $35.8 million is primarily attributed to a timing difference caused by the Government of Pakistan debt forgiveness. A portion of the debt was written-off in the second quarter of last fiscal year but no similar transaction has been recorded as of the end of the reporting period this year.

ii. Capital Expenditures

Acquisition of land, buildings and works – The increase of $3 million is attributed to the New York Chanceries’ co-location and relocation project.

Acquisition of machinery and equipment – The increase of $6.3 million is caused by new projects related to mission security abroad of GAC’s real-property portfolio in relation to the Duty of Care initiative, the acquisition of audio visual equipment for the new chancery in Paris, as well as the acquisition of IT equipment.

iii. Transfer Payments

The decrease of $21.1 million is explained by a timing difference in the payment cycle for numerous projects that began last fiscal year. These new projects required an initial payment upon signature before following the prescribed payment cycle.

iv. Revenues

The increase of $8.8 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.

GAC continues to be more pragmatic and versatile in its management of risks and uncertainties associated with resources. Across the department, branches and program areas have 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. GAC also continues to closely monitor salary expenditures since the federal government’s transition to centralized pay services. The department is continually looking for opportunities to improve financial management practices, including those related to financial forecasting, and ensuring resources are available to implement priority activities.

Global Affairs Canada has applied a range of measures to manage the risks associated with fraud, such as increased training on fraud awareness and detection; the use of mission management audits and inspections to identify specific areas of risk; an updated procurement and contracting framework, which includes the establishment of regional contract review boards for missions; and improved coordination on investigations and administrative measures. The Global Affairs Canada Fraud Risk Management Action Plan for 2018-2019 will place a particular focus on the areas of: communications, data analytics and client tools; ensuring the department’s fraud risk framework is comprehensive and up-to-date, including for grants and contributions; and addressing system vulnerabilities and gaps in oversight.

In addition to these tools, Global Affairs Canada’s Fiduciary risk Evaluation Tool 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 for projects and programs. The new Risk Management Tool 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 G&Cs programs.

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

During the quarter, the following changes were made:

• The Deputy Minister for the G7 and Personal Representative of the Prime Minister (Sherpa) announced his retirement.
• The appointment of Associate Deputy Minister of Foreign Affairs and Personal Representative of the Prime Minister (Sherpa) 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, 2018

Statement of Authorities (Unaudited)

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

Departmental budgetary expenditures by Standard Object (unaudited)

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