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April - June 2011

Table of Contents

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended June 30, 2011

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.

A summary description of Veterans Affairs Canada’s program activities can be found in Part II of the Main Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes Veterans Affairs Canada’s spending authorities granted by Parliament and those used by the Department, consistent with the Main Estimates for the 2011-2012 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.

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.

As part of the departmental performance reporting process, Veterans Affairs Canada prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

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

Statement of Authorities

As at June 30, 2011, total authorities available for the year have increased by $120.6 million (3.5%) compared to the same quarter of the previous year, from $3,403 million to $3,523 million. This net increase is the result of a $5.3 million decrease in Vote 1, Operating expenditures, a $123.7 million increase in Vote 5, Grants and contributions and a $2.2 million increase in statutory authorities.

Overall, Veterans Affairs’ authorities reflect the changing demographic profile and changing needs of our clients. This is evidenced by an increase in the number of modern-day Veteran clients accessing programs under the New Veterans Charter and a reduction in the number of War Service clients accessing Veterans Affairs’ traditional programs.

Vote 1 – Operating expenditures:

A significant portion of Veterans Affairs Vote 1 ($698 million) is designated for a special purpose (i.e., Other Health Purchased Services, New Veterans Charter Support Services, Agent Orange, Ste. Anne’s Hospital and Communications) thus cannot be reallocated to other operating priorities of the Department. These special purpose allotments are client-related, leaving only $227 million for the ongoing operations of the Department.

Other Health Purchased Services (decrease of $25.8 million)

The decrease is primarily the result of a $17.8 million decrease in the number of War Service clients receiving treatments benefits, offset by a lesser increase in Canadian Forces clients receiving these same benefits (i.e.. prescription drugs, special equipment, dental, vision and audio care, etc.), and additionally impacted by a corresponding reduction in the cost of processing these benefit payments. Furthermore, funding ($6.1 million) for some expenditure components of the Other Health Purchased Services (OHPS) allotment sunsetted in 2011-2012.

Agent Orange (increase of $13.2 million)

The Department was granted an increase of $13.2 million for the extension to June 30, 2011 of the deadline for making application for ex gratia payments related to the testing of Agent Orange at CFB Gagetown in the summers of 1966 and 1967.

New Veterans Charter Support Services (increase of $8.3 million)

An increase of $8.3 million for Vocational Rehabilitation, Rehabilitation Related Health Care, and Career Transition was granted due to the continued uptake of these programs since the New Veterans Charter was introduced in 2006.

Communications (increase of $3.0 million)

An increase of $3.0 million for funding approved under the government advertising plan.

Operations Budget (decrease of $4.0 million)

The decrease was primarily due to an increase in collective bargaining offset by the 2010 Budget cost containment measures as well as reduced funding requirements related to the completion of the Ste. Anne’s Hospital renovation project.

Vote 5 – Grants and contributions:

The primary reason for the increase of $123.7 million is related to an increase of $163.2 million for Disability Awards and Allowances due to an increase in the forecasted number of new clients, forecasted costs for new conditions and reassessments of awards, and annual price indexation adjustments to award payments. This increase was offset by a decrease of $40.1 million in the cost of Pensions for disability and death due to a decrease in the forecasted number of War Service Veteran clients in receipt of payments, partially offset by annual price indexation adjustments.

Statutory Authorities:

The primary reason for the increase is related to adjustments for employee benefits.

The Statement of Authorities illustrates that authorities used during the first quarter of 2011-12 are approximately $27 million (3.2%) more than at the end of the same quarter in 2010-11. This compares favorably to the equivalent increase of 3.5% in total authorities available for use as of June 30, 2011. Overall, approximately 25% of authorities available for use were expended during the first quarter of both fiscal years.

The increased spending in Vote 1, Operating expenditures of approximately $5 million this fiscal year as compared to the same quarter in fiscal year 2010-11 is attributable to an increase in ex-gratia payments related to the testing of Agent Orange. The increase in spending in Vote 5 is primarily related to Disability Awards and Allowances ($11.7 million); Disability Pensions ($4.9 million); and Earnings Loss and Supplementary Retirement Benefits ($4.7 million).

