Quarterly Financial Report - For the period ended June 30, 2019

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, 2019 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 2019-2020 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.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

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, 2019 are included.

i. Budgetary Authorities

Authorities for Operating Expenditures have increased by $36.2 million. Items contributing to changes in operating expenditure authorities include:

• Funding received in 2019-20 for the Export Diversification Strategy;
• Funding received to implement the Feminist International Assistance Agenda;
• An increase related to the Duty of Care initiative to support mission security abroad;
• Funding received for the Creative Export Strategy;
• Adjustments to account for the impact of foreign currency fluctuations incurred on expenditures at missions abroad;
• Adjustments to account for the effects of inflation on overseas operations; and
• Transfers from other government departments to provide support to departmental staff located at missions abroad.

These increases were partly offset by the sunset of funding received to support the 2018 G7 summit in prior years.

Capital Expenditures authorities have decreased by $32.2 million. This is attributable to the sunset of funding required to complete the New-York Chanceries' co-location and relocation project.

Grants and Contributions authorities have increased by $144.5 million. Items contributing to changes in grants and contributions expenditures authorities include:

• Funding received to implement the Feminist International Assistance Agenda;
• Funding received for Canada’s commitment under the Food Assistance Convention;
• A net increase in funding received for Renewing Canadaʼs Middle East Strategy; and
• Funding received for Grants and Contributions in support of the CanExport Program.

These increases were partially offset by:

• A decrease related to funding received in previous years to help developing countries to address the impact of climate change; and
• A decrease related to the cost of assessed contributions, due to changes in the international organizations’ budgets and the impact of currency fluctuations. Payments to these international organizations are made in the prescribed currency of the assessed contributions.

Locally engaged staff pensions, insurance and social security authorities have increased by $18.1 million which is attributable to funding received to meet the expenditure 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 decreased by $34.0 million. This is due to technical adjustments to contributions to employee benefit plans. This was partially offset by a net increase due to the variation in the salary component of funding received.

Debt forgiveness to Pakistan of $22.2 million represents the available balance from previous years. For 2018-19, the opening balance was $60.1 million of which $37.9 million was used during the year.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have increased by $9.2 million. This is attributable to a net increase in Working Capital Advances to missions and employees abroad that are available for use from previous years, as well as 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.

i. Operating Expenditures

Salaries and employee benefits – The decrease of $3.9 million is related to the salary costs for the 2018 G7 summit that took place in 2018-19.

Information – The increase of $0.9 million is due to a new annual electronic database subscription, a timing difference in the payment for electronic subscriptions and an increase in spending for expositions due to the undertaking of activities in support of the Foreign Direct Investment (FDI) program.

Professional and special services – The increase of $6.7 million is explained by:

• The collaboration of Global Affairs Canada with Canada Council for the Arts in an Arts and Culture Program throughout Germany, leading up to and during the Frankfurt Book Fair in October 2020;
• The establishment and operation of 10 Canadian Representation Offices to assist in the development of trade;
• Timing differences in the payments to Other Government Departments (OGDs) to deliver Global Affairs Canada’s projects. Payments to OGDs were made earlier this fiscal year.

These increases were partly offset by a decrease of professional and special services costs related to the 2018 G7 summit that took place in 2018-19.

Rentals – The decrease of $4.9 million is explained by the foreign currency fluctuations on residential leases, as well as a decrease in the numbers of residential properties leased abroad due to purchases of staff quarters. Also contributing to the decrease is a timing difference in the payment for software contracts, as well as expenses related to the 2018 G7 summit in 2018-19.

Repair and maintenance – The decrease of $0.4 million is explained by a timing difference in the purchases for repair and maintenance at missions.

Utilities, materials and supplies – The decrease of $1.0 million is explained by a timing difference in the purchase of materials and supplies at missions, as well as the costs related to the 2018 G7 summit that took place in 2018-19.

ii. Capital Expenditures

Acquisition of land, buildings and works – The increase of $1.8 million is attributable to the acquisition of the new Official Residence in Warsaw. This increase was partly offset by the costs that were incurred in 2018-19 for the construction of the Chancery in New York.

iii. Transfer Payments

The decrease of $69.6 million is explained by a timing difference in the payment cycle for long-term institutional support projects, the World Food Programme and Canada’s Middle East Strategy.

iv. Revenues

The decrease of $9.4 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. The 2018-19 CRP identifies unique pressures associated with resource management and fiduciary oversight due to its geographically dispersed operations.

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 2019-20 will continue to 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.

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

During the quarter, changes were made to the following positions:

• The Deputy Minister of Foreign Affairs.
• The appointment of an assistant deputy minister, International Security and Political Affairs branch.
• The appointment of an assistant deputy minister, Europe, Arctic, Middle East and Maghreb branch.
• The appointment of an assistant deputy minister, Asia Pacific branch.

Approval by Senior Officials

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

Marta Morgan
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, 2019

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2019.

Departmental budgetary expenditures by standard (Unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2019.