Department of Finance Canada
Quarterly Financial Report for the Quarter Ended June 30, 2017 (unaudited)

Table of Contents

1. Introduction

2. Highlights of fiscal quarter and fiscal year-to-date results

3. Risks and Uncertainties

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

5. Approval by Senior Officials

1. Introduction

This quarterly financial report 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 Directive on Accounting Standards, GC 4400 Departmental Quarterly Financial Reports. This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates of the Department of Finance Canada.

The quarterly financial report has not been subject to an external audit or review.

1.1 Authority, Mandate and Program Activities

The Department of Finance Canada (the ‘Department’) provides the Government of Canada with high quality advice on appropriate economic, fiscal, tax, social, security, international and financial sector policies and programs with the goal of strengthening the Canadian economy and maintaining sustainable fiscal policy and social programs.

The Department’s responsibilities include the following:

  • Preparing the federal Budget and the Fall Economic Statement;
  • Preparing the Annual Financial Report of the Government of Canada and, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for Canada, the Public Accounts of Canada;
  • Developing tax and tariff policy and legislation;
  • Managing federal borrowing on financial markets;
  • Designing and administering major transfers of federal funds to the provinces and territories;
  • Developing financial sector policy and legislation; and
  • Representing Canada in various international financial institutions and organizations.

The description of the program activities for the Department can be found in Part II of the Main Estimates and the Departmental Plan.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. 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 for both fiscal years as well as transfers from Treasury Board central votes that are approved by the end of the quarter. This quarterly financial 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.

The authority of Parliament is required before monies 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 Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

1.3 Department of Finance Canada – Financial Structure

The Department has three major categories of expenditure authority. These categories are:

  • Voted budgetary authorities: included in this category are the operational expenditures of the Department itself as well as authorized expenditures under grants and contribution programs. These expenditures must be specifically approved by Parliament through an appropriation act.
  • Statutory budgetary authorities: included in this category are expenditure authorities that are granted through an existing Act of Parliament. Further parliamentary approval is not required for expenditures related to statutory amounts and it is within the normal course of business that statutory expenditures may in some cases exceed planned spending estimates. Departmental statutory payments include those made under the Federal-Provincial Fiscal Arrangements Act as well as interest incurred in connection with the public debt of Canada.
  • Non-budgetary authorities: included in this category are disbursements made by the Department which do not have a direct budgetary impact to the Government. This includes the value of loans initially disbursed to Crown Corporations participating in the Crown Borrowing Framework.

2. Highlights of fiscal quarter and fiscal year-to-date results

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates A of 2016-17.

The following graph provides a comparison of budgetary authorities available for the full fiscal year and budgetary expenditures for the first three months of 2016-17 and 2017-18. Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates.

Comparison of Budgetary Authorities and Year to Date Budgetary Expenditures for the Quarter ended June 30 of Fiscal Years 2016-17 and 2017-18
In 2016-17, Q1 Authorities were $89,464 million, Q1 Expenditures were $22,590 million. In 2015-16, Q1 Authorities were $89,646 million, Q1 Expenditures were $22,468 million.
Percentages reflect the utilization of authorities at quarter-end.

Sections 2.1 and 2.2 below highlight the significant items that contributed to the increase in the resources available from 2016-17 to 2017-18 and the increase in actual expenditures as at June 30, 2016 compared to June 30, 2017. Full details can be found in Table 1, Statement of Authorities found at the end of this document.

2.1 Authorities Analysis

Total authorities

The following table provides a comparison of cumulative authorities by vote for the current and previous fiscal years.

