2011-2012 Quarterly Financial Report for the quarter ended September 30, 2011

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

1. Introduction

This quarterly financial 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 Accounting Standard 1.3. This report should be read in conjunction with the Main Estimates and has not been subject to an external audit or review.

Canada's fisheries and oceans have played and continue to play an important historic, economic, and cultural role in Canada's development and growth as a nation. Fisheries and Oceans Canada (DFO) has the lead federal role in managing Canada's fisheries and safeguarding its waters.

The Canadian Coast Guard (CCG), a Special Operating Agency within DFO, is responsible for services and programs that contribute to the safety, security, and accessibility of Canada's waterways. CCG supports other government organizations by providing a civilian fleet and a broadly distributed shore-based infrastructure.

Further details on Fisheries and Oceans Canada's authority, mandate and program activities may be found in the Report on Plans and Priorities and the Main Estimates (Part II).

1.1 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes DFO's spending authorities granted by Parliament and those used by the Department consistent with the Main Estimates for 2011-2012. DFO did not seek an increase to its spending authorities through 2011-2012 Supplementary Estimates (A). 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.

The Department 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 of accounting.

2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results

2.1 Statement of Authorities

DFO's total authorities available for use as at the end of the second quarter of 2011-2012 were $1,881.8 million - $122.1 million, or 6.1% less than the $2,003.9 million authorized at the same point in 2010-2011.

Authority for Vote 1, Net Operating expenditures decreased by $39.8 million when compared to the same quarter of 2010-2011. This is mainly due to the net effect of a decrease of $53.5 million in the 2011-2012 Main Estimates for the Federal Contaminated Sites Action Plan and Small Craft Harbours projects as a result of the termination of funding related to the Economic Action Plan in 2010-2011. This decrease was offset by an increase of $13.7 million in the amount of operating budget funds carried forward to 2011-2012 ($37.6 million) compared to the amount carried forward in 2010-2011 ($23.9 million).

Authority for Vote 5, Capital expenditures decreased by a total of $88.9 million when compared to the same quarter of 2010-2011, mainly as a result of a decrease of $110.4 million related to the termination of the Economic Action Plan (EAP) funding in 2010-2011 for Canadian Coast Guard fleet-related projects, Small Craft Harbours, and the Deferred Maintenance of Federal Laboratories Initiative. Offsetting this decrease was an increase of $21.5 million provided for the carry forward of capital funds into 2011-2012.

Authority for Vote 10, Grants and Contributions decreased by $3.6 million when compared to the same quarter of 2010-2011. This is mainly due to reduced funding requirements in the Maanulth First Nations Final Agreement and for the Pacific Integrated Commercial Fisheries Initiative.

The budgetary statutory authorities increased by a total of $10.1 million when compared to the same quarter of 2010-2011 as a result of an increase in the cost of employee benefit plans, from 17% to 18% of personnel expenditures.

2.1.1 Expenditure Analysis

In the second quarter of 2011-2012, total authorities used were $492.2 million, or $57.7 million higher than the $434.5 million reported for the same period of 2010-2011.

Authorities used in Vote 1, Net Operating expenditures during the second quarter of 2011-2012 increased by $27.6 million compared to the same quarter last year, and by $18.2 million to date this year over last year. The principal reason for this is significantly higher expenditures for personnel costs, which include severance payments. Recent collective bargaining agreements have included provisions that allow employees to exercise an option to request a pay-out of accumulated severance allowances, or some portion thereof. As a result, severance payments by the Department in the second quarter of 2011-2012 were $31 million, $27 million more than in the second quarter of 2010-2011. It should be noted that these one-time costs will be reimbursed to DFO from the Treasury Board Secretariat. Factoring out the extraordinary increase in expenditures for severance payments, the year-to-date spending rate in the Operating vote at the end of the second quarter of 2011-2012, at 44.6%, is only 0.7% higher than last year.

