Quarterly Financial Report - For the period ended September 30, 2020

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, 2020 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 2020-2021 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 September 30, 2020 are included.

i. Budgetary Authorities

Authorities for Operating Expenditures authorities have increased by $123.2 million. Items contributing to changes in operating expenditures authorities include:

• A transfer from Shared Services Canada for the cost of providing core information technology services to missions abroad;
• Transfers from other government departments to provide support to departmental staff located at missions abroad;
• An increase due to funding received for compensation related to Collective Agreements;
• Funding received for Canada’s participation in Expo 2020 Dubai, United Arab Emirates;
• Adjustments to account for Locally Engaged Staff salaries and related benefits incurred at missions abroad;
• Funding received for the new Export Diversification Strategy;
• An increase in the Operating Budget Carry-Forward amount received in 2020-21 compared to 2019-20;
• Adjustments to account for the effects of inflation on overseas operations;
• Funding received to implement the Feminist International Assistance Policy; and
• Funding received for the International Education Strategy.

These increases were partly offset by a net decrease in funding received for Ensuring Rules-Based and Responsible Trade (softwood lumber).

Capital Expenditures authorities have decreased by $0.4 million. This is attributable to a decrease in the Capital Budget Carry-Forward amount received in 2020-21 compared to 2019-20. This decrease was partly offset by an increase in the capital portion of the Duty of Care Special Purpose Allotment to support mission security abroad.

Grants and Contributions authorities have increased by $616.2 million. Items contributing to changes in grants and contributions expenditures authorities include:

• Funding received for the Feminist International Assistance Policy: Increase of $458 million; and
• A net increase in funding received to help developing countries to address the impact of climate change: Increase of $297 million.

These increases were partially offset by:

• A decrease related to the 2015-2020 Strategy for Maternal, Newborn and Child Health;
• A technical adjustment to the spending authorities for International Financial Institutions – Direct payments; 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.

ii. Budgetary Statutory Authorities

Payments to International Financial Institutions for Direct Payments have increased by $18.2 million in the anticipated payments to International Financial Institutions.

Payments for consular assistance pursuant to the Public Health Events of National Concern Payments Act have increased by $41.0 million to support consular assistance for Canadians abroad affected by the COVID-19 pandemic.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have increased by $62.9 million. Items contributing to changes in non-budgetary authorities include:

• Funding received for Loans under the International Financial Assistance Act; and
• A net increase in Working Capital Advances.

These increases were partially offset by 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 $37.1 million is explained by:

• The regular increase in locally engaged staff salaries and related benefits paid at missions abroad;
• The renewal of collective agreements which resulted in increases to Canada based staff regular pay and retroactive salary payments;
• Revised Employee Benefit Plans amounts;
• Overtime required due to COVID-19 initiatives in place by the Government of Canada (consular inquiries, repatriation of rotational staff, loans and general inquiries); and
• Creation of new security program positions and common service support.

These increases were partly offset by a timing difference in invoicing to Other Government Departments (OGDs).

Transportation and communications – The decrease of $36.7 million is explained by a significant decrease in travel costs due to the COVID-19 pandemic. These expenditures were partly offset by financial agreements made with airlines in order to repatriate Canadian citizens and permanent residents.

Information – The decrease of $2.5 million is explained by the ongoing global COVID-19 pandemic. A lot of event initiatives have been postponed to the next fiscal year  2021-2022 or have been delivered virtually, which considerably reduced costs.

Professional and special services – The decrease of $13.7 million is explained by:

• A significant decrease in hospitality costs and bilateral visits managed by the Office of Protocol;
• A decrease in training costs explained by in-class training restrictions due to the COVID-19 pandemic; and
• Timing differences in the payments to Other Government Departments (OGDs) to deliver Global Affairs Canada’s projects. Payments to OGDs were made earlier last fiscal year.

These decreases were partly offset by a timing difference in the reception of various invoices, COVID-19 pandemic expenditures and a payment made for a building project.

Rentals – The decrease of $6.2 million is explained by the ongoing global COVID-19 pandemic. A significant decrease has been observed in the number of residential properties leased abroad.

Repair and maintenance – The decrease of $2.4 million is explained by a timing difference in the purchases for repair and maintenance at missions.

Utilities, materials and supplies – The decrease of $2.5 million is explained by a timing difference in the purchases for utilities, materials and supplies at missions. These expenditures were partly offset by an increase in the purchase of Personal protective equipment (PPE) for employees due to the COVID-19 pandemic.

