Foreign Affairs, Trade and Development Canada Quarterly Financial Report

For the quarter ended September 30, 2013

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 and the previous Quarterly Financial Report for the current year as well as Canada’s Economic Action Plan 2012 (Budget 2012).

A summary description of the department's programs can be found within the 2013-14 Estimates, Part II - The Main Estimates of the former Department of Foreign Affairs and international Trade (DFAIT) and the former Canadian International Development Agency (CIDA).

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 Estimates and Supplementary Estimates for the 2013-14 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 moneys 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 2012-2013, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-2014, the changes to departmental authorities were reflected in the 2013-2014 Main Estimates tabled in Parliament.

The Department (DFATD) 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.

B. Financial Structure

The department had one revolving fund, Passport Canada, which is still included in DFATD’s statutory authorities in the accompanying Statement of Authorities. As mentioned in Section 4, the Passport revolving fund has been transferred to Citizenship and Immigration Canada and Employment and Social Development Canada. Passport Canada (PPTC) is expected to be financially viable, meaning that the full cost of its operations should be equal to its revenue. To support any deficit, PPTC has a drawdown authority by which the aggregate of expenditures incurred within the fund may exceed the revenues. On an interim basis, DFATD will continue to report Passport’s authorities and expenditures until the transfer of its authorities and expenditures to the receiving departments is made effective through the supplementary estimates.

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

Including the former Canadian International Development Agency (CIDA) results for comparison purposes, the department spent slightly more of its budgetary and non-budgetary authorities at September 30, 2013 ($2 billion) as compared to the same period last year ($1.9 billion).

A. Significant changes to Authorities

As at September 30, 2013 and as shown in the appended Statement of Authorities, total authorities available for use by the department have increased by $2.2 billion as compared to the same period last year. This increase is the result of the amalgamation with CIDA ($2.6 billion) offset by a reduction to DFATD’s authorities ($363 million). The following table shows the authorities of the combined entities (CIDA and DFAIT) over two years, on a comparable basis:

Table 1: Authorities
(In thousands of dollars)DFATDCIDA (1st Quarter)TotalDFAITCIDATotalVariances%
Operating expenditures1,368,47438,2221,406,6961,431,109194,2541,625,363(218,667)(13%)
Capital expenditures165,510-165,510201,519-201,519(36,009)(18%)
Grants and contributions3,010,876404,0443,414,920858,9773,115,2363,974,213(559,293)(14%)
Locally engaged staff pensions, insurance and social security65,380-65,38050,779-50,77914,60129%
Budgetary statutory authorities218,712250,200468,912153,318298,198451,51617,3964%
Non-budgetary authorities81,28629,291110,57726,03683,307109,3431,2341%
Total Authorities4,910,238721,7575,631,9952,721,7383,690,9956,412,733(780,738)(12%)
i. Budgetary Authorities

Operating expenditures authorities have decreased by $219 million. The decrease is mainly due to the reductions to authorities due to Budget 2012 cost containment measures, decreased funding to the Global Peace and Security Fund, as well as a carry forward amount received in Quarter 2 in 2012-13 that did not occur in 2013-14.

Capital expenditure authorities have decreased by $36 million mainly due to a transfer from Capital to Operating expenditure authorities as part of the implementation of a common definition of capital expenditures as well as a funding transfer to Shared Services Canada (SSC).

Grants and contributions authorities have decreased by $559 million due to the reduction to authorities due to Budget 2012 cost containment measures for the International Assistance Envelope, decreased funding for the Climate Change Initiative (multi-year fund established in 2012-13), as well as the sunsetting of various programs.

Locally engaged staff pension, insurance and social security programs authorities increased by $15 million due to an increase in funding requirements.

ii. Budgetary Statutory Authorities

The total Statutory Authorities available as of September 30, 2013 increased by $17 million mainly due to the increase resulting from the revaluation of CIDA’s investments and advances to International Financial Institutions denominated in foreign currencies, at the time of their transfer to the department, offset by lower obligations to the World Bank for the Advance Market Commitment (AMC).

iii. Non-budgetary Authorities

The department’s non-budgetary authorities increased by $1 million as at September 30, 2013, compared to the same quarter of the previous year.

