Foreign Affairs and International Trade Canada Quarterly Financial Report

For the quarter ended September 30, 2012

Statement outlining results, risks and significant changes in operations, personnel and program

1. Introduction

This report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by Treasury Board. The report has not been subject to an external audit or review, and should be read in conjunction with the Main Estimates, Supplementary Estimates A, the Quarterly Financial Reports from fiscal year 2011-12 as well as Canada’s Economic Action Plan 2012 (Budget 2012).

A summary description of the department's program activities can be found within the 2012-13 Estimates, Part II - The Main Estimates.

A. 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 and Supplementary Estimates for the 2012-13 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.

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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in Budget 2012 could not be reflected in the 2012-13 Main Estimates.

In fiscal year 2012-13, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament

The department uses the full accrual method of accounting to prepare and present its annual consolidated departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis and this report has been prepared on that basis.

B. Financial Structure

The department has one revolving fund, Passport Canada, which is included in the statutory authorities in the accompanying Statement of Authorities. Passport Canada (PPT) is expected to be financially viable, meaning that the full cost of its operations should be equal to its revenue. To support any deficit, PPT has a drawdown authority by which the aggregate of expenditures incurred within the fund may exceed the revenues.

2. Highlights of fiscal quarter and fiscal year to date (YTD) results

The department has spent slightly less of its authorities provided in the first two quarters of this year (32%), compared to the same period of the previous fiscal year (35%).

Operating expenditures (Vote 1) are at 41% of the annual budget, while Capital expenditures (Vote 5) and Grants and Contributions (Vote 10) are significantly lower, at 25% and 19% respectively. Capital expenditures are normally quite low at this point in the fiscal year because of the timing of projects. A significant portion of Grants and Contributions relate to assessed contributions to international organizations which are not paid until the fourth quarter of each year. Vote 15 (Vote 17 in 2011-12) was transferred from Treasury Board Secretariat (TBS) through the Supplementary B process during the third quarter of 2011-12, hence the balance as of September 30, 2011 is NIL. This vote is to fund the provision of pensions, insurance and social security for locally engaged staff.

A. Significant Changes to Authorities

As at September 30, 2012, total authorities available for use by the department have decreased by $31 million compared to the same period in the prior year:

Table 1: Significant Changes to Authorities
Authorities2012-13*2011-12Variances%
* Total available for use does not reflect measures announced in Budget 2012.
Vote 1 - Net Operating expenditures1,431,1091,450,678(19,569)(1%)
Vote 5 - Capital expenditures201,519253,713(52,194)(21%)
Vote 10 - Grants and contributions858,977879,830(20,853)(2%)
Vote 15 - Locally engaged staff pensions, insurance and social security50,779-50,779100%
Budgetary statutory authorities153,318140,70912,6099%
Non-budgetary authorities26,03627,892(1,856)(7%)
Total Authorities2,721,7382,752,822(31,084)(1.1%)
i. Budgetary Authorities

Vote 1 – Net Operating expenditures authorities have decreased by $20 million mainly due to the transfer of $57 million of funding to Shared Services Canada, an adjustment (reduction) of $14 million for currency exchange fluctuations on expenditures abroad and reimbursement for severance and maternity expenditures of $16 million which will be received in Q3 this year opposed to Q2 last fiscal year. These reductions were offset by new funding of $49 million for various initiatives such as:

  • Canada’s engagement in Afghanistan;
  • Foreign inflation on operations abroad;
  • Transfers from partner departments to support their staff abroad
  • Strengthening security at missions abroad; and
  • Funding related to government advertising programs.

There was also an increase of $18 million due to the Operating Budget Carry Forward compared to the same period in the prior year.

Vote 5 – Capital expenditures authorities have decreased by $52 million mainly due to $40 million of decreased funding for specific projects. This was offset by incremental funding of $30 million for strengthening security at missions abroad and transfers from partner departments to support their staff abroad. The remaining difference is due to a reduction in the Capital Budget Carry Forward of $42 million compared to the same period in the prior year.