Comparison of Authorities Available for Use for the Year
as at June 30 of Fiscal Years 2016-17 and 2017-18
      Variance
     
Authorities Available (in millions) 2017-18 2016-17 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Authority 89.3 90.7 (1.4) -1.5%
  Statutory:        
    Major transfers to other levels of government 67,956.4 65,989.9 1,966.5 3.0%
    Interest on Unmatured Debt and Interest on Other Liabilities 21,490.0 22,782.0 (1,292.0) -5.7%
    Direct program expenses 607.9 601.2 6.7 1.1%
  Total statutory 90,054.3 89,373.1 681.2 0.8%
Total Budgetary authorities 90,143.6 89,463.8 679.8 0.8%
Non-Budgetary - - - -
Total authorities 90,143.6 89,463.8 679.8 0.8%

Authorities available in fiscal year 2017-18 are $90,143.6 million at the end of the first quarter as compared to $89,463.8 million at the end of the first quarter of 2016-17, representing an increase of $679.8 million.

Voted budgetary authorities

Total 2017-18 Vote 1 program authorities available as at June 30, 2017 are $89.3 million compared to $90.7 million for the same period in 2016-17, representing a decrease of $1.4 million. This decrease is mainly attributable to the following factors:

  • Budget 2015 Initiatives – a decrease of $1.0 million consisting of $0.6 million for the G-20 Framework Working Group and $0.4 million for the Corporate Asset Management Review; and
  • Budget 2016 reductions – a decrease of $0.5 million to professional services, advertising, and travel.

Statutory budgetary authorities

Statutory Authorities available in fiscal year 2017-18 are $90,054.3 million at the end of the first quarter compared to $89,373.1 million at the end of the same quarter of 2016-17, representing an increase $681.2 million.

This increase of $681.2 million relates to three broad categories: an increase of $1,966.5 million in major transfers to other levels of government, an increase of $6.7 million in authorities for direct program expenses and a decrease of $1,292.0 million in Interest on Unmatured Debt and Interest on Other Liabilities. Additional details are provided below.

Authorities for major transfers to other levels of government as at June 30, 2017 are $67,956.4 million compared to $65,989.9 million for the same period in 2016-17. The increase of $1,966.5 million is due to the net effect of the following increases and decreases in transfers:

Increases include:

  • Canada Health Transfer – An increase of $1,082.0 million reflecting the annual increased funding commitment in the Jobs, Growth and Long-term Prosperity Act, 2012. This program will grow based on a 3-year moving average of nominal gross domestic product, with funding guaranteed to increase by at least 3% per year;
  • Canada Social Transfer – An increase of $400.4 million reflecting the 3% annual increased funding commitment in the Jobs, Growth and Long-term Prosperity Act, 2012;
  • Fiscal Equalization – An increase of $373.2 million reflecting the 2.09% gross domestic product-based escalator being applied to the 2016-17 level;
  • Territorial Financing – An increase of $145.5 million reflecting the incorporation of new and updated data for territorial expenditure requirements and revenue capacities into the program’s legislated formula;
  • Alternative Payments for Standing Programs – A decrease in recoveries in the amount of $20.5 million is a result of a decrease in the estimated value of personal income tax points that were transferred to Quebec; and
  • Youth Allowance Recovery – A decrease in recoveries in the amount of $2.0 million reflects a decrease in the estimated value of personal income tax points that were transferred to Quebec.

Decreases include:

  • Additional Fiscal Equalization Offset Payment to Nova Scotia – A decrease of $13.3 million due to a decline in Nova Scotia's offshore oil and gas revenues. The Nova Scotia 2005 offshore arrangement provides offset payments equal to the decline in Equalization due to the inclusion of these revenues in the program; and
  • Additional Fiscal Equalization to Nova Scotia – A decrease of $43.9 million is due to new data entering the formula, which uses an average of data for three fiscal years. This program ensures that there is no reduction in combined Equalization and 2005 Offshore Accord Offset Payments relative to the previous Equalization formula (pre-2007).

Authorities for direct program expenses at the end of the first quarter of fiscal year 2017-18 are $607.9 million as compared to $601.2 million at the same period in 2016-17, representing an increase of $6.7 million. This increase of $6.7 million is due to the net effect of the following factors:

  • Domestic Coinage – An increase of $8.0 million largely due to the recently enacted amendments to the Royal Canadian Mint Act, which repealed the provision that prohibited the Mint from anticipating profit with respect to the provision of goods and services to the Government of Canada and its agents;
  • Contribution to Employee Benefit Plans – A decrease of $1.2 million primarily due to a decrease in the percentage of salary budgets devoted to benefit programs.

