Departmental Quarterly Financial Report (October - December 2020)

October - December 2020

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended December 31, 2020

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 (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 and Supplementary Estimates for the 2020-21 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

This section highlights the significant elements that contributed to the changes in Authorities available (i.e. budget) for the fiscal year, as well as the quarterly and year-to-date expenditures for the quarter ended December 31, 2020.

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. Consistent with previous fiscal years, current departmental forecasts are predicting higher program payment expenditures by the end of 2020-21 as compared to last fiscal year (i.e. 2019-20).

The following tables provide a comparison of the authorities available for use and the expenditures for the quarters ending December 31, 2020 and December 31, 2019 for the Department.

2.1 Statement of Authorities

Fiscal Year-to-Date

2.1.1 Changes in Fiscal Year-to-Date Authorities Available

Table 1: Changes in year-to-date Authorities Available for the Year Ending March 31, 2021 (in thousands of dollars):

Authorities (Available as at quarter end)	2020-21	2019-20	Variance ($)	Variance (%)
Vote 1 – Operating Expenditures	1,259,184	1,267,174	(7,990)	(0.6)
Vote 5 – Grants and Contributions	4,044,622	3,954,684	89,938	2.3
Budgetary Statutory Authorities	67,530	39,245	28,285	72.1
Total Authorities	$5,371,336	$5,261,103	$110,233	2.1%

As at December 31, 2020, total authorities available (i.e. budget) at quarter-end increased by $110M (2.1%) compared to amounts available at the same quarter-end of the previous year, from $5,261M to $5,371M. The most significant changes to authorities available for use are explained below.

Vote 1 - Operating Expenditures – decrease of $7.9M

• This decrease is mostly attributable to the conclusion of funding related to the Toth class action settlement agreement for compensation payments in accordance with the Final Settlement Agreement authorized by the court.
• This decrease is offset by new funding received to increase the Department’s capacity to continue to address the backlog and improve wait times for disability benefits.
• The decrease is also offset by an increase in budget to meet increased demand for certain types of treatment benefits and health services for Veterans.

Vote 5 – Grants and Contributions – increase of $89.9M

• This increase is largely due to the growing demand for the Department’s Pension For Life programs. Introduced in 2019–20, these programs have seen a greater uptake than originally forecast. In addition, the number of Veterans choosing lump-sum payments over monthly payments for the new Pain and Suffering Compensation has resulted in increased planned spending for these programs.

Budgetary Statutory authorities – increase of $28.3M

• VAC was granted funding during the quarter relating to economic recovery in response to COVID-19. This funding was used for Statutory payments to support Veterans' Organizations.
• Funding was also received for Contribution for Employee Benefit Plans (EBP) associated with the new funding received to reduce the backlog and improve the delivery of services and programs (as mentioned above in the Vote 1 – Operating Expenditures section).

2.1.2 Changes in Fiscal Year-to-Date Expenditures

Table 2: Changes in year-to-date Expenditures used as of December 31, 2020 and December 31, 2019 (in thousands of dollars)

Expenditures (year-to-date as at quarter end)	2020-21	2019-20	Variance ($)	Variance (%)
Vote 1 – Operating Expenditures	727,465	814,125	(86,660)	(10.6)
Vote 5 – Grants and Contributions	2,776,982	2,741,663	35,319	1.3
Budgetary Statutory Authorities	63,923	28,458	35,465	124.6
Total Expenditures	$3,568,370	$3,584,246	$(15,876)	(0.4)%

Year-to-date expenditures for Veterans Affairs Canada are $16M less (0.4% decrease) when compared to the same timeframe in 2019-20. This decrease in expenditures from 2019-20 can be explained by the variances detailed below.

Vote 1 - Operating Expenditures – decrease of $86.7M

• This decrease in spending is mainly attributed to Payments made during 2019-20 to fulfill the Department’s legal obligations as prescribed in the Toth Class Action Final Settlement Agreement.
• Decrease in spending as a result of COVID-19 measures which have impacted spending on items such as travel and event management fees associated with overseas events.
• These decreases were partially offset by an increase in spending in Personnel, primarily attributed to the continued efforts to address the backlog and improve the delivery of services and programs to Veterans and their families; and

Vote 5 - Grants and Contributions - increase of $35.3M

• This increase in spending is primarily due to the continued increase in processing capacity as the department continues to reduce the backlog and improve the delivery of services and programs to Veterans and their families.
• The continued growth of the Pension for Life (PFL) programs as eligible clients continues to grow, has also resulted in increased spending.
• In addition, the Department has seen an increase in the number of Veterans choosing lump sum payments over monthly for the new Pain and Suffering Compensation Benefit.

Budgetary Statutory authorities – increase of $35.4M

• Mostly due to payments made to support Veterans’ organizations pursuant to the Public Health Events of National Concerns Payments Act, an Act relating to economic recovery in response to COVID-19.

