Quarterly Financial Report for the quarter ended December 31, 2017

Unaudited

Statement outlining results, risks and significant changes in operations, personnel and program

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 report should be read in conjunction with the Main Estimates and Supplementary Estimates.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada's financial intelligence unit, exists to assist in the detection and deterrence of money laundering and terrorism financing. FINTRAC reports to the Minister of Finance and operates within the ambit of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations.

Further information on the mandate, roles, responsibilities and program of FINTRAC can be found in the FINTRAC 2017–18 Main Estimates, available on the following website: https://www.canada.ca/en/treasury-board-secretariat/services/planned-government-spending/government-expenditure-plan-main-estimates/2017-18-estimates.html

A. Organizational Overview

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit. The Centre exists to assist in the detection, prevention and deterrence of money laundering and the financing of terrorist activities. FINTRAC's actionable financial intelligence products and compliance functions are a unique contribution to the public safety of Canadians and to the protection of the integrity of Canada's financial system.

FINTRAC is an independent agency that operates at arm's length from the law enforcement agencies and other entities to which it is authorized to disclose financial intelligence. It reports to the Minister of Finance, who is in turn accountable to Parliament for the activities of the Centre. FINTRAC was established by, and operates within, the ambit of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations.

B. Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the department's spending authorities granted by Parliament and those used by the department consistent with the Main Estimates for the 2017–18 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.

The Centre uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

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

A. Statement of Authorities

i. Overview

FINTRAC's total authorities available for use at the end of the third quarter of 2017–18 are $55.2M. This represents a decrease of $4.1M, or 6.9% when compared to the $59.3M in authorities available for use in the third quarter of 2016–17.

Comparison of Authorities by Fiscal Year ($M)
Comparison of Authorities by Fiscal Year. Details in text following the chart.
View the text equivalent for Comparison of Authorities by Fiscal Year
Comparison of Authorities by Fiscal Year ($M)
  2017–18 2016–17
Budgetary Authorities 49.9 53.5
Statutory Authorities 5.3 5.8
ii. Budgetary Authorities

FINTRAC's budgetary authorities ($49.9M) have decreased by $3.6M, or 7%, when compared to the same period last year ($53.5M) due primarily to the following changes:

iii. Statutory Authorities

Authorities for contributions to employee benefit plans (EBP) decreased by $0.5M, or 8% when compared to the same period last year, primarily due to an adjustment of the contribution rate used.

B. Statement of Departmental Budgetary Expenditures by Standard Object

i. Planned Expenditures

Budget 2014 directed resources to FINTRAC in order to modernize the analytics system used to strengthen Canada's anti-money laundering and anti-terrorist financing regime. Following the profile of funding received, planned expenditures for acquisitions of machinery and equipment decreased by $3.4M in 2017–18.

FINTRAC reduced its planned spending in the category of transportation and communication by $0.4M to reflect the decrease in funding to support the implementation of legislative amendments directed to FINTRAC in Budget 2014.

Planned spending in the category of professional and special services decreased by $1.8M in order to align with expected reduced spending related to the analytics modernization project as well as recent historical spending trends.

In 2017–18, FINTRAC's Compensation Review Committee announced its decision to pay an economic increase to its employees. Although FINTRAC employees work in an unrepresented environment and do not participate in collective bargaining, FINTRAC's practice has been to determine its employees' pay increases based on a review of terms negotiated with bargaining agents in the core public service. A reprofile of previous years' funding was received in 2017–18 for the purpose of funding additional personnel expenditures, resulting in an increase of $0.9M in planned expenditures for personnel.

As FINTRAC is a fully reimbursing client of Public Services and Procurement Canada (PSPC), planned spending in the category of rentals increased by $0.5M given the rising cost of office accommodations.

ii. Year-to-date Expenditures

Total actual budgetary expenditures at the end of the third quarter decreased by $0.8M or 2%, from $38.9M in 2016–17 to $38.1M in 2017–18.

Year-to-date expenditures for professional and special services decreased by $4.6M. The decrease is primarily due to a decrease in IT consulting service costs related to the Analytical Modernization project.

Personnel spending increased by $2.7M in the third quarter of 2017–18 compared to 2016–17. This is mainly due to economic increases paid to employees in 2017–18. Increases had not been paid to employees since 2014 as collective agreements were still being negotiated in the core public service.

Other items offsetting the decrease in professional and special services are year-to-date increases of $0.7M in rental expenses, $0.2M in other subsidies and payments, $0.1M in utilities, materials and supplies and $0.1M in acquisition of machinery and equipment.

3. Risks and Uncertainties

As Canada's financial intelligence unit and a partner in Canada's anti-money laundering and anti-terrorist financing regime, FINTRAC operates in a dynamic, constantly changing environment. In seeking to be proactive in identifying risks and opportunities, FINTRAC must anticipate and assess internal and external risk factors that can affect the design and delivery of its program and the achievement of its strategic objectives. Additionally, FINTRAC must identify factors and risks that could adversely affect its ability to effectively manage its resources. FINTRAC has developed a Corporate Risk Profile (CRP) to identify and manage its key corporate risks. The CRP is reviewed regularly by senior level committees and the business planning process identifies activities to mitigate the risks. This contributes to the decision making processes for investment management and budgeting.

A. Risk Factors and Mitigation

An important area of risk identified in FINTRAC's CRP is Resource Management. FINTRAC places a strong focus on the effective management of both human and financial resources especially during periods of change and transformation. As a small organization, FINTRAC faces challenges and limitations regarding its human resources capacity and its flexibility to cash manage funds.