Statement of Departmental Budgetary Expenditures by Standard Object

Total planned gross expenditures have increased by $27.1 million when comparing the first quarter of 2011-12 to 2010-11, from $846.6 million to $873.7 million as per the table of departmental budgetary expenditures by Standard Object. Consistent with the previous year, this represents 25% of expenditures recorded for the same period in 2011-12.

The $21.6 million increase in transfer payments is related to an increase in disability benefit payments while the majority of the $7.5 million increase in other subsidies and payments relates to compensation for ex-gratia payments related to the testing of Agent Orange at CFB Gagetown in the summers of 1966 and 1967. All other expenditures by standard object were generally consistent with prior year spending trends.

3. Risks and Uncertainties

Veterans Affairs Canada is funded through voted parliamentary spending authorities and statutory authorities for operating expenditures and transfer payments. The Department serves traditional Veterans from the Second World War and the Korean War, serving members and Veterans (former members) of the Canadian Forces (CF), the Royal Canadian Mounted Police (RCMP) and certain civilians as well as eligible family members (survivors and dependants). Delivering departmental programs and services may depend on several risk factors such as the number of men and women injured in the line of duty and the severity of those injuries, the rising cost of health care for both an aging clientele and/or clients with multiple needs.

Veterans Affairs Canada is also a knowledge-based organization and as such, relies on its talented and committed workforce to continue delivering programs and services.

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010-11 levels for the fiscal years 2011-12 and 2012-13. The impact on departmental activities has been managed through the following actions and mitigation strategies: development of a multi-year plan to proactively prioritize spending initiatives and re-allocate funds internally through the annual business planning process. This plan helps ensure that the Department can address emerging pressures and opportunities to fund collective bargaining increases through to 2013-14. Expenditures are being monitored regularly through progress reports. Investment opportunities and financial pressures will continue to be carefully analyzed at the end of each quarter and monthly for the last half of the fiscal year as budgets are expended. The Department has estimated the impact of funding collective bargaining to be approximately $2.4M in 2011-12. VAC can accommodate the reduction in funding in 2010-11 without significantly impacting its operations. Management will continue to review various options to address the increasing reductions in funding for fiscal year 2012-13.

In 2009-10, the Department was directed to prepare an annual Treasury Board submission to request in-year and next fiscal year adjustments to its quasi-statutory programs. Fourteen of the Department’s seventeen grant and contribution programs in Vote 5 are for transfer payments to Veterans, their families and other clients. In addition, the Department has three special purpose allotments which make up a large percentage (72%) of its regular Vote 1 - Operating which are also used by the Department’s one remaining hospital and other benefits and services to or on behalf of clients. Due to changing client demographics, funding requirements for some of VAC’s traditional programs are diminishing while considerable growth is occurring in programs designed for modern-day Veterans (as initially approved under the New Veterans Charter in 2006). The Department faces the challenge of accurately forecasting its variable funding requirements due to the quasi-statutory nature of its programs, which necessitates Treasury Board approval before program funding can be adjusted. Expenditures under quasi-statutory programs have three general characteristics: they are non-discretionary expenditure, client-related and demand-driven and have no expenditure ceiling. The amount of this funding is dependent upon the number of clients who apply for benefits and their eligibility for programs. Reductions of this source of funding have the potential to reduce the ability of the Department to meet its obligations to care for Veterans. The Deputy Minister and Chief Financial Officer are committed to ensuring that the Department maintains a properly resourced costing and forecasting unit. As well, VAC has acquired the services of an independent third-party to validate costing methodology and key assumptions.

The Department is operating in an environment that is rapidly changing. There are significant demographic shifts in the Veteran population served by the Department that requires the department to adapt both its programs and service delivery operations. There is a risk that the Department’s capacity to meet the needs and expectations of Veterans will be challenged. This risk has been mitigated through the approval of a comprehensive, five-year transformation plan designed to deliver more timely and effective services to our aging traditional Veterans, and to the ever-increasing number of modern-day Veterans. Included in the plan are significant initiatives to modernize VAC and make it smaller while achieving its core mandate: the care and recognition for Veterans, Canadian Forces members, RCMP and their families. This plan has been designed to ensure that the right people are in the right places at the right time, and that VAC’s programs, service delivery model and communications are responsive, relevant and supported by modern information management and technical infrastructure.