Authorities for the Interest on Unmatured Debt and Interest on Other Liabilities as at June 30, 2017 are $21,490.0 million compared to $22,782.0 million at the same period in 2016-17. The decrease of $1,292.0 million is mainly due to the following factors:

  • Interest on Unmatured Debt – A decrease of $764.0 million due to a downward revision of interest rates by private sector economists for 2017-18 consistent with the 2016 Fall Economic Statement being lower than the rates forecasted in the 2015 Update of Economic and Fiscal Projections; and
  • Other Interest Costs – A decrease of $528.0 million reflecting a forecasted decrease in long-term bond rates by private sector economists in the 2016 Fall Economic Statement, which affects the average long-term bond rate that is used to calculate interest on the public sector pension obligations pertaining to services pre-April 1, 2000.

Non-Budgetary Authorities

Non-budgetary authorities related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework are not reflected in the Estimates. The gross borrowing requirements for Crown Corporations are driven by the need to match the term and structure of the borrowing requirements of corporations’ clients. These activities are influenced by current and expectations of future, economic conditions and can vary greatly over a short period of time. For example, if clients of the Crown Corporation are seeking short-term, floating rate loans, the Crown Corporation will seek to match that with short-term borrowings from the government. This will result in the loan being refinanced several times through the year, with higher gross borrowings associated with a smaller net borrowing amount. This can change very quickly should market conditions suggest interest rates are going to rise and their clients seek to lock in their borrowing costs through longer term borrowings. As such, there can be very large and significant variances both inter-year and intra-year. Given the risk of forecast inaccuracy and that the gross advances to Crown Corporations are a non-budgetary item and do not impact on the net-debt of the government, the Department only reports on actual borrowings by the Crown Corporations.

2.2 Expenditure Analysis

Total Expenditures

The following table provides a comparison of cumulative spending by vote for the current and previous fiscal years.

Comparison of Year to Date Expenditures for the Quarter Ended
June 30 of Fiscal Years 2016-17 and 2017-18
      Variance
     
Year to date expenditures (in millions) 2017-18 2016-17 $ %
Budgetary        
  Voted:        
    Vote 1 - Program Expenditures 21.2 23.7 (2.5) -10.5%
  Statutory:        
    Major transfers to other levels of government 17,312.1 16,846.9 465.2 2.8%
    Interest on Unmatured Debt and Interest on Other Liabilities 5,321.2 5,669.1 (347.9) -6.1%
    Direct program expenses 85.1 50.3 34.8 69.2%
  Sub Total Statutory 22,718.4 22,566.3 152.1 0.7%
Total Budgetary expenditures 22,739.6 22,590.0 149.6 0.7%
Non-Budgetary 11,309.1 12,855.4 (1,546.3) -12.0%
Total year to date expenditures 34,048.7 35,445.4 (1,396.7) -3.9%

At the end of the first quarter of the 2017-18 fiscal year, total expenditures were $34,048.7 million compared to $35,445.4 million reported in the same period of 2016-17, representing a decrease of $1,396.7 million or 3.9%.

Voted budgetary expenditures

Total 2017-18 Vote 1 operating expenditures at the end of the first quarter were $21.2 million compared to $23.7 million for the same period in fiscal year 2016-17, representing a decrease of $2.5 million or 10.5%. The decrease is mainly attributable to:

  • $2.0 million for the Harbourfront Centre Funding Program that was transferred to Canadian Heritage in 2016-17; and
  • $0.6 million in reduced legal services expenditures.

Statutory budgetary expenditures

Total statutory expenditures at the end of the first quarter of 2017-18 are $22,718.4 million as compared to $22,566.3 million at the end of the first quarter of 2016-17 representing an increase of $152.1 million or 0.7%.

