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October - December 2011

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended December 31, 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 and Supplementary 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 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.

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

During the third quarter of the current fiscal year, total authorities available for the year increased by $107.8 million (or 3.0%), compared to the previous quarter of fiscal year 2011-12; from $3,523 million to $3,631 million. $64.3 million of this funding was received through Supplementary Estimates (B) and the remaining $43.5 million through transfers from Treasury Board related to the payout of severance and termination benefits and the operating budget carry-forward. These adjustments resulted in a $76.6 million increase in Vote 1, Operating expenditures and a $31.2 million increase in Vote 5, Grants and contributions. There was no change in Budgetary 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 Veteran Affairs’ traditional programs.

Vote 1, Operating expenditures (increase of $76.6 million):

The increase of $76.6 million in the third quarter is primarily due to:

  • $37.5 million in expenditures on personnel due to the payout of severance and termination benefits related to the revision of specific collective agreements,
  • $20 million for extending the deadline for making ex gratia payments related to the health effects of Agent Orange use at CFB Gagetown to December 30, 2011,
  • $10.6 million to fund the Department’s Transformation plan,
  • $5.9 million in operating budget carry-forward, and
  • $2.6 million in miscellaneous items.
Vote 5, Grants and contributions (increase of $31.2 million):

The increase of $31.2 million in the third quarter is related to:

  • $21.3 million for Disability Pensions,
  • $8.5 million to implement the Enhanced New Veterans Charter Act, and
  • $1.3 million to establish the Community War Memorial Program.

Authorities used during the third quarter of 2011-12 are $33 million (3.8%) less than at the end of the same quarter in the previous year. However, overall year to date expenditures are consistent with previous fiscal years and the planned spending for the Department.

As a result of the Government expenditure management cycle, there are often fluctuations by quarter and between fiscal years when comparing authorities received and actual expenditures. Also, due to the quasi-statutory nature of the Department’s programs—demand-driven and based on need and entitlement, the Department has little control over the timing of payments.

Statement of Departmental Budgetary Expenditures by Standard Object

When analyzed by Standard Object, expenditures in the third quarter were generally consistent with prior year spending trends in the same categories. However, three key variances include:

  • A decrease of $45.8 million in the Transfer payments category, representing 1.8% of total planned Transfer payment expenditures, due to a decline in the number of War Service clients accessing Veteran Affairs’ traditional programs. This decrease is partially offset by an increase in the number of modern-day Veteran clients accessing programs under the New Veterans Charter.
  • An increase of $15 million within the Professional and special services category is offset by a corresponding decrease in the Utilities, materials and supplies category. This is a timing issue which will be reconciled after an appropriate re-allocation of expenditures.
  • An increase of $12.8 million in the Other subsidies and payments category which is attributed to the payment of ex gratia payments related to the health effects of Agent Orange use at CFB Gagetown.

3. Risks and Uncertainties

Cost containment measures announced in Budget 2010 require VAC to finance, on a permanent basis, wage increases resulting from current and future collective agreements negotiated between 2010–11 and 2012–13. The Department implemented budgetary restrictions in fiscal year 2008–09 which have mitigated the impact of the operating freeze.

VAC’s five-year Transformation plan to fundamentally change how the Department does business will result in profound changes unlike anything in VAC’s history. The total cost of the plan is $58.7 million over five years and will result in ongoing savings to the fiscal framework of $15.6 million per year beginning in 2016-17. Although the Department is still in the early stages of this plan and many challenges lie ahead, employees and management are well positioned to ensure a successful outcome. The work is organized under an integrated project plan which consists of 28 work packages. A Steering Committee, reporting to the Deputy Minister and chaired by the Associate Deputy Minister, is responsible for setting Transformation strategic direction, overseeing progress and measuring results. The Steering Committee’s work is supported by a team led by the Director General of Transformation.

As mentioned in the second quarter report, VAC is collaborating closely with senior management within Veterans Affairs Canada, the new Shared Services Canada and Treasury Board Secretariat (Program Sector and Chief Information Officer Branch) to determine roles and responsibilities and the appropriate division of resources for VAC’s three major IT Transformation work packages. The Department has developed a draft Memorandum of Understanding which will outline the resource and savings allocation, and determine the current and future year reference levels being transferred.

In recognition of Canada’s tightened fiscal environment, VAC has taken a rigorous approach to the management of expenditures, forecasting and commitment monitoring. It is also ensuring integration between its Transformation plan, investment plan, integrated business and human resource plan, and yet-to-be announced results of the deficit reduction action plan. This will enable the Department to address interdependencies, address risks and opportunities and ensure that complexities are considered when new business initiatives are proposed.