Vote 10 – Grants and Contributions authorities have decreased by $21 million mainly due to an adjustment of $55 million to budgetary requirements for assessed contributions to international organizations. This reduction is due to currency fluctuations. This was offset by new funding of $34 million for various initiatives such as:

  • Canada Fund for Local Initiatives;
  • Canada’s engagement in Afghanistan;
  • Funding for activities related to the prevention of Human Smuggling and Illegal Migration; and,
  • International Science and Technology Partnership Programs.

Vote 15 – Locally engaged staff pension, insurance and social security programs

Funding for Locally engaged staff pension, insurance and social security programs was transferred to the department from TBS through the Supplementary Estimates B under Vote 17 in the third quarter of 2011-12. This year, the funding was approved through the Main Estimates under Vote 15.

ii. Budgetary Statutory Authorities

The total available for use as of September 30, 2012 increased by $13 million mainly due an increase of $22 million to the forecasted deficit of the Passport Office Revolving Fund, due to the implementation of the ePassport initiative. This was offset by a decrease of $9 million to the employee benefit plan (EBP) budgetary requirements for DFAIT.

iii. Non-budgetary Authorities

The department’s non-budgetary authorities decreased by $2 million as at September 30, 2012, compared to the same quarter in the previous year. This decrease is attributable to a decrease in the Working Capital Advances for loans and advances to personnel and posts abroad.

B. Significant changes to budgetary expenditures by standard object

i. Expenditures
Table 2: Significant Changes to Budgetary Expenditures by Standard Object
(In thousands of dollars)Year to date used at quarter end 2012-13Year to date used at quarter end 2011-12Difference%
Expenditures
Salaries and employee benefits534,193543,321(9,128)(2%)
Transportation and communications59,18879,277(20,089)(25%)
Information4,2294,838(609)(13%)
Professional and special services89,13077,62211,50815%
Rentals105,717107,175(1,458)(1%)
Repair and maintenance11,24918,404(7,155)(39%)
Utilities, materials and supplies34,25726,0658,19231%
Other3,2194,852(1,633)(34%)
Total Operating841,182861,554(20,372)(2%)
Acquisition of land, buildings and works24,5729,19915,373167%
Acquisition of machinery and equipment14,08716,387(2,300)(14%)
Total Acquisition38,65925,58613,07351%
Transfer payments165,081227,593(62,512)(27%)
Total Gross Budgetary Expenditures1,044,9221,114,733(69,811)(6%)
Less Revenues Netted Against Expenditures181,014167,81813,1968%
Revenues----
Total Net Budgetary Expenditures863,908946,915(83,007)(9%)

Salaries and employee benefits - The $9 million decrease in expenses is mainly due to the non-recurrence of 2011-12 severance payments with respect to collective agreements and the transfer of employees to Shared Services Canada (SSC). These decreases were partially offset by an increase in expenses due to the transfer of the new Vote 15 – Locally engaged staff pensions, insurance and social security program.

Transportation and communications - The $20 million decrease is mainly due to the transfer of communication services to SSC (Blackberry and telephone services) as well as an overall decrease in travel due to the departmental travel restrictions which were put in place in February 2012.

Professional and special services- The increase of $12 million is mainly due to augmented security services in security challenged missions, as well as architectural services abroad (e.g.; London, Nairobi, Kabul), and information technology and telecommunications services (related to RDIMS license renewal and the new ePassport).

Acquisition of land, building, works, machinery and equipment- The increase of $13 million is mainly due to the acquisition of staff quarters in Oslo, Berlin and Beirut.

Transfer payments- The decrease of $63 million is mainly due to a lower level of assessed contributions for UN peacekeeping operations. Amounts paid fluctuate year to year and depend on the decisions taken by the UN Security Council.

ii. Revenues

The increase of $13 million in revenues is mainly due to an increase in Passport sales.

3. Risks and Uncertainties

This quarterly report reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released, along with the Supplementary Estimates A on June 29, 2012.

Like other federal government organizations, DFAIT faces budget constraints. The majority of its salary, operating and capital expenditures are funded through voted authorities. Over the last few years, the federal government has announced a series of initiatives and realignment strategies to renew and modernize its expenditure management system to ensure value for money of federal expenditures while operating more efficiently.

DFAIT has been examining how it can improve its alignment with government policy and management priorities, and has been looking at more efficient ways of doing business and delivering services. The department has also taken steps to address the cumulative impact of successive rounds of government-wide reduction exercises. In managing these reductions, DFAIT has rigorously examined its programs for efficiency, effectiveness and continued relevance to government priorities.

DFAIT currently faces the likelihood of pressures against its authorities for the foreseeable future. Budget 2010 Cost Containment Measures requires the department to finance, on a permanent basis, the costs of wage increases resulting from current and future collective agreements negotiated between 2010-11 and 2012-13; additionally, the Administrative Services Review (ASR) may have future impacts on the organization and delivery of corporate services. The implementation of these efficiency measures could have an impact on the department's workforce. The ongoing impact of these measures coupled with an ongoing requirement to reallocate funds to meet emerging priorities will likely continue to put pressure on the department's envelope.

Furthermore, as announced in Canada’s Economic Action Plan (Budget 2012), the government has completed a strategic and operating review of the cost of programs delivered by the federal government. Refer to Section 5 for further details.

In recognition of this tightening fiscal environment, DFAIT will continue to examine its departmental program spending, making reallocations against identified priorities. The department will continue to implement strategies to mitigate and manage the impact of these efficiency measures to achieve the best results for Canadians

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

i. Shared Services Canada

Pursuant to s. 31.1 of the Financial Administration Act and Order-in-Council P.C. 2011-1297 effective November 15, 2011, the department transferred some responsibility for Informatics Hardware and Software to Shared Services Canada (SSC), including the stewardship responsibility for the assets and liabilities related to the program. Since the transfer did not take effect until the third quarter of fiscal year 2011-12, all 2011-12 figures in the Statement of Authorities and Table 1 include amounts relating to SSC, whereby the 2012-13 figures exclude SSC expenditures. Fiscal year 2011-12 figures will be adjusted in the Third Quarter to reflect this transfer.

5. Budget 2012 Implementation

This section provides an overview of the savings announced in Budget 2012 that are being implemented within DFAIT. The goal is to modernize and align operations and advance Canadian values and priorities while reducing the costs of maintaining our presence in Canada and abroad; without affecting services to Canadians.

Foreign Affairs and International Trade Canada’s savings will be:

  • $71.8 million in 2012-13;
  • $115.7 million in 2013-14; and,
  • $168 million in 2014-15 and ongoing.

Horizontal initiative review of the International Assistance Envelope savings will be:

  • $15.5 million in 2012-13;
  • $28.8 million in 2013-14; and,
  • $29.1 million in 2014-15.

Since April 1, 2012, substantial savings at headquarters and abroad have been achieved via:

  • The reorganization and consolidation of organizations within the department;
  • The alignment of organizations with a Financial Management Advisor Model that will result in stronger financial stewardship;
  • A department-wide reduction in the travel budget that will be mitigated through enhanced access to video-conferencing technology at missions, regional offices and headquarters;
  • A reduction in the amount of office space DFAIT leases in the National Capital Region;
  • A reduction of our vehicle fleet at our missions;
  • Phasing out the international Canadian studies program, and reducing the funding and geographic scope of the International Scholarships Program;
  • Restructuring and modernizing of the regional offices across Canada to align their operations with other stakeholders to best advance Canadian priorities, while reducing costs; and,
  • Closing of some missions abroad; the Consulate General in Buffalo; Anchorage, Philadelphia, Phoenix and Raleigh-Durham missions; and, Princeton (satellite office).

