Quarterly Financial Report - For the period ended December 31, 2018

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, 2018 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 2018-2019 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, 2018 are included.

i. Budgetary Authorities

Authorities for Operating Expenditures have increased by $128.7 million compared to last year. Items contributing to changes in these authorities include:

• Funding received to support mission security abroad to mitigate risks to physical infrastructure, mission readiness, and security of information;
• Funding received for the 2018 G7 Summit;
• Funding received for compensation related to Collective Agreements;
• Transfers from other government departments to provide support to their staff located in missions abroad; and
• Adjustments to account for the effects of inflation on overseas operations.

These increases were partly offset by the transfer to Public Services and Procurement Canada for operating and maintenance costs related to the International Civil Aviation Organization headquarters building in Montreal.

Capital Expenditures authorities have decreased by $25.6 million. Items contributing to changes in these authorities include:

• Decreased proceeds from the sale of real property reinvested by the department in 2018-19, compared to 2017-18;
• The sunset of the funding received in 2017-18 to relocate the chancery for the combined missions to the European Union and to Belgium; and
• A transfer to Public Services and Procurement Canada for capital improvement costs related to the International Civil Aviation Organization headquarters building in Montreal.

These decreases were partly offset by:

• Funding received for the New-York Chanceries’ co-location and relocation project; and
• Increase in the Capital Budget Carry-Forward amount received in 2018-19 compared to 2017-18.

Grants and Contributions authorities have increased by $408.6 million. Items contributing to changes in grants and contributions expenditures authority include funding received for:

• Helping developing countries to address the impact of climate change;
• Maternal, Newborn and Child Health;
• Support of the Middle East Strategy as a transfer from the Department of National Defence;
• Canada’s contribution to United Nations Peace Operations;
• Canada’s assessed contributions to the Organization for Security and Cooperation in Europe; and
• Enhanced Export Diversification Support.

These increases were partially offset by:

• 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

Debt forgiveness to Pakistan of $60.1 million represents the available balance from previous years. For 2017-18, the opening balance was $84.7 million of which $24.6 million was used during the year.

iii. Non-budgetary Authorities

The Department’s non-budgetary authorities have decreased by $25.2 million. This is attributable to 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 $48.8 million is due to:

• The implementation of new collective agreements which resulted in an increase of salary expenditures for Canada based staff in the first quarter;
• Temporary hiring and overtime required for the 2018 G7 summit;
• The salary component of the initiatives to support mission security abroad; and
• The regular increase in locally engaged staff salaries and related benefits paid at missions abroad.

Transportation and communications – The increase of $12.8 million is mostly attributable to an increase in spending for the 2018 G7 summit. This includes travel and accommodation costs for employees involved in the summit, as well as data communications services for the event. The increase is also due to increased travel costs associated with mission security.

Information – The increase of $3.9 million is due to the audio and visual services required during the 2018 G7 summit, as well as an increase in spending for expositions during the period as part of the Enhanced Trade Commissioner Service investment.

These increases were partly offset by a decrease of costs related to electronic subscriptions and publications.

Professional and special services – The increase of $20.8 million is due to the 2018 G7 summit for services such as airport, security, management services and setting up and dismantling of exhibits. Additionally, a timing difference in the payments made this year to the Department of National Defence for security services provided at missions abroad contributed to the increase.

Rentals – The increase of $24.5 million is caused by the addition of staff quarters for Canadian employees abroad, rent payments for the New York Chanceries’ co-location and relocation project, and rent disbursements made in advance to take advantage of rental discounts and exchange rates, as well as the rental of rooms, equipment, machineries, and motor vehicles for the 2018 G7 summit.

Repair and maintenance – The increase of $1.9 million is explained by increased spending in the maintenance of real-property abroad during the first three quarters of this year, compared to last year.

Utilities, materials and supplies – The increase of $2.2 million is explained by the expenses related to the preparation for the 2018 G7 summit. In addition, an increase in staff quarters for Canadian employees abroad resulted in higher utilities expenses.

ii. Capital Expenditures

Acquisition of machinery and equipment – The increase of $9.3 million is caused by new projects related to mission security abroad, as well as the acquisition of IT equipment.

iii. Transfer Payments

The increase of $247.5 million is explained by a timing difference in the payment cycle for numerous projects, where additional payments were made this fiscal year in accordance with agreements.

iv. Revenues

The increase of $2.5 million in revenues originates from higher amounts being billed to co-locators this year compared to last year due to a slight increase in the number of co-locator staff at missions, as well as 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. The 2018-19 CRP identifies 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. 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.

Global Affairs Canada has applied a range of measures to manage the risks associated with fraud, such as increased training on fraud awareness and detection; the use of mission management audits and inspections to identify specific areas of risk; 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 Global Affairs Canada Fraud Risk Management Action Plan for 2018-2019 will place a particular focus on the areas of: communications, data analytics and client tools; ensuring the department’s fraud risk framework is comprehensive and up-to-date, including for grants and contributions; and addressing system vulnerabilities and gaps in oversight.

In addition to these tools, Global Affairs Canada’s Fiduciary risk Evaluation Tool 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 for projects and programs. The new Risk Management Tool will offer a more tailored, streamlined approach to managing fiduciary risk as well as all other relevant programming risks and will be available to all G&Cs programs.

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

During the quarter, no changes were made.

Subsequent to the end of the quarter, changes were made to the following positions:

• The Deputy Minister for International Trade.
• The Associate Deputy Minister of Foreign Affairs.

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, 2019

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at December 31, 2018

Departmental budgetary expenditures by standard (Unaudited)

This table includes authorities available for use and granted by Parliament as at September 30, 2018