B. Significant changes to budgetary expenditures by standard object

i. Expenditures

The following table shows the budgetary expenditures of the combined entities (CIDA and DFAIT) over two years, on a comparable basis:

Table 2: Expenditures
(In thousands of dollars)Fiscal Year 2013-14Fiscal Year 2012-13Variance%
DFATDCIDA (1st quarter)Year to date used at quarter endDFAITCIDAYear to date used at quarter end
Expenditures
Salaries and employee benefits572,90540,240613,145534,19390,407624,600(11,455)2%
Transportation and communications63,6141,25964,87359,1882,55761,7453,1285%
Information3,90353,9084,229304,259(351)(8%)
Professional and special services104,5861,538106,12489,1304,16393,29312,83114%
Rentals110,115522110,637105,7171,033106,7503,8874%
Repair and maintenance11,85332612,17911,24978712,0361431%
Utilities, materials and supplies32,3965332,44934,25715434,411(1,962)(6%)
Other1,70829,20830,9163,219403,25927,657849%
Total Operating901,08073,151974,231841,18299,171940,35333,8784%
Acquisition of land, buildings and works17,900-17,90024,572-24,572(6,672)(27%)
Acquisition of machinery and equipment10,8011510,81614,0875014,137(3,321)(23%)
Total Acquisition28,7011528,71638,6595038,709(9,993)(26%)
Transfer payments618,326619,3001,237,626165,081865,2791,030,360207,26620%
Total gross budgetary expenditures1,548,107692,4662,240,5731,044,922964,5002,009,422231,15112%
Less Revenues netted against expenditures
PPT Respendable Revenue218,008-218,008150,234-150,23467,77445%
Revenue Credited to the Vote31,135-31,13530,780-30,7803551%
Total net budgetary expenditures1,298,964692,4661,991,430863,908964,5001,828,408163,0229%

Professional and special services - The increase of $13 million is due to the introduction of a monthly accrual for services provided to Passport by Shared Services Canada and to costs related to the ePassport initiative.

Utilities, materials and supplies - The decrease of $2 million is mainly due to the non-recurring purchase of materials and supplies in 2012-13 for use in the production of the ePassport.

Other – The increase of $28 million is mainly due to the revaluation of former CIDA’s investments and advances to International Financial Institutions denominated in foreign currencies at the time of their transfer to DFATD.

Acquisition of land, building and works - The decrease of $7 million is mainly due to the non-recurring costs of acquisition and construction of the official residence in Oslo and staff quarters in Beirut and Berlin during the same period last year.

Acquisition of machinery and equipment - The decrease of $3 million is mainly due to the acquisition of machinery and equipment for the ePassport initiative during the same quarter last year.

Transfer payments – The net increase of $207 million is due to an increase in United Nations peacekeeping operations, as well as the timing of some disbursements of grants and contributions, both partly offset by the decrease in disbursements for the Climate Change Initiative.

ii. Revenues

The increase of $68 million in Passport revenues is mainly due to the new passport fee structure effective July 2013.

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.

Like other federal government organizations, DFATD faces budget constraints. The majority of its salary, operating, capital and grants and contributions 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.

DFATD 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. DFATD systematically works with its partners to identify, assess, monitor and manage inherent risks to optimize its results. The department has also taken steps to address the cumulative impact of successive rounds of government-wide reduction exercises. In managing these reductions, DFATD has rigorously examined its programs for efficiency, effectiveness and continued relevance to government priorities.

DFATD currently faces the likelihood of pressures against its authorities for the foreseeable future as the department continues to implement the efficiency measures approved in Budget 2012 Canada’s Economic Action Plan. 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. In addition, the international development portfolio faces its own inherent risks. Because of the nature of development work, substantial risks are associated with both operating and partner activities. These risks are managed to the degree possible and closely monitored in all cases, but are inherent to pursuing development results.

In recognition of this tightening fiscal environment, DFATD 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. Amalgamation of Foreign Affairs and International Trade Canada (DFAIT) with the Canadian International Development Agency (CIDA)

To promote greater international policy coherence and achieve improved outcomes for Canadians, the Government tabled legislation as part of the Budget Implementation Act to move forward with the commitment made in Economic Action Plan 2013 to amalgamate CIDA and DFAIT.

On June 26, 2013, the Governor General gave Royal Assent to Bill C-60, creating the new Department of Foreign Affairs, Trade and Development (DFATD). Canada now has a single integrated foreign affairs, trade and development department. The new department has foreign policy responsibilities that range from advancing Canadian values and interests, providing international development and humanitarian assistance, providing consular services to Canadians, promoting Canadian trade and investment and pursuing Canada’s economic prosperity agenda through international trade. Canada's Economic Action Plan 2013 outlines the government's plans to better align Canada's foreign policy, trade, and development interests.

ii.Transfer of the Passport Revolving Fund to Citizenship and Immigration Canada and Employment and Social Development Canada

Pursuant to Order in Council P.C. 2013-0540, effective July 2, 2013, authority to make expenditures out of the Consolidated Revenue Fund for the purpose of the operation of central and regional passport offices in Canada and the authority to spend any revenue received for this purpose was transferred to Department of Citizenship and Immigration Canada and Department of Employment and Social Development Canada.

iii. Key Senior Personnel Change

On July 15, 2013, the Prime Minister appointed the Honourable Christian Paradis as Minister of International Development and Minister for la Francophonie.