This increase is primarily attributable to an increase of $465.2 million in major transfers to other levels of government and an increase of $34.8 million in direct program expenses, offset by a decrease of $347.9 million in Interest on Unmatured Debt and Interest on Other Liabilities (decrease of $217.8 million and decrease of $130.1 million, respectively).

Expenditures related to major transfers to other levels of government as at June 30, 2017 are $17,312.1 million compared to $16,846.9 million for the same period in 2016-17 representing an increase of $465.2 million. This increase is mainly due to the following factors:

  • Canada Health Transfer – An increase of $270.5 million;
  • Canada Social Transfer – An increase of $100.1 million;
  • Fiscal Equalization – An increase of $93.3 million;
  • Territorial Financing – An increase of $56.5 million;
  • Alternative Payments for Standing Programs – An increase in recoveries of $36.7 million; and
  • Youth Allowances Recovery – A increase in recoveries of $18.4 million.

Explanations for the changes in the items listed above are consistent with the explanations found under the statutory budgetary authorities in Section 2.1.

Direct Program Expenditures at the end of the first quarter of fiscal year 2017-18 are $85.1 million as compared to $50.3 million at the same period in 2016-17, representing an increase of $34.8 million. This increase is primarily due to the net effect of the following factors:

  • Losses on Foreign Exchange – An increase of $37.9 million due to the revaluation of International Monetary Fund related accounts; and
  • Purchase of Domestic Coinage – A decrease of $2.3 million is attributable to normal variations in the demand for coinage from businesses and consumers and in the timing of costs incurred for coinage procurement throughout the year.

Expenditures for the Interest on Unmatured Debt and Interest on Other Liabilities as at June 30, 2017 are $5,321.2 million compared to $5,669.1 million at the same period in 2016-17 representing a decrease of $347.9 million. The decrease is mainly due to the following factors:

  • Interest on Unmatured Debt – A decrease of $217.8 million, largely reflecting lower Consumer Price Index adjustments on Real Return Bonds; and
  • Interest on Other Liabilities – A decrease of $130.1 million, largely reflecting a decrease in the average Government of Canada long-term bond rate, which is used to calculate interest on public sector pension obligations pertaining to service pre-April 1, 2000.

Non-budgetary expenditures

Non-budgetary expenditures at the end of the first quarter of 2017-18 are $11,309.1 million compared to $12,855.4 million at the end of the same quarter in the prior year representing a decrease of $1,546.3 million. This decrease is due primarily to the following factor:

  • a decrease of $1,547.3 million related to the value of loans disbursed to Crown Corporations participating in the Crown Borrowing Framework. Gross borrowings by Crown Corporations are based on demand and the business requirements of the participating entities, and also depend on the terms of the Crown Corporation borrowings. As such, amounts can vary significantly from year to year.

Significant Changes on the Departmental budgetary expenditures by Standard Object table

Table 2, located at the end of this report, presents Budgetary Expenditures by Standard Object (SO). The main variance in expenditures between 2017-18 and 2016-17 by standard object are as follows:

  • Transfer Payments (SO 10) – A net increase of $463.3 million of which the majority is related to an increase in the statutory expenditures pursuant to major transfers to other levels of government; and
  • Public Debt Charges (SO 11) – A decrease of $347.9 million.

The year over year variances are explained in detail in the preceding Section 2.2.

3. Risks and Uncertainties

The Department of Finance Canada’s plans and commitments respond to, and are shaped by, changes in the global economic situation and the Canadian outlook. The Department relies on the skills and experience of its employees to detect, monitor and respond to changes in the operating environment. The Department continues to focus on employee development, particularly strengthening analytical capacity. The Department also relies on close and effective collaborative relationships with partners and stakeholders to establish priorities, provide high-quality analysis, and ensure coordinated responses to urgent issues.

