Quarterly Financial Report for the quarter ended December 31, 2018

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 programs of FINTRAC can be found in the FINTRAC 2018–19 Main Estimates, available on the following website: https://www.canada.ca/en/treasury-board-secretariat/services/planned-government-spending/government-expenditure-plan-main-estimates/2018-19-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 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 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 results 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 2018–19 are $54.8M. This represents a decrease of $0.4M, or 0.7% when compared to the $55.2M in authorities available for use in the third quarter of 2017–18.

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
FINTRAC's total authorities available (in millions)
  2018–19 2017–18
Budgetary Authorities 49.5 49.9
Statutory Authorities 5.3 5.3
ii. Budgetary Authorities (Vote 1 – Program Expenditures)

FINTRAC's budgetary authorities ($49.5M) have decreased by $0.4M, or 0.8%, when compared to the same period last year ($49.9M) due primarily to the following changes:

iii. Statutory Authorities (Employee Benefits Program)

Authorities for contributions to employee benefit plans (EBP) have remained consistent when compared to the same period last year.

B. Statement of Departmental Budgetary Expenditures by Standard Object

i. Planned Expenditures

In fiscal year 2017–18, FINTRAC approved and paid employees a retroactive economic increase for 2014 to 2017. Following this salary increase and associated increase in compensation funding from TBS, planned personnel expenditures for 2018–19 have increased by $0.8M.

In accordance with the funding profile for the Analytical Modernization project, planned spending for Acquisition of Machinery and Equipment has decreased by $0.3M, and planned spending for Professional and Special Services has decreased by $0.4M.

Planned spending in Repair and Maintenance, Transportation and Communications, Information, and Rentals have been reduced by a total of $0.5M based on recent spending trends.

ii. Year-to-date Expenditures

Total actual budgetary expenditures at the end of the third quarter have decreased by $1.9M or 5.0%, from $38.1M in 2017–18 to $36.2M in 2018–19.

Year-to-date Personnel spending has decreased by $1.9M. This is mainly due to a decrease in employee salary expenditures following the payment of retroactive economic increases in fiscal year 2017–18.

Professional and Special Services expenditures have decreased by $0.4M, primarily due to the collective bargaining process for Department of Justice lawyers which has delayed the billing for legal services.

Rental expenses have increased by $0.4M due to timing differences in billing for FINTRAC's office spaces, as well as increases in software licensing expenditures.

Transportation and Communications expenses have increased by $0.2M due to an increase in the cost of data communications services. This increase is offset by a $0.1M decrease in Other Subsidies and Payments due to lower salary overpayments, as well as a $0.1M decrease in Utilities, Materials and Supplies.

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. Employee engagement at all levels, along with appropriate talent and tools, is required to ensure effective resource management. As well, effective management of resources through periods of transformation, such as that generated by the analytics modernization initiative, is critical to ensure effective alignment of resources and to seize investment opportunities as they materialize.

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.

The Centre continues to 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 continues the process of aligning its operations and business processes to increase its efficiency and effectiveness. The modernization of the Centre's analytics system is a key priority of FINTRAC's transformation agenda and its impact will be sweeping and long lasting. When implemented, the new analytics system will bring efficiency through the automation of manual work and allow for the full use of the Centre's data and knowledge.

Finally, FINTRAC's IT infrastructure is 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

There were no key personnel changes 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 $1.9M (excluding EBP) in 2018–19 compared to funding of $2.6M in 2017–18 (part of which was received through Supplementary Estimates B in Q3 2017–18).

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 $0.73M (excluding EBP) in 2018–19 compared to funding of $0.75M in 2017–18. This funding has been included in FINTRAC's Annual Reference Level Update (ARLU) and is received through the Main Estimates.

5. Approval by Senior Officials

Nada Semaan, Director and CEO

Date: February 21, 2019

Donna Achimov, Chief Financial Officer

Date: February 15, 2019


STATEMENT OF AUTHORITIES (unaudited) Footnote 1
For the quarter ended December 31, 2018
(in thousands of dollars)
  Fiscal Year 2018–19 Fiscal Year 2017–18
  Total available for use for the year ending March 31, 2019 Footnote1 Used during the quarter ended December 31, 2018 Year-to-date used at quarter-end Total available for use for the year ending March 31, 2018 Used during the quarter ended December 31, 2017 Year-to-date used at quarter-end
Budgetary authorities            
Vote 1 – Program expenditures 49,515 12,355 32,220 49,881 13,901 34,159
Budgetary statutory authorities            
Contributions to employee benefit plans 5,277 1,319 3,958 5,283 1,321 3,962
Total budgetary authorities 54,792 13,674 36,178 55,164 15,222 38,121
Non-budgetary authorities 0 0 0 0 0 0
Total authoritiesFootnote2 54,792 13,674 36,178 55,164 15,222 38,121

DEPARTMENTAL BUDGETARY EXPENDITURES BY STANDARD OBJECT (unaudited)
For the quarter ended December 31, 2018

(in thousands of dollars)
  Fiscal Year 2018–19 Fiscal Year 2017–18
  Planned expenditures for the year ending March 31, 2019 Expended during the quarter ended December 31, 2018 Year-to-date used at quarter-end Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended December 31, 2017 Year-to-date used at quarter-end
Expenditures            
Personnel 40,765 9,795 28,980 39,976 12,162 30,887
Transportation and communications 1,273 268 949 1,149 214 750
Information 357 50 180 241 45 179
Professional and special services 4,331 691 1,560 4,777 1,059 1,976
Rentals 6,805 2,619 3,842 7,222 1,209 3,401
Repair and maintenance 412 38 201 715 98 170
Utilities, materials and supplies 430 91 257 362 250 372
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 419 122 181 721 108 209
Transfer payments 0 0 0 0 0 0
Other subsidies and payments 0 0 28 0 76 177
Total budgetary expenditures Footnote3 54,792 13,674 36,178 55,164 15,222 38,121
Date Modified: