Quarterly Financial Report - For the period ended December 31, 2017

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 December 31, 2017 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 2017-2018 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.

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 December 31, 2017 are included.

i. Budgetary Authorities

Operating Expenditures authorities have increased by $161.1 million compared to last year. Items contributing to changes in operating expenditure authorities include:

• Funding received for the salary component of initiatives to support mission security abroad;
• Funding received to implement new collective agreements, including adjustments to contribution rates of the employee benefit plans;
• Increase to the amount of operating funding permitted to be carried forward from the previous year into 2017-18 compared to 2016-17;
• Funding received for enhanced trade commissioner services;
• Funding transferred in from other government departments to support staff located at missions abroad;
• Adjustments to account for the effects of inflation on overseas operations; and
• Budget 2016 announced funding to support the promotion of Canadian artists and cultural industries abroad.

These increases were partly offset by the impact of foreign currency fluctuations incurred on expenditures at missions abroad.

Capital Expenditures authorities have decreased by $44.7 million. Items contributing to changes in capital expenditure authorities include:

• Removal of non-recurring capital expenditures from 2016-17, including the acquisition of the International Civil Aviation Organization headquarters building in Montreal;
• Decreased revenues from the sale of real property in 2017-18, compared to 2016-17;
• Decrease in the year-over-year funding profile for key capital projects, including the project to relocate the chancery for the combined missions to the European Union and to Belgium; and
• Decrease to the amount of capital expenditure authority permitted to be carried forward from the previous year into 2017-18 compared to 2016-17.

These decreases were partly offset by funding received in 2017-18 for:

• The capital component of initiatives to support mission security abroad; and
• The New-York Chanceries’ co-location and relocation project.

Grants and Contributions authorities have increased by $268.0 million compared to last year. Items contributing to changes in grants and contributions expenditure authorities include:

• Funding received for the Crisis Pool Release Mechanism; and
• Funding received to help developing countries in Asia and the Pacific address the impact of climate change through the Climate Fund for Private Sector.

Increases were partly offset by a decrease in amount of funding provided to international organizations, through assessed contributions, due to budgetary changes and fluctuating currency values. Additionally, costs were offset by sunsetting funding related to the Youth Employment Strategy.

ii. Budgetary Statutory Authorities

Contributions to employee benefits plans (EBP) statutory authorities have increased by $33.0 million. This is attributable to the adjustment to departmental contributions to employee benefit plans. Also contributing to the increase was the salary component of the funding received for the initiatives to support mission security abroad. Expenditure fluctuations for allowances provided to Canadians working at diplomatic missions abroad, Investment promotion Canada and enhanced trade commissioner services also contributed to the increase.

Debt forgiveness to Pakistan of $84.7 million represents the available balance from previous years. In 2006-2007, the Government of Canada, as represented by the Department, entered into an agreement with the Government of Pakistan to forgive its outstanding $447.5 million loan. In order to retire its debt obligation, the Government of Pakistan is required to make corresponding investments in their education sector. For 2016-17, the opening balance was $124.6 million of which $39.9 million was used during the year.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have increased by $31.1 million. This is attributable to 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 increase of $74.4 million is mainly due to the implementation of the new collective agreements and the adjustment of contributions to employee benefit plans which resulted in increases to Canada based staff regular pay and retroactive salary payments. Also contributing to the variance is the salary component of the initiatives to support mission security abroad as well as the locally engaged staff salaries and related benefits paid at missions abroad.

Transportation and communications – The increase of $7.5 million can be explained by a timing differences in both expenditures incurred for employee relocation and those related to the Civilian Deployments Platform as part of the Peace and Stabilization Operations Program that was implemented late last fiscal year.

Information – The increase of $1.9 million is related to higher spending this fiscal year on trade fairs in addition to timing differences in expenditures related to conferences and access to databases.

Rentals – The decrease of $5.8 million is partly attributable to the acquisition in the third quarter of fiscal year 2016-17 of the International Civil Aviation Organization (ICAO) building in Montreal which was previously rented by the department. Also contributing to the decrease is the new annual payment approach used at certain missions. These decreases were partly offset by regular annual rent increases.

Other – The net decrease of $4.7 million relates mainly to a lower portion of debt from the Government of Pakistan being forgiven this year compared to last year.

ii. Capital Expenditures

Acquisition of land, building and works – The decrease of $30.8 million can be explained by costs that were incurred in 2016-17 for the lease extension of the Canada High Commission and the purchase of staff quarters in London as well as the acquisition of the chancery in Bamako, Mali.

iii. Transfer Payments

The increase of $193.1 million is attributable to payments made this year to non-governmental organizations (NGOs) and the United Nations. Approximately $50 million was disbursed to these organizations this year in response to the famine and food security crises in multiple African countries and Yemen. Also contributing to the increase is a timing difference resulting from the annual funding prioritization process of NGOs. Most of the NGOs’ funding was disbursed earlier this fiscal year.

The increase of $2.9 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. It is integrated into the department’s business planning process and feeds into both the Departmental Plan and Departmental Results Report. The 2017-18 CRP identifies unique pressures associated with resource management and fiduciary oversight due to its geographically dispersed operations. Business planning, resource allocation and prioritization are fundamental to the achievement of GAC’s strategic priorities.

GAC continues to be more pragmatic and versatile in its management of risks and uncertainties associated with resources. It has improved financial forecasting and continues to find ways to absorb or fund activities, always within approved budgets.

Branches and program areas have also 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 department also continues to closely monitor its salary expenditures since the federal government’s transition to centralized pay services.

Global Affairs Canada also applies a range of measures to manage the risks associated with fraud. Examples of these measures include a recent update of its Values and Ethics Code and the management practice of auditing fraud risks at missions coordinated by the Office of the Chief Audit Executive. The department is also taking steps to develop and implement a Fraud Risk Management (FRM) Action Plan that will provide a more integrated and coordinated approach to addressing fraud-related risk. The FRM Action Plan will focus on three key elements: prevention and training; monitoring and detection; and mitigation and response. Specialized training promoting sound management, increased fraud awareness and good management practices will also be conducted at missions.

In addition to these tools, Global Affairs Canada’s Fiduciary risk Evaluation Tool (FRET) which supports a consistent and systematic approach to evaluate, mitigate, monitor and manage fiduciary risk for the department’s development assistance investments is currently being redesigned to create a Harmonized Risk Management Tool (RMT) for projects and programs. The RMT will offer a more tailored, streamlined approach to managing fiduciary risk as well as all other relevant programming risks and will be used by all Gs&Cs programs.

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

The appointment of an Associate Deputy Minister of Foreign Affairs took effect on November 6, 2017.

There have been no other significant changes in relation to operations, personnel and programs during this quarter.

Approval by Senior Officials

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

Ian Shugart
Deputy Minister of Foreign Affairs

Arun Thangaraj
Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology

Ottawa, Ontario
Date: March 1, 2018

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at December 31, 2017.

Departmental budgetary expenditures by Standard Object (unaudited)

This table includes authorities available for use and granted by Parliament as at December 31, 2017.