Planned activities in support of the Department’s objectives are also vulnerable to information technology issues. The Department relies on efficient and effective information management and technology to deliver informed policy advice and operate as an agile and responsive knowledge-based institution, while protecting its highly sensitive institutional information. Cybersecurity incidents and failures in supporting systems have been identified as risks that could cause serious disruptions and affect the Department’s ability to execute critical government operations, including tax and transfer payments, and public debt-related transactions. A Business Continuity Plan is in place to ensure that critical payments are maintained in case of a system failure. Further, the Department is committed to building on recent improvements to increase the security posture of its information technology (IT) infrastructure and ensure the effective protection of its information assets.

The Department of Finance Canada’s Corporate Risk Profile provides a snapshot of the Department’s key corporate risks. It focuses the attention and action of senior management on measures to mitigate the adverse effects of global economic uncertainty and their impact on the Canadian economy. The Department monitors its corporate risks and associated risk responses to identify areas of opportunity and to reflect progress made in implementing measures to mitigate risks.

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

The Chief Financial Officer (CFO), Christopher Meyers, left the Department on April 28, 2017. Dale Denny assumed the duties of CFO on an acting basis. In addition, Chris Forbes, Associate Deputy Minister left the Department on May 29, 2017.

5. Approval by Senior Officials

Approved by:

Original signed by
Paul Rochon, Deputy Minister
Original signed by
Dale Denny, Acting Chief Financial Officer

Ottawa, Canada
August 28, 2017

Department of Finance Canada
Quarterly Financial Report for the quarter ended June 30, 2017
Table 1 - Statement of Authorities (unaudited)
(in thousands of dollars)
Fiscal year 2017-2018 Fiscal year 2016-2017
 

Total available for use for the
year ending
March 31, 2018* 
Used during the
quarter ended
June 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
June 30, 2016
Year to date used at
quarter-end
Budgetary Authorities
  Voted authorities
    Program expenditures 89,280 21,175 21,175 90,741 23,669 23,669
 

  Total voted authorities 89,280 21,175 21,175 90,741 23,669 23,669
 

  Statutory authorities
  Major transfers to other levels of government
    Canada Health Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 37,149,703 9,287,426 9,287,426 36,067,673 9,016,918 9,016,918
    Canada Social Transfer (Part V.1 - Federal-Provincial Fiscal Arrangements Act) 13,748,395 3,437,099 3,437,099 13,347,956 3,336,989 3,336,989
    Fiscal arrangements
      Fiscal Equalization (Part I - Federal-Provincial Fiscal Arrangements Act) 18,253,657 4,563,414 4,563,414 17,880,415 4,470,104 4,470,104
      Territorial Financing (Part I.1 - Federal-Provincial Fiscal Arrangement Act) 3,681,831 1,428,550 1,428,550 3,536,328 1,372,095 1,372,095
      Statutory Subsidies (Constitution Acts, 1867-1982, and Other Statutory Authorities) 42,356 1,237 1,237 42,363 1,238 1,238
      Youth Allowances Recovery (Federal-Provincial Fiscal Revision Act, 1964) (888,654) (430,712) (430,712) (890,667) (412,317) (412,317)
    Other major transfers
      Addtional Fiscal Equalization Offset Payment to Nova Scotia (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act) 19,957 - - 33,255 - -
      Additional Fiscal Equalization to Nova Scotia (Part I - Federal-Provincial Fiscal Arrangements Act) (27,918) - - 16,026 - -
    Alternative Payments for Standing Programs (Part VI - Federal-Provincial Fiscal Arrangements Act) (4,022,927) (974,898) (974,898) (4,043,422) (938,163) (938,163)
 

  Total major transfers to other levels of government 67,956,400 17,312,116 17,312,116 65,989,927 16,846,864 16,846,864
  Interest on Unmatured Debt and Interest on Other Liabilities
    Interest on Unmatured Debt and Other Public Debt Costs 14,924,000 3,650,220 3,650,220 15,688,000 3,868,026 3,868,026
    Interest on Other Liabilities 6,566,000 1,670,960 1,670,960 7,094,000 1,801,087 1,801,087
 