Authorities used in Vote 5, Capital expenditures year-to-date is approximately the same for both 2010-2011 ($114.7 million) and 2011-2012 ($115.7 million), despite the wind up of funding for capital projects in 2010-2011 related to the Economic Action Plan. This is due to an increase of $18.8 million in capital spending in the second quarter of 2011-2012 as compared to the second quarter of 2010-2011. The increase in capital spending in 2011-12 results from progress payments for the acquisition of mid-shore patrol vessels and the replacement of an air cushion vehicle, the design work for offshore science vessels, and the Polar Icebreaker. Ongoing work on capital projects such as the Pangnirtung Harbour in Nunavut, Beaver Harbour in New Brunswick, and François Harbour in Newfoundland and Labrador also contributes to the increase in capital spending in 2011-2012. The rate of spending compared to total Vote 5 authorities for the second quarter of 2011-2012 is significantly higher (33.1%) compared to the same period in 2010-2011 (26.2%) due to the timing of activities.

Authorities used in Vote 10, Grants and Contributions, are significantly higher in the second quarter of 2011-2012 than for the same period in 2010-2011. The variance of $5.5 million in expenditures in the second quarter of 2011-2012 over 2010-2011, when added to the variance of $8.3 million reported in the first Quarterly Financial Report, for a year-to-date variance of $13.8 million is attributable to the rate of spending in the Contribution program to support the economic viability and long term sustainability of the Quebec and Atlantic Canada lobster fishery (Atlantic Lobster Sustainability Measures). As explained in the first quarterly report, this program has a seasonal component that influences the timing of participation by harvesters. Since this relatively new program was announced late in the fall of 2009, few proposals were submitted for consideration prior to the 2010 lobster season, resulting in low participation in the spring of 2010 and low expenditures during the lobster season. As the program gained momentum, proposals were prepared and submitted for approval to the Department in the fall and winter of 2010. A large number of agreements were approved in March and April 2011 in time for the 2011 lobster season and this is reflected in the higher expenditures to date in 2011-2012.

Authorities used for budgetary statutory also increased in the second quarter by $5.7 million and year-to-date by $8.2 million mainly due to additional expenditures of employee benefit plans.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The increase in budgetary expenditures in the second quarter of $57.7 million (13.3%) and year-to-date of $41.2 million (5.3%) as compared to the same periods in 2010-2011 is reflected primarily in the personnel standard object of expenditure which increased by $30 million due to severance payments and economic increases as a result of recent collective agreements.

In addition, the standard objects of expenditure that reflect capital spending, i.e. utilities, materials and supplies; acquisition of land, buildings and works; and, acquisition of machinery and equipment increased by $28.1 million in the second quarter and by $19.6 million year-to-date. While expenditures in the second quarter for repair and maintenance were at the same level, the year-to-date expenditures decreased by $14.5 million due to the termination of Economic Action Plan funding in 2010-2011 for capital projects related to the Accelerated Vessel Refit Program and Small Craft Harbours. The standard object for transfer payments reflects a year-to-date increase of $13.8 million due to the Atlantic Lobster Sustainability Measures contribution program, as explained in Section 2.1.1.

Finally, a decrease in the standard object for other subsidies and payments of $4.6 million (26.6%) is linked to a timing of the redistribution of certain expenses.

3. Risks and Uncertainties

This Departmental Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released on June 27, 2011.

Planned spending for the fiscal year is now $1,881.8 million. The Department is primarily funded through voted parliamentary spending authorities and statutory authorities for operating expenditures, capital expenditures, and grants and contributions. Departmental operations are impacted by any change in parliamentary appropriations.

The most significant cost to the Department is personnel expenditures for the delivery of knowledge-based scientific, conservation and maritime programs and services across the country. Expenditures related to the acquisition of machinery and equipment are the next highest cost, as the Department is one of the federal departments with the largest asset base.

Delivery of DFO's departmental programs and services may be impacted by several internal and external risks. Key corporate risks for 2011-2012 include:

The Department has developed a Corporate Risk Profile to identify and manage key risks. This risk profile and mitigation measures are reviewed regularly by the Departmental Management Board and the external Departmental Audit Committee.

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010-2011 levels for the fiscal years 2011-2012 and 2012-2013. In addition, the Department is contributing to the deficit reduction measures announced in Budget 2011 which include implementing multi-year planning in the management of fisheries resources; the consolidation of marine search and rescue co-ordination services in Eastern Canada; and, the phasing out of LORAN-C navigation system.

