Quarterly Financial Report - For the period ended June 30, 2021

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 June 30, 2021 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 2021-2022 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 are 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 June 30, 2021 are included.

i. Budgetary Authorities

Authorities for Operating Expenditures have decreased by $3.9 million. Items contributing to changes in operating expenditures authorities include:

• Decrease in the current funding for the Duty of Care Special Purpose Allotment to support mission security abroad;
• Sunset of funding received for Renewing Canadaʼs Middle East Strategy;
• Decrease in the current funding for Canada's participation in Expo 2020 Dubai, United Arab Emirates;
• Transfers to other government departments to provide support to departmental staff located at missions abroad; and
• Sunset of funding received for Advancing Clean Technology in Canada's Natural Resources Sectors.

These decreases were partly offset by:

• Funding to support security and operations at mission in Kabul, Afghanistan;
• Funding for compensation related to collective agreements;
• Adjustment relating to the impact of foreign currency fluctuations incurred on expenditures at missions abroad;
• Funding for locally engaged staff salaries and related benefits incurred at missions abroad;
• Adjustment for inflation on overseas operating costs;
• Increase related to funding to implement the Feminist International Assistance Agenda; and
• Internal reallocation of resources from the International Development Assistance for multilateral programming.

Capital Expenditures authorities have decreased by $3.4 million. This is attributable to the decrease in the capital portion of the Duty of Care Special Purpose Allotment to support mission security abroad, which was offset by an increase in the funding for the Trade Commissioner Service Electronic Client Relationship Management and by the funding to support security and operations at Canada's mission in Kabul, Afghanistan.

Grants and Contributions authorities have decreased by $693.2 million. Items contributing to changes in grants and contributions expenditures authorities include:

• Decrease related to funding received in previous years to help developing countries to address the impact of climate change;
• Sunset of funding received for Renewing Canadaʼs Middle East Strategy;
• Decrease related to funding received for the Feminist International Assistance Agenda;
• Decrease in the current funding for the Peace and Stabilization Operations Program;
• Reprofile of the Counter-Terrorism Capacity Building Operation Impact projects under the Middle East Strategy;
• Reprofile of funding for the Canadian International Innovation Program; and
• Decrease in funding for Enhanced Export Diversification Support.

These decreases were partly offset by:

• Funding to support access by developing countries to vaccines, therapeutics and diagnostic tools (COVID-19);
• An increase 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;
• Funding for the Arctic and Northern Policy Framework; and
• Technical adjustment to increase spending authority for the International Financial Institutions.

Locally engaged staff pensions, insurance and social security authorities have increased by $14.4 million attributable to funding received to meet the expenditure requirements of the pension, insurance and social security programs and other arrangements for the locally engaged staff.

ii. Budgetary Statutory Authorities

Contributions to employee benefit plans have increased by $3.4 million. The increase is explained by transfers from other government departments to provide support to departmental staff located at missions abroad, funding locally engaged staff salaries and related benefits incurred at missions abroad as well as an increase of compensation related to Collective Agreements.

Payments under the Diplomatic Service (Special) Superannuation Act have increased by $0.4 million. The increase of the grant ceiling is explained by the increase of retired public officials (e.g. ambassadors, ministers, high commissioners and consuls general of Canada to other countries and such other officers of comparable status) in the past years.

Spending of proceeds from the disposal of surplus Crown assets have increased by $1.6 million explained by a lapse of available funds transferred from 2020-2021.

Payments to International Financial Institutions for Direct Payments have increased by $6.7 million in the anticipated payments to International Financial Institutions for Direct Payments.

Payments for consular assistance pursuant to the Public Health Events of National Concern Payments Act to support consular assistance for Canadians abroad affected by the COVID-19 pandemic have decreased by $41.0 million. The funding was only available for the fiscal year 2020-2021.

iii. Non-budgetary Authorities

The department's non-budgetary authorities have increased by $127.1 million. Items contributing to changes in non-budgetary authorities include:

• More funding in 2021-2022 compared to 2020-2021 for Loans under the International Financial Assistance Act;
• An increase in the anticipated payments to International Financial Institutions for capital subscriptions; and
• A net decrease in Working Capital Advances.

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 $9.9 million is explained by:

• The renewal of collective agreements which resulted in increases to Canada based staff regular pay and retroactive salary payments;
• Regular increase in Canadian employee salaries and related benefits; and
• The creation of new positions at HQ.

These increases were partially offset by a reduction in salary expenses of locally engaged staff.

Transportation and communications – The decrease of $22.4 million is mainly due to financial agreements made with airlines, in 2020-2021, in order to repatriate Canadian citizens and permanent residents.

Professional and special services – The increase of $3.0 million is explained by a timing difference in expenditures for management consulting services. These increases were partially offset by a timing difference in protection service fees and payments for the construction of the Canadian Pavilion for the Expo 2020 Dubai.

Repair and maintenance – The increase of $1.1 million is explained by a temporary difference in maintenance and repair costs for rented buildings and buildings owned by the department abroad.

Utilities, materials and supplies – The increase of $0.5 million is mainly explained by a timing difference in the purchase of furniture for official residences and for employee residences, as well as electricity costs. These increases were partially offset by a decrease in expenses related to protective equipment to counter the spread of the COVID-19 pandemic.

