Departmental Quarterly Financial Report

July - September 2019

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended September 30, 2019

1. Introduction

This quarterly report 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. This quarterly report should be read in conjunction with the Main Estimates as well as Budget 2018 and Budget 2019.

A summary description of Veterans Affairs Canada’s (VAC) program activities 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 accompanying Statement of Authorities includes VAC’s spending authorities granted by Parliament and those used by the Department, consistent with the Main Estimates for the 2019-20 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.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

The Department 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.

The quarterly report has not been subject to an external audit but has been reviewed by the Departmental Audit Committee.

2. Highlights of Fiscal Quarter and Fiscal Year to-Date (YTD) Results

Statement of Authorities

Overall, VAC’s authorities reflect the changing demographic profile and changing needs of the men, women, and families the Department serves. This is evidenced by an increase in the number of modern-day Veterans and survivors (forecast to increase from 112,977 as of March 31, 2019, to 119,300 as of March 31, 2020) and a decrease in the number of War Service Veterans and survivors (forecast to decrease from 58,828 as of March 31, 2019, to 52,100 as of March 31, 2020). Despite the slight decrease in overall Veterans and recipients of VAC benefits, recent program enhancements have increased the demand on Veterans Well-being Act programs and benefits.

As at September 30, 2019, total authorities available (i.e. budget) for the year remained relatively stable with only a small decrease of $3.6M (0.08%) compared to the same quarter of the previous year, from $4,405 to $4,401M (includes $44M in Budget 2019 measures approved by Treasury Board)*. This decrease is the result of a $114M decrease in Vote 5, Grants and Contributions, which is offset by a $103M increase in Vote 1, Operating Expenditures, and a $7.6M increase in Statutory expenditures.

Total authorities used (i.e. expenditures) during the second quarter of 2019-20 are $88M (7.8%) more when compared to the same three-month period of 2018-19, increased from $1,134M to $1,222M. A break-down in the spending for the second quarter of 2019-20 indicates that spending on Operating expenditures (Vote 1) increased by $103M, primarily attributed to payments made to fulfill the Department’s legal obligations as prescribed in the Toth Class Action Final Settlement Agreement. Grant and Contribution spending decreased by $16M, primarily attributed to the transition to the Pension for Life suite of programs and changes to the way payments are issued. As a result of offering monthly benefits through Pension for Life beginning in April 2019, benefit payments are spread over the lifetime of the Veteran, resulting in lower near-term cash payments. Expenditures are expected to increase through the rest of 2019-2020 as the Department moves through the transition phase and begins to stabilize the new operating environment. Spending on statutory authorities remained relatively stable with an increase of approximately $1.7M.

Figure 1 - Second Quarter and Year-to-date Expenditures Compared to Budget

Comparison of Net Budgetary Authorities and Expenditures for the Quarter Ended September 30, 2018 and September 30, 2019 (in millions of dollars)

Fiscal Years	2018-2019	2019-2020
Net Budgetary Authorities	4,405	4,401
Expenditures for the Quarter ended September 30th	1,134	1,222
Year to date Expenditures	2,257	2,282

As a result of the Government’s expenditure management cycle, there are often fluctuations by quarter and between fiscal years when comparing budgets and expenditures. This is primarily a result of the quasi-statutory nature of the Department’s programs, which are demand-driven and based on need and entitlement. In other words, Veterans who meet the eligibility criteria for VAC’s programs are paid as they apply for benefits. As in previous fiscal years, current departmental forecasts are predicting higher program payment expenditures by the end of 2019-20 as compared to last fiscal year (i.e. 2018-19).

*Note – VAC received approval in June 2019 for increases to the program payment budget in the amount of $956.3M. This will not be reflected in the Department’s Quarterly Financial Report until Supply is received, as per the expenditure-basis of accounting.

Statement of Departmental Budgetary Expenditures by Standard Object

When analyzed by Standard Object, expenditures in the second quarter are generally consistent in comparison with prior-year spending. The largest variances include:

• An increase of $84M in Other Subsidies and Payments primarily attributed to payments made to fulfill the Department’s legal obligations as prescribed in the Toth Class Action Final Settlement Agreement.
• A decrease of $16M in Transfer Payments which, as noted above, relates primarily to the transition to the Pension for Life suite of programs and changes to the way payments are issued. As a result of offering monthly benefits through Pension for Life beginning in April 2019, benefit payments are spread over the lifetime of the Veteran, resulting in lower near term cash payments. As noted previously, this trend is expected to reverse for the remainder of fiscal year 2019-20.
• An increase of $10M in Personnel primarily attributed to continued efforts to reduce the backlog and improve the delivery of services and programs to Veterans and their families, particularly through the implementation of the new Pension for Life initiative.