The Department has adopted several measures to mitigate this financial risk. Business planning has been streamlined to identify key program priorities. Internal budget allocation and in-year forecasting have been improved to ensure that priorities are funded and program pressures are addressed, and a Financial Management Framework, including a multi-year, risk-based Internal Control work plan has been developed to document and test the effectiveness of existing key controls in relation to financial planning and budgeting.

4. Significant changes in relation to operations, personnel and programs

Effective August 4, 2011, Shared Services Canada (SSC) was established by Orders in Council to pool existing resources from across government to consolidate and transform Information Technology (IT) infrastructure (e.g. data centres, email and network services) for the Government of Canada. A second set of Orders in Council are anticipated that will enable the second step of this transformation, the transfer of IT resources from departments and agencies to SSC.

During the second quarter, the Assistant Deputy Minister, Human Resources and Corporate Services accepted a position with another government department and the Regional Director General, Central and Arctic region retired from the public service. Competitive processes have been initiated to fill these positions. There have been no other changes in senior personnel, as represented by the Departmental Management Board, during the second quarter.

Approval by Senior Officials

Claire Dansereau,
Deputy Minister
Roch Huppé,
Chief Financial Officer

Ottawa, Canada
November 17, 2011

Statement of Authorities (unaudited)

(in thousands of dollars)

  Fiscal year 2011-2012 Fiscal year 2010-2011
Total available for use for the year ending March 31, 2012 * Used during the quarter ended September 30, 2011 Year to date used at quarter-end Total available for use for the year ended March 31,
2011 *
Used during the quarter ended September 30, 2010 Year to date used at quarter-end
Vote 1 - Net Operating Expenditures 1,266,642 342,376 591,672 1,306,412 314,731 573,491
Vote 5 - Capital Expenditures 349,605 92,999 115,718 438,454 74,167 114,698
Vote 10 - Grants and Contributions 127,653 19,194 36,317 131,203 13,679 22,506
Budget Statutory Authorities 137,919 37,667 72,180 127,830 31,958 63,950
Total Budgetary Authorities 1,881,819 492,206 815,887 2,003,899 434,535 774,645
Non-Budgetary Authorities - - - - - -
Total Authorities 1,881,819 492,206 815,887 2,003,899 434,535 774,645
* Includes only Authorities available for use and granted by Parliament at quarter-end.

More information is available in the table below.

Departmental Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)

  Fiscal year 2011-2012 Fiscal year 2010-2011
Planned expenditures for the year ending March 31, 2012 Expended during the quarter ended September 30, 2011 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2011 Expended during the quarter ended September 30, 2010 Year to date used at quarter-end
Expenditures:
Personnel 903,705 270,207 504,172 879,878 240,193 474,273
Transportation and communications 69,055 18,821 32,464 78,498 17,729 32,876
Information 4,431 557 857 5,821 749 1,217
Professional and special services 189,060 53,571 72,954 214,521 53,014 74,714
Rentals 21,225 4,843 6,821 29,348 5,004 7,110
Repair and maintenance 169,970 52,502 66,212 153,530 52,935 80,739
Utilities, materials and supplies 88,474 29,904 42,392 105,586 20,972 33,494
Acquisition of land, buildings and works 66,462 17,785 19,427 87,420 10,058 12,618
Acquisition of machinery and equipment 274,614 30,192 39,733 347,270 18,749 35,829
Transfer payments 127,653 19,164 36,317 131,203 13,679 22,506
Other subsidies and payments 15,185 4,019 12,649 18,739 11,239 17,219
Total gross budgetary expenditures 1,929,834 501,565 833,998 2,051,814 444,321 792,595
Less Revenues netted against expenditures:
Sales of goods and services 48,015 9,359 18,111 47,915 9,786 17,950
Total Revenues netted against expenditures: 48,015 9,359 18,111 47,915 9,786 17,950
Total net budgetary expenditures 1,881,819 492,206 815,887 2,003,899 434,535 774,645