On November 4, 2013, Daniel Jean became Deputy Minister of Foreign Affairs.

5. Budget 2012 Implementation

This section provides an overview of the savings announced in Budget 2012 that are being implemented within the Department of Foreign Affairs, Trade and Development (DFATD). Following the announcement in Budget 2013, the savings initiatives reported below comprise those announced in Budget 2012 under the former Department of Foreign Affairs and International Trade (DFAIT) and the former Canadian International Development Agency (CIDA).

The new department had Budget 2012 savings of $240 million during 2012-2013 and will achieve savings of $336.1 million in 2013-2014 and $516.3 million in 2014-2015 and ongoing. These savings include those resulting from the horizontal review of the International Assistance Envelope (IAE). This review was driven by three criteria: alignment to the Government of Canada’s priorities, foreign policy and international assistance commitments; demonstration of effectiveness and tangible results; and, efficiency and value for money. Since April 1, 2012, the department has achieved substantial savings through modernizing its operations, restructuring its Canadian offices, foreign properties and missions, reducing the back office and transforming how it works internally to achieve efficiencies and adjusting programming. Key initiatives undertaken to date are:

  • Continuing the Global Partnership Program, a significant foreign policy initiative under the IAE, at a reduced level;
  • Introducing a regional network model for missions in Europe and the United States that centralizes resources and capabilities in larger missions and allows for reductions in other missions;
  • Reducing the number of Canada-based staff (CBS) positions at missions, in some cases by converting them to locally engaged staff (LES) positions to reduce costs related to deployment of staff abroad;
  • Closing of some missions abroad: the Consulate General in Buffalo; Anchorage, Philadelphia, Phoenix and Raleigh-Durham missions; and Princeton (satellite office). Despite having closed the Consulate General in Buffalo and the Consulate in Philadelphia, the department is keeping a cost-effective trade-focused presence in these cities;
  • Winding down country programs in eight countries of modest presence: Cambodia, China, Malawi, Nepal, Niger, Rwanda, Zambia, and Zimbabwe. Development assistance will continue to contribute to poverty reduction efforts in these countries and regions through multilateral and Canadian partners;
  • Consolidating regional programming in Africa into a single entity – the Pan-Africa regional program. Program budgets have been reduced in the Southeast Asia regional program and in a number of countries: Bolivia, Ethiopia, Mozambique, Pakistan, South Africa, and Tanzania. Programming in these countries will remain significant and will continue to make a meaningful difference toward poverty reduction;
  • Continuing to strengthen its focus on countries where it can have a real impact and increase the impact of Canada’s international assistance dollars;
  • Reducing and consolidating Canada’s contribution to a number of multilateral and global programs. In particular, DFATD had reduced funding and streamlined support for multilateral initiatives; and certain voluntary contributions will wind down; and
  • Continuing to respond to humanitarian crises, if and when they occur.

There were no significant financial impacts in the first two quarters of 2013-14 on the department’s authorities due to Budget 2012 decisions. The balance of the 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. The savings targets are on track. The deemed appropriations transferred from CIDA to the department are net of the Budget 2012 measures. There are no financial risks or uncertainties related to these savings.