Fiscal Quarter

2.1.3 Changes in Expenditures – Quarter to Quarter Comparison

Table 3: Changes in Expenditures used during Quarter 3 2020 (October 1 – December 31 2020) and Quarter 3 2019 (October 1 – December 31 2019) (in thousands of dollars)

Expenditures (used during Quarter 3)	2020-21	2019-20	Variance ($)	Variance (%)
Vote 1 – Operating Expenditures	283,022	265,788	17,234	6.5
Vote 5 – Grants and Contributions	971,422	1,026,596	(55,174)	(5.4)
Budgetary Statutory Authorities	28,540	9,483	19,057	201.0
Total Expenditures	$1,282,984	$1,301,867	$(18,883)	(1.5)%

In-quarter expenditures for Veterans Affairs Canada are $18.9M less (1.5% decrease) when compared to the same timeframe in 2019-20. This decrease as compared to the third quarter in 2019-20 can be explained by variances detailed below.

Vote 1 - Operating Expenditures – increase of $17.2M

• An increase in Personnel spending, primarily attributed to the continued efforts to address the backlog and improve the delivery of services and programs to Veterans and their families. This increase is offset by decreases in spending in travel and event management fees associated with overseas events due to the impacts of COVID 19.
• An increase in health care benefits (Treatment Benefits) available through the Department’s 14 Programs of Choice (POCs) which have seen increases with the temporary lifting of certain COVID restrictions within quarter 3. Services and Benefits such as dental, audio (hearing) services, hospital, medical, physiotherapy services etc. which require an in-person aspect, had been limited or delayed earlier in the year due to restrictions.

Vote 5 - Grants and Contributions – decrease of $55.2M

• Most of the decrease in spending is attributable to payments which were made in 2019-20 for the correction of indexation of the Disability Pension Program.

Budgetary Statutory authorities – increase of $19.1M

• Mostly due to payments made to support Veterans’ organizations pursuant to the Public Health Events of National Concerns Payments Act, an Act relating to economic recovery in response to COVID-19 (as mentioned above).

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 121,592 as of March 31, 2020, to 132,100 as of March 31, 2021) and a decrease in the number of War Service Veterans and survivors (forecast to decrease from 50,203 as of March 31, 2020, to 44,000 as of March 31, 2021).

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.

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.

In response to the global pandemic (COVID-19), the Government of Canada is also monitoring risks in various areas, including: Governance, Business Continuity Planning and Emergency Preparedness, IT Systems and Security, Information Management and Privacy, Finance and Workforce Health. VAC is also monitoring additional risks resulting from the pandemic which could impact our ability to meet Veterans expectations, manage workforce capacity and create delays in hiring/onboarding staff.

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

Veterans Organizations Emergency Support Fund

The Honourable Lawrence MacAulay, Minister of Veterans Affairs and Associate Minister of National Defence, announced $20 million in new funding to create a temporary Veterans Organizations Emergency Support Fund. This funding provides financial support to Veterans organizations who have been hit hard by the COVID-19 pandemic, and who are in need of immediate support. The $20 million was provided in the form of grants to 42 non-profit and charitable Veterans organizations, including The Royal Canadian Legion ($14 million), ANAVETS ($1 million), True Patriot Love ($1.5 million) and VETS Canada ($850,000) to cover a portion of their operating expenditures.

Personnel

The Honourable Lawrence MacAulay, Minister of Veterans Affairs and Associate Minister of National Defence welcomed the appointment of Nishika Jardine as the new Veterans Ombudsperson. Colonel (Ret’d) Nishika Jardine served almost 37 years as an officer in the Corps of Royal Canadian Electrical & Mechanical Engineers (RCEME). She has served and lead in Maintenance organizations with the Army at Canadian Forces Base (CFB) Gagetown, the Navy at CFB Esquimalt, and the Air Force at 19 Wing Comox. She commanded the RCEME School from 2008 to 2010, deployed to Afghanistan on Operation ATHENA, and was promoted to Colonel in 2014. Since leaving the Canadian Armed Forces, she has worked as a consultant and served on various boards of directors in a volunteer capacity.

5. Approvals by Senior Officials

Original signed by:

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II. Financial Statements

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

*Authorities available for use and granted by Parliament at quarter-end. Due to the COVID-19 pandemic and limited sessions in the spring for Parliament to study supply, the Standing Orders of the House of Commons were amended to extend the supply period in to the Fall. Veterans Affairs Canada received full supply for the 2020-21 Main Estimates in December 2020.

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

* Includes only Authorities available for use and granted by Parliament at quarter-end. Due to the COVID-19 pandemic and limited sessions in the spring for Parliament to study supply, the Standing Orders of the House of Commons were amended to extend the supply period in to the Fall. Veterans Affairs Canada received full supply for the 2020-21 Main Estimates in December 2020.