To ensure that FINTRAC is able to attract and retain the talent needed to deliver on its mandate, the organization strives to create an engaging work environment that encourages excellence, offers competitive salaries and benefits, provides learning and development opportunities, and demonstrates a commitment to work/life balance. Leadership development opportunities are an important consideration not only for retention and succession management, but also to ensure the Centre has the leadership expertise and skills to adapt to its evolving business context. Individual learning plans support employee performance, and take into account career development objectives. Personnel spending is closely monitored to ensure fiscal stewardship.

Over the next few years, the Centre will face growing operating pressures due to increasing cost of operation and expenses of implementing government-wide technology centric investments and, as a fully reimbursing client of Public Services and Procurement Canada (PSPC), bearing the rising cost of office accommodations, building maintenance and leasehold improvements. To date, however, the impact has been managed through the following actions and mitigation strategies:

Given the current state of the information technology infrastructure, namely the analytics system, it has been increasingly difficult for FINTRAC to efficiently manage the high volume of data it receives. To address the risk of system degradation that would impact the integrity of the Financial Intelligence Program, FINTRAC is implementing a multi-year project to modernize its analytics system and establish more efficient business processes and tools. Sustained effort is being made within the Centre to ensure the successful implementation of this significant project within its aggressive timelines. Such efforts include significant planning and oversight activities, establishing processes to ensure the required technical tools and resources are available to address day-to-day operational issues and provide input into future business processes and systems, and initiatives to maintain an engaged workforce.

Finally, FINTRAC's IT infrastructure is now a Shared Services Canada (SSC) asset. This infrastructure is aging and has an increased risk of failure, which could potentially have an impact on FINTRAC operations and security requirements. With competing priorities from various partner departments, and a strategic focus toward end-state services, SSC has limited funding available for legacy infrastructure. This places an additional pressure on the Centre (which has provided supplemental funding for essential initiatives) to effectively plan, allocate its resources and deliver on its programs. To mitigate, FINTRAC will continue to implement a breadth of strategies, including: working closely with SSC and partners concerned with protecting National Security to identify potential synergies; tracking existing and potential future issues with the Centre's legacy environments; conducting weekly status meetings and monthly partnership meetings with SSC; continuing to collaborate and partner with Chief Information Officers across the Government of Canada for potential solutions; and, leveraging innovative technical solutions wherever possible.

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

A. Key Personnel Changes

The following key personnel changes occurred at the executive level in the third quarter:

B. Funding Authorities

Budget 2014 directed resources (up to $22.5M over 5 years) to FINTRAC in order to support the implementation of legislative amendments and to modernize the analytics system used to strengthen Canada's anti-money laundering and anti-terrorist financing regime. FINTRAC's funding for these initiatives is $2.7M (excluding EBP) in 2017–18 compared to funding of $7.9M in 2016–17.

Budget 2015 directed resources (up to $3.5M over 5 years and $1M ongoing) to fight white-collar crime by authorizing FINTRAC to disclose financial intelligence to provincial securities regulators. FINTRAC's funding for this initiative is $0.8M (excluding EBP) in 2017–18 compared to funding of $0.5M in 2016–17.

5. Approval by Senior Officials

Approved by:

Stéphane Cousineau, A/Interim Director
Chief Financial Officer

Ottawa, Canada
Date: February 26, 2018


STATEMENT OF AUTHORITIES (unaudited) Footnote1
For the quarter ended December 31, 2017
(in thousands of dollars)
  Fiscal Year 2017–18 Fiscal Year 2016–17
  Total available for use for the year ending March 31, 2018Footnote1 Used during the quarter ended December 31, 2017 Year-to-date used at quarter-end Total available for use for the year ending March 31, 2017Footnote1 Used during the quarter ended December 31, 2016 Year-to-date used at quarter-end
Budgetary authorities            
Vote 1 – Program expenditures 49,881 13,901 34,159 53,533 10,794 34,717
Budgetary statutory authorities            
Contributions to employee benefit plans
5,283 1,321 3,962 5,741 1,414 4,241
Total budgetary authorities 55,164 15,222 38,121 59,274 12,207 38,958
Non-budgetary authorities 0 0 0 0 0 0
Total authorities 55,164 15,222 38,121 59,274 12,207 38,958

Note: Totals may not add due to rounding.

DEPARTMENTAL BUDGETARY EXPENDITURES BY STANDARD OBJECT (unaudited)
For the quarter ended December 31, 2017

(in thousands of dollars)
  Fiscal Year 2017–18 Fiscal Year 2016–17
  Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended December 31, 2017 Year-to-date used at quarter end Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended December 31, 2016 Year-to-date used at quarter end
Expenditures            
Personnel 39,976 12,162 30,887 39,046 8,323 28,207
Transportation and communications 1,149 214 750 1,574 343 900
Information 241 45 179 275 47 133
Professional and special services 4,777 1,059 1,976 6,555 2,384 6,555
Rentals 7,222 1,209 3,401 6,677 918 2,715
Repair and maintenance 715 98 170 605 43 146
Utilities, materials and supplies 362 250 372 390 132 241
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 721 108 209 4,150 20 70
Transfer payments 0 0 0 0 0 0
Other subsidies and payments 0 76 177 0 (2) (8)
Total budgetary expenditures 55,164 15,222 38,121 59,274 12,207 38,958

Note: Totals may not add due to rounding.

Date Modified: