Departmental Quarterly Financial Report (July - September 2018)

July - September 2018

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended September 30, 2018

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 as well as Economic Action Plan 2017 and 2018 (Budget 2017 and Budget 2018).

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 2018-19 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 107,078 as of March 31, 2018, to 112,900 as of March 31, 2019) and a decrease in the number of War Service Veterans and survivors (forecast to decrease from 67,648 as of March 31, 2018, to 60,000 as of March 31, 2019). Despite the slight decrease in overall Veterans and recipients of VAC benefits, recent program enhancements have increased the demand on New Veterans Charter programs and benefits.

As at September 30, 2018, total authorities available (i.e. budget) for the year have decreased by $299M (6.4%) compared to the same quarter of the previous year, from $4,704M to $4,405M. This decrease is the result of a $401M decrease in Vote 5, Grants and Contributions and a $102M increase in Vote 1, Operating Expenditures.

Total authorities used (i.e. expenditures) during the second quarter of 2018-19 are $140M (14.1%) more when compared to the same three-month period of 2017-18, increased from $994M to $1,134M. A break-down in the spending for the second quarter of 2018-19 indicates Grant and Contribution spending increased by $132M, primarily attributed to increased demand, as well as efficiency in processing applications for the Disability Awards and Earnings Loss programs. Additionally, spending on Operating expenditures (Vote 1) increased slightly by approximately $7.9M, and spending on statutory authorities remained relatively stable with only a small increase of approximately $72K.

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, 2017 and September 30, 2018 (in millions of dollars)

Fiscal Years	2017-2018	2018-2019
Net Budgetary Authorities	4,704	4,405
Expenditures for the Quarter ended September 30th	994	1134
Year to date Expenditures	2,584	2,257

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.

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 $132M in Transfer Payments primarily attributed to increased demand and efficiency in processing applications for Disability Awards and Earnings Loss.
• A decrease of $12M in Personnel services primarily related to collective bargaining payments which impacted expenditures in the second quarter of 2017-18.
• An increase of $10.5M in Professional and Special Services primarily attributed to increased demand for Cannabis for medical purposes and the implementation of Pension for Life.

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.

VAC continues to manage through close collaboration across the Department. As such, the Department's executive-level committee (Senior Management Committee) recommends overall direction for financial management and control, and the Corporate Policy and Planning Management Committee ensures alignment of investments with departmental strategies and other initiatives. Each branch is required to have Integrated Business Plans that have been approved by the Senior Management Committee to confirm that plans are in place to address the financial requirements of the branch. The Department captures program and corporate level risk in its Integrated Business Plans and parliamentary reports. 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
   4. Progressing toward the government's goal of a 25:1 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
   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
   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 (DAC) 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 financial objectives. Further information on risks facing the Department and the steps taken to mitigate them can be found in the 2018-19 Departmental Plan.

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

To address the increased demand for Operational Stress Injury (OSI) Clinic services in areas of need, two new OSI satellite service sites were opened. On August 6, 2018, Sherry Romanado, Parliamentary Secretary to the Minister of Veterans Affairs and Associate Minister of National Defence, joined Gaétan Barrette, Quebec Minister of Health and Social Services for the opening of a new OSI satellite service site in Longueuil, Quebec. On September 13, 2018, the Honourable Seamus O'Regan, Minister of Veterans Affairs and Associate Minister of National Defence, joined Saskatchewan Health Authority's CEO Scott Livingstone for the opening of a new OSI Satellite Service Site in Saskatoon, Saskatchewan.

On August 31, 2018, the Prime Minister, Justin Trudeau, announced changes to the parliamentary secretaries. Stéphane Lauzon became the Parliamentary Secretary to the Minister of Veterans Affairs and Associate Minister of National Defence.

Pension for Life

On February 5, 2018, the Department's Service Delivery branch launched the Pension for Life (PFL) implementation project. The project rolls out new program benefits such as Income Replacement Benefit, Pain and Suffering Compensation, and Additional Pain and Suffering Compensation.

Veterans Affairs Canada (VAC) will start accepting applications and paying new benefits on April 1st, 2019. It is expected that the implementation project will close a year later. The total project team includes over eight (8) self-managed teams with members from different areas of the Department. These teams reach out across the Department to gather the information and skills necessary to complete the work.

The staffing required to properly support the project is an important aspect of PFL. VAC is applying innovative recruitment approaches to attract and retain the talent required.

Another important facet of PFL is the need to train staff. More than forty (40) training modules are being delivered to staff across the Department. Multiple delivery approaches will be used, including self-paced modules, video-conferencing and classroom training.

In 2018, the Department changed its project delivery approach from a predictive model to an adaptive model. Adaptive models, often referred to as "agile", rely on iterative deployments and continuous improvement. The agile approach requires breaking the work into units small enough to be prioritized and completed in one iteration each. This new approach necessitates empowering the teams to make the decisions required to complete the work on time. Leading by example and results, the Department's divisions are adopting agile practices and restructuring themselves to maximize efficiencies.