Other – The decrease of $11.3 million is mainly explained by payments made under a special financial assistance program in 2020-2021,  the COVID-19 Emergency Loan Program for Canadian Abroad.

ii. Capital Expenditures

Acquisition of machinery and equipment – The decrease of $1.4 million is explained by :

• An advance payment for the Duty of Care projects in the first quarter of last fiscal year; and
• An expense to convert several ministry-owned vehicles into armored vehicles in the first quarter of last fiscal year.

These decreases were partially offset by a timing difference in the payment of computer equipment.

iii. Transfer Payments

The increase of $30 million is explained by a timing difference in payments to International financial institutions which was partially offset by a timing difference in payments to United Nations and related organizations.

iv. Revenues

The decrease of $3.4 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

COVID-19

Despite global vaccination progress, the rates per country remain uneven and global-scale collaboration must continue to guarantee rapid, fair and equitable access to COVID-19 vaccines worldwide.

75 countries have recently submitted expressions of interest to protect their populations and those of other nations through joining the COVAX Facility, a co-led initiative by the Coalition for Epidemic Preparedness Innovations (CEPI), Gavi and the World Health Organization (WHO), alongside key delivery partner UNICEF. The aim is to accelerate the development and manufacturing COVID-19 vaccines, and to guarantee fair and equitable access for every country in the world. These countries, which would finance the vaccines from their own public finance budgets, would collaborate with up to 90 lower-income countries that could be supported. Together, this group of up to 165 countries represents more than 60% of the world's population.

Nonetheless, it remains unknown how long the pandemic will last given the surge of the Delta variant and other variants, and alike any other organization, Global Affairs Canada's work practices will continue to be impacted.

During the first quarter of 2021-2022, in response to the continuous needs in developing countries, the department repurposed $86.4 million in operational projects (Vote 10) and secured an additional $450.0 million funding to help recipient countries in their response to the pandemic. Moreover, Budget 2021-2022 proposed to reduce operating budgets of those departments and agencies with the highest historical travel costs. Overall savings for the Government of Canada will be $1.1 billion over five years, starting in 2021-2022, and $222.5 million per year ongoing. Global Affairs Canada's reduction stands at $22.75 million per year, effective immediately.

Last year, the department launched the corporate scenario planning process. The purpose of the scenario planning exercise was to ensure all consider the potential impact the COVID-19 pandemic could have, in an effort to enhance the department's ability to prepare and respond appropriately in a context of uncertainty. This year's approach, builds on the prior year exercise, should allow branches to reflect on lessons learned and how departmental priorities and commitments could be adapted. This exercise provides valuable information related to information management and information technology, human resources and finance, to better support the department under rapidly changing circumstances.

The department will continue to give consideration to material risks related to the COVID-19 pandemic response and their potential impact on the department's financial statements when assessing its internal controls over financial reporting on an on-going basis.

As the department continues to adapt to the pandemic environment, risk management practices are applied to optimize risk identification, assessment and mitigation strategies, while ensuring robust financial planning and oversight.

Other risks and uncertainties

As a federal department delivering a complex mandate in a rapidly changing international environment, GAC'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, including geopolitical and climate risks, that expose the department to a broad range of risks, both domestically and abroad, and in particular for vulnerable areas of policies, programs and operations. Effective risk management is critical to the department's ability to deliver results for Canadians. The department undertakes 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 responses.

The Enterprise Risk Management Strategy guides the department in managing risks that affect strategic plans and priorities. The department's Strategic Risk Landscape and the Enterprise Risk Profile identify unique pressures associated with resource management and fiduciary oversight associated with geographically dispersed operations. For 2021-22, the top risks that are being tracked and addressed by the department by allocating more resources and attention are related to the health, safety and wellbeing of the workforce; HR capacity; digital transformation; resilience and cyber/digital security; and management and security of real property. Risks linked to these areas take into account the impact of COVID-19 on the department's workforce and assets.

The Canadian Centre for Cyber Security and Shared Services Canada (SSC) are responsible for the monitoring of Cyber Security for the Government of Canada. Furthermore, according to the applicable policy, the departmental cyber lead is the Chief Information Officer. Upon validation, the CIO is not aware of any cyber attack that would have compromised the department's financial data during the period being reported that would lead to a misstatement in the department's financial reporting.

The department continues to be pragmatic and versatile in its management of risks and uncertainties associated with resources. Branches and program areas have grown more attentive to the financial limitations, including in the area of Grants and Contributions. As a result, they are prioritizing initiatives, identifying their pressures earlier, reviewing their activities and available funds more frequently, and are increasingly utilizing forward planning. The current pandemic context, however, adds uncertainty to the level of expenditure forecasts and potential surpluses. The department is in the process of implementing certain strategies to identify investment opportunities and reduce the risk of exceeding the maximum budget carry forward. The department 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.

The department has applied a range of measures to manage the risks associated with fraud, such as increased training on awareness and detection. The risk of fraud is considered in audit and advisory engagements, and more directly in mission audits. This fiscal year, a sample of missions will be selected to assess procurement activities through data analytics. In addition, two on-site Mission audits are planned, dependent on health guidance and travel restrictions.

Additional measures are being implemented, including: an updated procurement and contracting framework that includes the establishment of regional contract review boards for missions; and improved coordination on investigations and administrative measures.

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

During the quarter, there have been no significant changes in relation to operations, personnel and programs.

Approval by Senior Officials

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

Marta Morgan
Deputy Minister of Foreign Affairs

Anick Ouellette
Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology

Ottawa, Ontario
Date: August 27, 2021

Statement of Authorities (Unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2021

Departmental budgetary expenditures by standard object (Unaudited)

This table includes authorities available for use and granted by Parliament as at June 30, 2021