Appendices

Table 3: Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars)Fiscal year 2013-2014Fiscal year 2012-2013
Planned expenditures for the year ending March 31, 20142 4Expended during the quarter ended September 30, 20133Year to date used at quarter end3Planned expenditures for the year ending March 31, 20131Expended during the quarter ended September 30, 2012Year to date used at quarter end
1 Planned expenditures do not reflect measures announced in Budget 2012.
2 Pursuant to Order in Council P.C. 2013-0540, effective July 2, 2013 authority to make expenditures out of the Consolidated Revenue Fund for the purpose of the operation of central and regional passport offices in Canada and the authority to spend any revenue received for this purpose was transferred to Department of Citizenship and Immigration Canada and Department of Employment and Social Development Canada. However, theses forecasted amounts are included in the department's financial tables.
3 Includes amounts incurred upon the transfer of Passport Canada to Department of Citizenship and Immigration Canada and Department of Employment and Social Development Canada effective July 2, 2013.
4 Pursuant to s. 18 of An act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures effective June 26, 2013, $135,519,300 is deemed to have been appropriated to the Department of Foreign Affairs, Trade and Development as Vote 1 Operating Expenditures and $2,315,222,400 is deemed to have been appropriated to the Department of Foreign Affairs, Trade and Development as Vote 10 Grants and contributions, which results in a reduction for the same amounts in the Canadian International Development Agency’s Vote 25 Operating expenditures and Vote 30 Grants and contributions, Appropriation Act No. 1, 2013-14.
Expenditures
Salaries and employee benefits1,110,646305,780572,9051,043,971267,662534,193
Transportation and communications133,59537,31363,614194,69628,85859,188
Information18,7951,4063,90329,9933,0314,229
Professional and special services279,76262,214104,586315,05352,52589,130
Rentals283,10558,160110,115238,51548,509105,717
Repair and maintenance43,2347,95611,85347,0766,53811,249
Utilities, materials and supplies75,02716,67532,39691,73018,62334,257
Acquisition of land, buildings and works76,67711,34617,900144,86311,03824,572
Acquisition of machinery and equipment89,6126,75810,80172,8909,45514,087
Transfer payments3,059,725612,565618,326859,227149,207165,081
Other4,4581,1351,70814,5381,7813,219
Total gross budgetary expenditures5,174,6361,121,3081,548,1073,052,551597,2271,044,922
Less revenues netted against expenditures
PPT Respendable Revenue285,359147,072218,008356,84969,897150,234
Revenue Credited to the Vote60,3254,55031,135-12,27730,780
Total revenues netted against expenditures345,684151,622249,143356,84982,174181,014
Total net expenditure budget4,828,952969,6861,298,9642,695,702515,053863,908
Table 4: Statement of Authorities (unaudited)
(in thousands of dollars)Fiscal year 2013-2014Fiscal year 2012-2013
Total available for use for the year ending March 31, 20141 3 5Used during the quarter ended September 30, 20134Year to date used at quarter end4Total available for use for the year ending March 31, 20131 2Used during the quarter ended September 30, 2012Year to date used at quarter end
1 Includes only Authorities available for use and granted by Parliament at quarter-end.
2 Total available for use does not reflect measures announced in Budget 2012.
3 Pursuant to Order in Council P.C. 2013-0540, effective July 2, 2013 authority to make expenditures out of the Consolidated Revenue Fund for the purpose of the operation of central and regional passport offices in Canada and the authority to spend any revenue received for this purpose was transferred to Department of Citizenship and Immigration Canada and Department of Employment and Social Development Canada. However, these forecasted amounts are included in the department's financial tables as part of the Passport Office Revolving Fund budgetary statutory authority.
4 Includes amounts incurred upon the transfer of Passport Canada to Department of Citizenship and Immigration Canada and Department of Employment and Social Development Canada effective July 2, 2013 as part of the Passport Office Revolving Fund budgetary statutory authority.
5 Pursuant to s. 18 of An act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures effective June 26, 2013, $135,519,300 is deemed to have been appropriated to the Department of Foreign Affairs, Trade and Development as Vote 1 Operating Expenditures and $2,315,222,400 is deemed to have been appropriated to the Department of Foreign Affairs, Trade and Development as Vote 10 Grants and contributions, which results in a reduction for the same amounts in the Canadian International Development Agency’s Vote 25 Operating expenditures and Vote 30 Grants and contributions, Appropriation Act No. 1, 2013-14.
Operating expenditures1,368,474345,476621,7791,431,109297,549583,344
Capital Expenditures165,51023,78138,898201,51927,20250,740
Grants and contributions3,010,876578,846584,581858,977149,198165,054
Locally engaged staff pensions, insurance and social security65,38012,97623,02750,77910,93822,094
Budgetary statutory authorities:
Contributions to employee benefit plans98,52833,15447,05983,59021,22542,539
DFATD Ministers' salary and motor car allowance22046861573979
Payments under the Diplomatic Service (Special) Superannuation Act25014402501027
Spending of proceeds from the disposal of surplus Crown assets1,573--1,667--
Refunds of amounts credited to revenues in previous years241325-12
Court Awards - Crown Liability and Proceedings Act----1616
Encashment of notes issued to the development assistance funds of the International Financial Institutions30,74416,70516,705---
Payment to the World Bank for the Advance Market Commitment for Pneumococcal Vaccines17,00017,00017,000---
Passport Office Revolving Fund70,373(58,325)(50,236)67,6548,87513
Total budgetary authorities4,828,952969,6861,298,9642,695,702515,053863,908
Non-budgetary authorities81,286(3,709)48426,036(3,396)2,511
Total authorities4,910,238965,9771,299,4482,721,738511,657866,419