3. Risks and Uncertainties

VAC is dedicated to enhancing the health and well-being of Veterans and their families and recognizes that its success in fulfilling this mandate is directly related to the effective management of risk. Sound risk management equips the Department to respond proactively to change and uncertainty by using risk-based information to support effective decision-making, resource allocation, and ultimately, better results for Canadians. Additionally, it can lead to effective service delivery, better project management, and an increase in value for money.

VAC operates in a dynamic and complex environment characterized by internal and external drivers of change. The Department employs integrated risk management tools to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. In addition, the Department has effective internal control systems in place, proportionate to the risks being managed.

As such, the Department’s executive-level committees, the Assistant Deputy Minister level Senior Management Committee and the Director General level Corporate Policy and Planning Management Committee serve as forums where the Deputy Head ensures that Senior Department Managers are aware of their financial management responsibilities, have the tools to enable these responsibilities, and manage the financial performance within their areas of responsibilities. In addition, these committees recommend and prioritize the department’s investment opportunities, based on Integrated Business Plans (IBPs), to ensure their alignment with departmental and Government of Canada expected results. The IBPs also support the development of integrated program and corporate risk registers and enable resource capacity planning for the department.

Key risks currently being managed by the Department include:

1. Maintaining Core Services: To avoid the risk of not providing timely, high quality core services and benefits to Veterans and their families while simultaneously implementing several new initiatives and programs from multiple federal budgets, Veterans Affairs is monitoring and mitigating the risks through:
   1. Refining internal processes to improve efficiency;
   2. Increasing the use of automation;
   3. Recruiting, training, motivating and retaining employees; and
   4. Maintaining a reasonable case manager to client ratio.
2. Fulfilling Mandate Letter Commitments: To prevent the risk of not fully implementing remaining mandate commitments, given the volume and complexity of commitments made to Veterans, Veterans Affairs Canada is mitigating the risk through:
   1. Reporting progress internally and through canada.ca;
   2. Increasing the use of automation; and
   3. Recruiting, training, motivating and retaining employees.
3. Achieving and Demonstrating Results: To avert the risk of not fully meeting planned targets, given that responsibility for Veterans' well-being is shared with multiple jurisdictions, other government departments, and individual Veterans, Veterans Affairs Canada is mitigating the risks through:
   1. Working closely with partners to ensure efforts are well aligned; and
   2. Exploring additional opportunities for sound research and data to inform direction.

The Department monitors these risks through the Departmental Results Framework and internal performance reports. Tracking performance in these areas enables timely adjustments and ensure risks are being effectively mitigated.

Additionally, the Departmental Audit Committee provides an important advisory function as part of the Department’s governance structure for risk. It provides objective advice and recommendations to the Deputy Head regarding the sufficiency, quality and adequacy of the department's risk management process.

This integrated risk management process ultimately supports the Department in meeting its objectives. Further information on risks facing the Department and the steps taken to mitigate them can be found on VAC's website.

4. Significant Changes in Relation to Operations, Personnel and Programs

Mandate/Budget Commitments

Budget 2018

Pension For Life:

The suite of benefits under Pension for Life are being well-received by VAC’s clients in the second quarter. Following the successful conversion in the first quarter of approximately 80,000 existing clients (Veterans, survivors and orphans) from the older, complicated benefit model to the more streamlined and easier to access one, response and feedback to various payouts and benefits have been largely positive.

Veterans and CAF members see service improvements in the form of:

• Guided web forms now available in My VAC Account for the PFL benefits;
• “Tell us once” improvements across programs;
• Streamlined processes with additional value added to My VAC Account;
• Enhanced status tracking in My VAC Account so that clients know the status of their claim; and
• Increased efficiency and automation for Service Verification which in turn improves our communication and interoperability with the Department of National Defence (DND).

In September, the Supplementary Retirement Benefit (SRB) automated batch payout to eligible Veterans and survivors was completed. Over 9300 letters and payments were processed with a value of over $56M. A small number of cases are being completed manually due to complexities.