Budget 2012 announced that the department would sell some official residences abroad and move to more practical and economical ones, generating capital revenue of $80 million. As noted above, many of the savings initiatives result from the department restructuring its Canadian offices, foreign properties and missions to provide better value for money and increased operating efficiencies, while maintaining service to Canadians.

There were no significant financial impacts in the second quarter on the department’s authorities due to Budget 2012 decisions. The balance of the 2012-13 Budget 2012 savings will be reflected in subsequent quarterly financial reports.

The department has put in place rigorous planning, monitoring and financial risk management measures to achieve the budgetary savings as expected.

6. Approval by Senior Officials

Approved, as required by the Policy on Financial Resource Management, Information and Reporting:

Simon Kennedy
Deputy Minister of International Trade

Morris Rosenberg
Deputy Minister of Foreign Affairs

Nadir Patel
Chief Financial Officer and Assistant Deputy Minister,
Corporate Planning, Finance and Human Resources

Ottawa, Ontario
November 29, 2012

Table 3: a) Statement of Authorities (Unaudited)
(In thousands of dollars)Fiscal year 2012-2013Fiscal year 2011-2012
Total available for use for the year ending March 31, 2013* **Used during the quarter ended September 30, 2012Year to date used at quarter endTotal available for use for the year ending March 31, 2012*Used during the quarter ended September 30, 2011Year to date used at quarter end
* Includes only Authorities available for use and granted by Parliament at quarter-end.
** Total available for use does not reflect measures announced in Budget 2012.
Vote 1 - Net Operating expenditures1,431,109297,549583,3441,450,678335,300618,340
Vote 5 - Capital Expenditures201,51927,20250,740253,71323,41234,964
Vote 10 - Grants and contributions858,977149,198165,054879,830178,271227,549
Vote 15 - Locally engaged staff pensions, insurance and social security50,77910,93822,094--66,062
Budgetary statutory authorities153,31830,16642,676140,7038,350-
Total Budgetary authorities2,695,702515,053863,9082,724,930575,333946,915
Non-budgetary authorities26,036(3,396)2,51127,892(2,590)10,151
Total Authorities2,721,738511,657866,4192,752,822572,743957,066
Table 4: b) Departmental Budgetary Expenditures by Standard Object (Unaudited)
(In thousands of dollars)Fiscal year 2012-2013Fiscal year 2011-2012
Planned expenditures for the year ending March 31, 2013* **Expended during the quarter ended September 30, 2012Year to date used at quarter endPlanned expenditures for the year ending March 31, 2012*Expended during the quarter ended September 30, 2011Year to date used at quarter end
* Includes only Authorities available for use and granted by Parliament at quarter-end.
** Total available for use does not reflect measures announced in Budget 2012.
Expenditures
Salaries and employee benefits1,043,971267,662534,1931,039,555280,338543,321
Transportation and communications194,69628,85859,188195,57144,00879,277
Information29,9933,0314,22923,2572,9614,838
Professional and special services315,05352,52589,130275,75648,56377,622
Rentals238,51548,509105,717240,03350,996107,175
Repair and maintenance47,0766,53811,24935,25213,02018,404
Utilities, materials and supplies91,73018,62334,25788,62614,70026,065
Acquisition of land, buildings and works144,86311,03824,572128,3795,5619,199
Acquisition of machinery and equipment72,8909,45514,087147,05811,49816,387
Transfer payments859,227149,207165,081880,080178,302227,593
Other14,5381,7813,2195,5502,8784,852
Total gross budgetary expenditures3,052,551597,2271,044,9223,059,117652,8251,114,733
Less revenues netted against expenditures------
Revenues356,84982,174181,014334,18777,492167,818
Total revenues netted against expenditures356,84982,174181,014334,18777,492167,818
Total Net Budgetary Expenditures2,695,702515,053863,9082,724,930575,333946,915