Other – The decrease of $2.9 million is mainly explained by a court settlement payment occurred in the previous year 2019-20. The decrease was partly offset by an increase in payments made under a special financial assistance program: the COVID-19 Emergency Loan Program for Canadians Abroad.

ii. Capital Expenditures

Acquisition of land, buildings and works – The decrease of $4.4 million is attributable to the acquisition of the new Official Residence in Warsaw in 2019-2020.

Acquisition of machinery and equipment – The increase of $6.0 million is due to the acquisition of equipment to accommodate teleworking. These expenditures were partly offset by a timing difference in the reception of various invoices.

iii. Transfer Payments

The increase of $158.9 million is mainly explained by a payment made for the Partnership for Gender Equality which is part of the Feminist International Assistance Policy. This payment was partly offset by a timing difference in the payment cycle and delays in numerous projects resulting from the COVID-19 pandemic.

iv. Revenues

The increase of $9.4 million 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

COVID-19

The coronavirus (COVID-19) is impacting organizations globally; including Global Affairs Canada. The duration and the overall impact of the COVID-19 outbreak is unknown at this time. However, numerous activities and available resources were impacted by the COVID-19 context (e.g. the repatriation effort, management of a new Emergency Loan Program, additional overtime required, additional consular inquiries, decrease in travel costs, delays in numerous projects, change in work practices, decrease in hospitality costs and bilateral visits, etc.). The overall effect of these events on the Department and its operations is too uncertain to be estimated at this time. The impacts will be accounted for when they are known and may be assessed.

For the year ended March 31, 2020, and for a new initiative in support of Canada's COVID-19 pandemic response, the Department received the approval and funding of $33,200,000 for the Repatriation of Canadians stranded abroad. The funding was increased by an additional $41,000,000 during the first quarter of fiscal year 2020-2021.

In October 2020, the Department launched the department’s 2021-22 corporate planning process. This latter is based on a scenario process, endorsed by the Corporate Management Committee (CMC) and will results in more robust plans and will give our staff the skills to be flexible and adaptive thinkers in this pandemic context. This new approach will:

• Present an occasion to plan effectively and reduce risk given the uncertainties introduced by the COVID-19 crisis;
• Allow bureaus to reflect on what was learned over the past months, and to think innovatively on how to adapt our priorities, commitments and how we work; and
• Feed valuable information to corporate enablers (such as IM/IT, HR, finance) to help them better support the department under changing circumstance.

Internal controls over financial reporting (ICFR) risks related to the COVID-19 pandemic responses have been identified and included in the ICFR monitoring plan in the 2019-2020 Annex to the Statement of Management Responsibility including Internal Control Over Financial Reporting. The Department will continue to monitor the changes to GAC’s Internal Control Over Financial Reporting environment that may be due to the pandemic response.

As the Department navigates through this new reality, risk management is conducted across the department to offer continuous support to officials in view of optimizing timely risk identification, assessment and mitigation strategies, while ensuring robust financial planning and oversight.

Other risks and uncertainties

As a federal department delivering a complex mandate in a rapidly changing international environment, GAC’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.

Risk management is framed by the overarching Enterprise Risk Management Strategy that guide the Department in managing risks that affect strategic plans and priorities. The department’s Strategic Risk Landscape and the Enterprise Risk Profile identify 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. The current pandemic context, however, adds uncertainty to the level of expenditure forecasts and potential surpluses. The Department is in the process of implementing certain strategies to identify investment opportunities and reduce the risk of exceeding the maximum budget carry forward. 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.

GAC has applied a range of measures to manage the risks associated with fraud, such as increased training on fraud awareness and detection. A remote mission audit will be conducted this year and the inspections of management executives of a sample of missions is planned in order to identify, among other things, the practices and controls of the risk factors considered to be the highest. Additional measures are being implemented, including: a Case Study to raise awareness; 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 Department has fully implemented the recommendations from the Office of the Auditor General audit on Fraud Risk Management. These actions include improvements in the areas of training, communications, data analytics and client tools; the development of a comprehensive fraud risk management framework (including for grants and contributions); addressing system vulnerabilities and gaps in oversight; and updating the departmental Fraud Risk Assessment. A Grants and Contributions Fraud Protocol Framework was approved and procedures are currently being developed on how to deal with potential cases of fraud. In addition, a new grants and contributions Fraud Management Unit has been established to manage all allegations of fraud and mismanagement, as well as to build capacity to prevent and identify fraud.

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

During the quarter, a change occured in relation to the following position:

• Appointment of a new Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology.

Approval by Senior Officials

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

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette
Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology

Ottawa, Ontario
Date: November 27, 2020

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at September 30, 2020

Departmental budgetary expenditures by standard object (Unaudited)

This table includes authorities available for use and granted by Parliament as at September 30, 2020.