The Pension for Life project represented unprecedented, concurrent change for the department. First and foremost, we modernized an outdated client relationship management system and created new inter-related applications and services. Secondly, it represented a significant change in culture for operational employees and offered a springboard for innovative change management activities. Mid-way through the project, a new engagement strategy is being developed in order to augment the more than 40 e-learning modules, over 200 WebEx sessions and nearly 50 face-to-face learning sessions that have already been held with employees. Over 40 job aids and 16 instructional videos have also been created. Additionally, a multi-disciplinary team has been holding targeted systems training and support sessions in areas where use of the new system has been slow to be adopted by front-line employees.

Having the appropriate human resources to support a project of this size is vital. Key skillsets were needed for the development and roll out of the new software platforms as well as for the robust change management activities. Staffing remains on target and within the project’s budget forecasts; with 100% of the human resources positions filled.

Budget 2019

Canadian Institute for Military and Veteran Health Research:

On July 10, 2019, the Minister of Veterans Affairs confirmed funding in the amount of $25 million, over 10 years, for the Canadian Institute for Military and Veteran Health Research (CIMVHR). Funding for CIMVHR was proposed as part of a larger push for Veteran-centric research in the Budget 2019 announcement.

Research done by CIMVHR is used by departmental decision and policy makers, program planners, health managers, clinicians and various stakeholders as they support the physical, mental and social health of Veterans and their families. The Government of Canada’s current contribution agreement to fund the operations of CIMVHR with Health Canada ends on March 31, 2020.

Centre of Excellence on Chronic Pain:

On July 29, 2019, the Minister of Veterans Affairs announced the funding for the Centre of Excellence (COE) on Chronic Pain at McMaster University. To support the centre, Budget 2019 proposes to provide Veterans Affairs Canada $20 million over five years, starting in 2019–20, with $5 million per year ongoing. This second COE will focus on the creation and distribution of knowledge and research on chronic pain, one of the most prevalent health concerns among the Canadian Veteran population.

McMaster University is well-positioned to host the COE on Chronic Pain, as it currently houses both the Michael G. DeGroote National Pain Centre and Michael G. DeGroote Institute for Pain Research and Care (IPRC). Faculty members are also health care professionals at the Michael G. DeGroote Pain Clinic of Hamilton Health Sciences, which treats a significant number of Veterans who are referred to the clinic by physicians from across Canada.

Recognition of Métis Veterans:

On September 10, 2019, the Minister of Veterans Affairs announced that the Government of Canada allocated $30M to recognize Métis Veterans of the Second World War for their pre- and post-war experiences and to support commemorative initiatives that promote awareness and appreciation of Métis Veterans’ sacrifices and contributions among the Métis People as well as the general Canadian public.

Mandate Commitments

Operational and Stress Injury Clinics:

On September 4^th, 2019, the Minister of Veterans Affairs and Associate Minister of National Defence, Lawrence MacAulay, announced a new OSI Satellite Service Site in Stratford, Prince Edward Island.

OSI Clinics and OSI Satellite Service Sites provide specialized, evidence-based assessment, treatment and support services for operational stress injuries. Staff at these sites are trained in treating a range of mental health conditions such as post-traumatic stress disorder, anxiety, depression and insomnia. Services, such as one-on-one therapy sessions and group sessions, are provided to Veterans, Canadian Armed Forces (CAF), and Royal Canadian Mounted Police (RCMP) members.

Commemorative Activities

The Government of Canada is committed to remembering and honouring the sacrifices and achievements of Canadians in uniform, including the more than 75,000 of our service members who took part in the Battle of the Scheldt in the fall of 1944. A Government of Canada delegation departed for Belgium to participate in a series of events marking the 75th anniversary of the Battle of the Scheldt from September 4th to September 9th, 2019. The delegation included Canadian Veterans of the Battle of the Scheldt, representing some of the regiments that took part in the campaign. The First Canadian Army played a leading role during the Battle of the Scheldt and was well represented by the delegation’s campaign Veterans.

5. Approvals by Senior Officials

Original signed by:

II. Financial Statements

Statement of Authorities

* Authorities available for use and granted by Parliament at quarter-end.

* Authorities available for use and granted by Parliament at quarter-end, including $44M in Budget 2019 measures approved by Treasury Board.

Departmental Budgetary Expenditures by Standard Object (unaudited)

* Authorities available for use and granted by Parliament at quarter-end.

** Authorities available for use and granted by Parliament at quarter-end, including $44M in Budget 2019 measures approved by Treasury Board.