As outlined in previous reports, the demand-driven nature of VAC’s client programs causes the Department’s funding requirements to fluctuate from year to year. To address these fluctuations, VAC prepares an annual submission to have its program reference level adjusted (in-year and for the next fiscal year, in line with the government’s planning cycle). During the third quarter, VAC was granted approval for these adjustments based on its annual client and expenditure forecast, which has been attested by an independent third-party. The required authority for these adjustments will be granted by Parliament during the fourth quarter. Planned spending levels beyond next fiscal year as shown in the Department’s 2011-12 Report on Plans and Priorities, are based in part on base reference levels established in 2007 and are therefore, not necessarily reflective of the changing demographic profile and needs of VAC clients. These planned spending figures will be updated or corrected each year as noted above through the “estimates” process. For example, VAC’s planned spending over the past two years has increased by an average of $150 million through the “supplementary estimates” process. Based on the flexibility of this process, benefits for Veterans, their families and other clients are not affected.

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

Effective November 15, 2011, Veterans Affairs Canada earmarked $6.8 million (for fiscal year 2011-12) for Shared Services Canada, which is now responsible for e-mail, data centre and network services for the Government of Canada. By the end of the third quarter, VAC spent $1.6 million against this amount on Shared Services Canada’s behalf. These funds are still included in Veterans Affairs Canada’s authorities and expenditures.

The end of the third quarter also marked the first anniversary of the government’s initial endorsement of VAC’s Transformation plan. Although the majority of initiatives for transformation are both multi-year and multi-phased, the Department did implement further significant changes this quarter including a partnership with Service Canada to provide Canadians with information on VAC's programs and services and improved electronic services to provide Veterans, their families or other clients increased functionality online.

Approved by:

_______________________________
Suzanne Tining, Deputy Minister
Charlottetown, PE
February 24, 2012

_______________________________
Heather Parry, Chief Financial Officer
Charlottetown, PE
February 23, 2012

II. Financial Statements

Statement of Authorities (unaudited)

Statement of Authorities - Quarterly Financial Report for the Quarter Ended December 31, 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
December 31, 2010
Year to date used at quarter-end
Vote 1  - Net Operating expenditures 940,480 218,208 656,416
Vote 05 - Grants and Contributions 2,432,508 641,454 1,881,044
Budgetary statutory authorities 39,968 9,965 29,980
Total Budgetary authorities 3,412,956 869,627 2,567,440
Non-budgetary authorities - (1) (3)
Total Authorities 3,412,956 869,626 2,567,437

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

 

Statement of Authorities - Quarterly Financial Report for the Quarter Ended December 31, 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
December 31, 2011
Year to date used at quarter-end
Vote 1  - Net Operating expenditures Footnote1 1,001,401 230,716 702,454
Vote 05 - Grants and Contributions 2,587,393 595,690 1,869,803
Budgetary statutory authorities 42,194 10,509 31,579
Total Budgetary authorities 3,630,988 836,915 2,603,836
Non-budgetary authorities - - (2)
Total Authorities 3,630,988 836,915 2,603,834

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

Departmental Budgetary Expenditures by Standard Object (unaudited)

Quarterly Financial Report for the Quarter Ended December 31, 2010 by Standard Object
Fiscal year 2010-2011
Expenditures
(in thousands of dollars)
Planned expenditures for the year ending
March 31, 2011
Expended during the quarter ended
December 31, 2010
Year to date used at quarter-end
01 Personnel 276,043 76,199 224,175
02 Transportation and communications 42,250 9,004 23,972
03 Information 7,414 1,672 2,533
04 Professional and special services 371,346 83,711 267,344
05 Rentals 10,000 2,059 5,241
06 Repair and maintenance 12,430 1,377 7,295
07 Utilities, materials and supplies 249,900 50,711 137,776
08 Acquisition of land, buildings and works 2,065 943 2,710
09 Acquisition of machinery and equipment 6,000 717 2,450
10 Transfer payments 2,432,508 641,454 1,881,044
11 Public debt charges
12 Other subsidies and payments 3,000 1,780 12,900
Total gross budgetary expenditures 3,412,956 869,627 2,567,440
Less Revenues netted against expenditures
Total Revenues netted against expenditures:
Total net budgetary expenditures 3,412,956 869,627 2,567,440
Quarterly Financial Report for the Quarter Ended December 31, 2011 by Standard Object
Fiscal year 2011-2012
Expenditures
(in thousands of dollars)
Planned expenditures for the year ending
 March 31, 2012
Expended during the quarter ended
December 31, 2011
Year to date used at quarter-end
01 Personnel 313,605 78,482 256,682
02 Transportation and communications 36,985 9,617 23,977
03 Information 5,086 1,842 2,277
04 Professional and special services 385,485 98,673 302,451
05 Rentals 10,376 1,349 4,082
06 Repair and maintenance 12,943 1,160 6,300
07 Utilities, materials and supplies 236,939 34,120 102,140
08 Acquisition of land, buildings and works 14,405 508 1,774
09 Acquisition of machinery and equipment 7,574 916 1,931
10 Transfer payments 2,587,590 595,690 1,869,803
11 Public debt charges
12 Other subsidies and payments 20,000 14,558 32,419
Total gross budgetary expenditures 3,630,988 836,915 2,603,836
Less Revenues netted against expenditures
Total Revenues netted against expenditures:
Total net budgetary expenditures 3,630,988 836,915 2,603,836
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