5. Approvals by Senior Officials

Original signed by:

II. Financial Statements

Statement of Authorities (unaudited)

Veterans Affairs Canada
Quarterly Financial Report for the Quarter Ended September 30, 2017
STATEMENT OF AUTHORITIES (unaudited)
Fiscal Year 2017-18

(in thousands of dollars)	Total available for use for the year ended March 31, 2018*	Used during the quarter ended September 30, 2017	Year-to-date used at quarter-end
Vote 1 - Net Operating expenditures	944,086	221,101	422,475
Vote 5 - Grants and Contributions	3,728,239	765,123	2,146,483
Statutory Authority - Minister's Salary and Motor Car Allowance	84	21	42
Statutory Authority - Court Award - Crown Liability and Proceeding Act	0	0	5
Statutory Authority - Refunds of Previous Years Revenue	0	3	4
Statutory Authority - Contributions to Employee Benefit Plans - Program	30,920	7,730	15,460
Statutory Authority - Veterans Insurance Actuarial Liability Adjustment	175	0	0
Statutory Authority - Returned Soldiers Insurance Actuarial Liability Adjustment	10	0	0
Statutory Authority - Re-establishment credits under Section 8 of the War Services Grants Act	2	0	0
Statutory Authority - Repayments under Section 15 of the War Services Grants Act	10	0	0
Total Statutory	31,201	7,754	15,511
Total Budgetary authorities	4,703,526	993,978	2,584,469
Non-budgetary authorities	0	0	0
Total Authorities	4,703,526	993,978	2,584,469

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

Veterans Affairs Canada
Quarterly Financial Report for the Quarter Ended September 30, 2018
STATEMENT OF AUTHORITIES (unaudited)
Fiscal Year 2018-19

(in thousands of dollars)	Total available for use for the year ending March 31, 2019*	Used during the quarter ended September 30, 2018	Year-to-date used at quarter-end
Vote 1 - Net Operating expenditures	1,046,581	228,952	433,327
Vote 5 - Grants and Contributions	3,327,017	897,166	1,808,299
Statutory Authority - Minister's Salary and Motor Car Allowance	86	22	44
Statutory Authority - Court Award - Crown Liability and Proceeding Act	0	2	2
Statutory Authority - Refunds of Previous Years Revenue	0	0	0
Statutory Authority - Contributions to Employee Benefit Plans - Program	31,210	7,802	15,605
Statutory Authority - Veterans Insurance Actuarial Liability Adjustment	175	0	0
Statutory Authority - Returned Soldiers Insurance Actuarial Liability Adjustment	10	0	0
Statutory Authority - Re-establishment credits under Section 8 of the War Services Grants Act	2	0	0
Statutory Authority - Repayments under Section 15 of the War Services Grants Act	10	0	0
Total Statutory	31,493	7,826	15,651
Total Budgetary authorities	4,405,091	1,133,944	2,257,277
Non-budgetary authorities	0	0	0
Total Authorities	4,405,091	1,133,944	2,257,277

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

Departmental Budgetary Expenditures by Standard Object (unaudited)

Veterans Affairs Canada
Quarterly Financial Report for the Quarter Ended September 30, 2017
Departmental budgetary expenditures by Standard Object (unaudited)
Fiscal year 2017-18

Expenditures (in thousands of dollars)	Planned expenditures for the year ended March 31, 2018	Expended during the quarter ended September 30, 2017	Year-to-date used at quarter-end
01 Personnel	227,949	73,410	132,088
02 Transportation and communications	30,895	7,275	13,869
03 Information	6,248	406	452
04 Professional and special services	463,047	101,977	189,082
05 Rentals	8,085	1,246	2,397
06 Repair and maintenance	11,025	1,065	1,601
07 Utilities, materials and supplies	218,654	42,035	91,761
08 Acquisition of land, buildings and works	735	0	0
09 Acquisition of machinery and equipment	2,572	356	551
10 Transfer payments	3,728,436	765,123	2,146,483
11 Public debt charges	0	0	0
12 Other subsidies and payments	5,880	1,085	6,185
Total gross budgetary expenditures	4,703,526	993,978	2,584,469
Less Revenues netted against expenditures	0	0	0
Total Revenues netted against expenditures:	0	0	0
Total net budgetary expenditures	4,703,526	993,978	2,584,469

Veterans Affairs Canada
Quarterly Financial Report for the Quarter Ended September 30, 2018
Departmental budgetary expenditures by Standard Object (unaudited)
Fiscal year 2018-19

Expenditures (in thousands of dollars)	Planned expenditures for the year ending March 31, 2019	Expended during the quarter ended September 30, 2018	Year-to-date used at quarter-end
01 Personnel	236,624	61,167	121,305
02 Transportation and communications	36,207	8,203	15,638
03 Information	4,157	791	1,055
04 Professional and special services	508,436	112,474	195,739
05 Rentals	8,807	1,174	2,038
06 Repair and maintenance	10,513	604	1,115
07 Utilities, materials and supplies	256,283	49,550	100,125
08 Acquisition of land, buildings and works	528	0	0
09 Acquisition of machinery and equipment	2,520	815	1,128
10 Transfer payments	3,327,214	897,166	1,808,299
11 Public debt charges	0	0	0
12 Other subsidies and payments	13,802	2,000	10,835
Total gross budgetary expenditures	4,405,091	1,133,944	2,257,277
Less Revenues netted against expenditures	0	0	0
Total Revenues netted against expenditures:	0	0	0
Total net budgetary expenditures	4,405,091	1,133,944	2,257,277

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