  Total Interest on Unmatured Debt and Interest on Other Liabilities 21,490,000 5,321,180 5,321,180 22,782,000 5,669,113 5,669,113
  Direct program expenses
    Operating expenses
      Purchase of Domestic Coinage 104,000 25,022 25,022 96,000 27,369 27,369
      Contributions to Employee Benefit Plans 11,037 2,759 2,759 12,222 3,056 3,056
      Minister of Finance - Salary and motor car allowance 84 21 21 83 7 7
    Transfer payments
      Payments to International Development Association 441,610 - - 441,620 - -
      Debt payments on behalf of poor countries to International Organizations pursuant to section 18(1) of the Economic Recovery Act 51,200 - - 51,200 - -
    Other
      Losses on Foreign Exchange - 57,032 57,032 - 19,130 19,130
      Payment of Liabilities Previously Recorded as Revenue - 317 317 - 760 760
 

  Total direct program expenses 607,931 85,151 85,151 601,125 50,322 50,322
 

  Total statutory authorities 90,054,331 22,718,447 22,718,447 89,373,052 22,566,299 22,566,299
 

Total budgetary authorities 90,143,611 22,739,622 22,739,622 89,463,793 22,589,968 22,589,968
 

Non-budgetary authorities
    Advances to Crown corporations (Gross) - 11,306,103 11,306,103 - 12,853,434 12,853,434
    Advances pursuant to section 13(1) of the Financial Consumer Agency of Canada Act (Gross) - 3,000 3,000 - 2,000 2,000
 

Total non-budgetary authorities - 11,309,103 11,309,103 - 12,855,434 12,855,434
 

Total authorities 90,143,611 34,048,725 34,048,725 89,463,793 35,445,402 35,445,402
* Includes only Authorities available for use and granted by Parliament at quarter-end.
Note: The amounts in the Fiscal year 2016-2017 "Year to date used at quarter-end" column have been updated from the prior year report to $3,056 for Employee Benefit Plans and to $19,130 for Losses on Foreign Exchange thereby adjusting the Total for Direct Program Expenses to $50,322.

 

Department of Finance Canada
Quarterly Financial Report for the quarter ended June 30, 2017
Table 2 - Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)
  Fiscal year 2017-2018 Fiscal year 2016-2017
 

Planned expenditures for the year
ending
March 31, 2018
Expended during the
quarter ended
June 30, 2017
Year to date
used at
quarter-end
Planned expenditures for the year
ending
March 31, 2017
Expended during the
quarter ended
June 30, 2016
Year to date
used at
quarter-end
             
Expenditures:            
  Personnel 81,419 20,081 20,081 83,362 20,228 20,228
  Transportation and communications 2,802 529 529 2,884 633 633
  Information 2,133 152 152 1,580 332 332
  Professional and special services 11,759 2,249 2,249 12,519 2,841 2,841
  Rentals 1,292 387 387 1,430 393 393
  Repair and maintenance 189 9 9 68 - -
  Utilities, materials and supplies 104,361 25,035 25,035 96,440 27,413 27,413
  Acquisition of land, buildings and works - - - - - -
  Acquisition of machinery and equipment 525 34 34 820 32 32
  Transfer payments 68,449,245 17,312,116 17,312,116 66,482,782 16,848,864 16,848,864
  Public debt charges 21,490,000 5,321,180 5,321,180 22,782,000 5,669,113 5,669,113
  Other subsidies and payments 36 57,850 57,850 58 20,119 20,119
 
Total gross budgetary expenditures 90,143,761 22,739,622 22,739,622 89,463,943 22,589,968 22,589,968
Less Revenues netted against expenditures 150 -   150 - -
 
Total net budgetary expenditures 90,143,611 22,739,622 22,739,622 89,463,793 22,589,968 22,589,968
Note: The amounts in the Fiscal Year 2016-2017 "Year to date used at quarter-end" column have been updated from the prior year report to $20,228 for Personnel, $393 for Rentals, $5,669,113 for Public Debt Charges, and $20,119 for Other subsidies and payments.