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

VAC is in its first year of an ambitious five-year transformation plan (2011 – 2016). Following the Government’s decision on VAC’s 2008 Strategic Review, an independent assessment was conducted, recognizing the need for the Department to be prepared to respond to the needs of returning servicemen and women from Afghanistan. As a result, a 5-year transformation plan was developed to:

  • reduce the complexity of its policies, processes and practices;
  • overhaul service delivery;
  • strengthen partnerships;
  • deliver on the New Veterans Charter; and
  • align the Department with demographics.

VAC will overhaul its operations and service delivery to permit more timely and effective services to our aging traditional Veterans, and to the ever-increasing number of modern-day Veterans returning from missions in Afghanistan and around the world. This dramatic overhaul will make the Department leaner, more responsive, more efficient and ultimately result in savings to the fiscal framework.

Approved by:

_______________________________
Suzanne Tining, Deputy Minister
Charlottetown, PE
August 29, 2011

_______________________________
Heather Parry, Chief Financial Officer
Charlottetown, PE
August 29, 2011

II. Financial Statements

Departmental Budgetary Expenditures by Standard Object (unaudited)

Quarterly Financial Report for the Quarter Ended June 30, 2010
Fiscal year 2010-2011
Expenditures
(in thousands of dollars)
Planned expenditures for the year ending March 31, 2011 Expended during the quarter ended June 30, 2010 Year to date used at quarter-end
01 Personnel 273,257 72,917 72,917
02 Transportation and communications 42,250 7,545 7,545
03 Information 513 513
04 Professional and special services 369,037 95,676 95,676
05 Rentals 1,348 1,348
06 Repair and maintenance 11,430 2,811 2,811
07 Utilities, materials and supplies 249,900 36,058 36,058
08 Acquisition of land, buildings and works 992 992
09 Acquisition of machinery and equipment 607 607
10 Transfer payments 2,432,705 624,506 624,506
11 Public debt charges
12 Other subsidies and payments 24,065 3,597 3,597
Total gross budgetary expenditures 3,402,644 846,570 846,570
Less Revenues netted against expenditures
Total Revenues netted against expenditures:
Total net budgetary expenditures 3,402,644 846,570 846,570
Quarterly Financial Report for the Quarter Ended June 30, 2011
Fiscal year 2011-2012
Expenditures
(in thousands of dollars)
Total available for use for the year ended March 31, 2012* Used during the quarter ended June 30, 2011 Year to date used at quarter-end
01 Personnel 274,886 73,956 73,956
02 Transportation and communications 39,309 6,325 6,325
03 Information 50 50
04 Professional and special services 376,102 95,066 95,066
05 Rentals 1,290 1,290
06 Repair and maintenance 12,040 3,823 3,823
07 Utilities, materials and supplies 234,621 34,824 34,824
08 Acquisition of land, buildings and works 865 865
09 Acquisition of machinery and equipment 356 356
10 Transfer payments 2,556,365 646,065 646,065
11 Public debt charges
12 Other subsidies and payments 29,872 11,050 11,050
Total gross budgetary expenditures 3,523,195 873,670 873,670
Less Revenues netted against expenditures
Total Revenues netted against expenditures:
Total net budgetary expenditures 3,523,195 873,670 873,670

Statement of Authorities (unaudited)

Quarterly Financial Report for the Quarter Ended June 30, 2010
Fiscal year 2010- 2011
(in thousands of dollars) Total available for use for the year ending March 31, 2011* Used during the quarter ended June 30, 2010 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 930,168 212,111 212,111
Vote 05 - Grants and Contributions 2,432,508 624,506 624,506
Budgetary statutory authorities 39,968 9,953 9,953
Total Budgetary authorities 3,402,644 846,570 846,570
Non-budgetary authorities (1) (1)
Total Authorities 3,402,644 846,569 846,569

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

Quarterly Financial Report for the Quarter Ended June 30, 2011
Fiscal year 2011-2012
(in thousands of dollars) Total available for use for the year ended March 31, 2012* Used during the quarter ended June 30, 2011 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 924,832 217,102 217,102
Vote 05 - Grants and Contributions 2,556,168 646,065 646,065
Budgetary statutory authorities 42,195 10,503 10,503
Total Budgetary authorities 3,523,195 873,670 873,670
Non-budgetary authorities (1) (1)
Total Authorities 3,523,195 873,669 873,669

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

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