2012-13 Quarterly Financial Report for the quarter ending September 30, 2012

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 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, Supplementary Estimates A, as well as Canada's Economic Action Plan 2012 (Budget 2012), 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 and Supplementary Estimates (A) for 2012-13. 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-13 Main Estimates.

In fiscal year 2012-13, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

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 2012-13 were $1,795.7 million, i.e. $86.1 million, or 4.6% less than the $1,881.8 million authorized at the same point in 2011-12.

The total authorities available for Vote 1 Net Operating Expenditures decreased by $42.5 million when compared to the same quarter of 2011-12. This is mainly due to the net effect of the following factors:

The total authorities available for Vote 5, Capital Expenditures increased by a total of $27.4 million when compared to the same quarter of 2011-12. This is mainly due to the net effect of the following factors:

The total authorities available for Vote 10, Grants and Contributions decreased by $65.7 million when compared to the same quarter of 2011-12. This is mainly due to the net effect of the following factors:

The total Budgetary Statutory authorities available for 2012-13 decreased by $5.3 million when compared to the same quarter of 2011-12. This is mainly due to the net effect of the following factors:

2.1.1 Expenditure Analysis

In the second quarter of 2012-13, total budgetary expenditures were $398.2 million compared to $492.2 million reported in the same period of 2011-12.

Authorities used in Vote 1, Operating expenditures during the second quarter of 2012-13 decreased by $44.7 million compared to the same quarter last year. The decrease is mainly due to decreases of $25.7 million in Personnel and $12.3 million in Repair and Maintenance expenditures.

Authorities used in Vote 5, Capital expenditures, during the second quarter of 2012-13 decreased by $37.5 million compared to the same quarter last year. This is mainly due to decreases of $14.9 million in Acquisition of Land, Buildings and Works expenditures, $11.9 million in Repairs and Maintenance and $5.2 million in Acquisition of Machinery and Equipment.

Authorities used in Vote 10, Grants and Contributions, are lower by $7.5 million in the second quarter of 2012-13 than for the same period in 2011-12. Grants and Contributions funding is made up of various programs some of which have been ongoing and rather steady in the timing of their payment. The decrease is mainly the result of delayed payments following the one-year renewal of programs in the second quarter of 2012-13.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The decrease by $93.9 million in total net budgetary expenditures in the second quarter as compared to the same period in 2011-12 is reflected primarily in the net effect of the following standard object of expenditure:

Expenditures on Personnel decreased by $31.2 million when compared to the same quarter in 2011-12. Recent collective bargaining agreements included provisions that allowed employees to exercise an option to request a pay-out of accumulated severance allowances, or some portion thereof. The majority of the severance payments occurred in 2011-12. As a result, severance payments by the Department in the second quarter of 2011-12 were $31.0 million, $27.0 million more than in the second quarter of 2012-13.

Expenditures on Transportation and Communications decreased by a total of $3.8 million when compared to the same quarter of 2011-12. This is mainly due to an overall travel reduction by $1.2 million by holding the discretionary travel at a minimum level in the second quarter of 2012-13 and a reduction of $2.0 million of activities being transferred to Shared Services Canada.

Expenditures on Professional and Special Services decreased by a total of $5.8 million when compared to the same quarter of 2011-12. The decrease is mainly as a result of significant renovations that were made previously to the St. Andrews Biological Station which were completed in 2012-13.

Expenditures on Repairs and Maintenance decreased by a total of $24.2 million when compared to the same quarter of 2011-12. This is mainly due to the following factors: completion in 2011-12 of major refit for some large vessels in the Canadian Coast Guard fleet; wind-down of various harbour construction projects; completion of the major renovations to St. Andrews Biological Station; Escoumins building refit completed in 2011-12; and repairs related to the funding relief for extraordinary storm events in Atlantic Canada, Quebec and Manitoba ended in 2011-12.

Expenditures on Acquisition of Land, Buildings and Works decreased by a total of $15.3 million when compared to the same quarter of 2011-12. This is mainly due to the wind-down of various harbour construction projects delays and reduced 2012-13 budgets for the Pangnirtung project in Nunavut.

Expenditures on Acquisition of Machinery and Equipment decreased by a total of $6.3 million when compared to the same quarter of 2011-12. This is mainly due to the nature of the Canadian Coast Guard's major capital projects. Expenditures are recorded and progress payments are made based on the milestones set in the construction schedule for the major vessel construction projects. Expenditure levels can fluctuate significantly from period to period as a result of the progress of the projects. The decrease is also explained by a one-time $2.2 million in 2011-12 associated with the departmental consolidation of office space in the National Capital Region.

Expenditures on Transfer Payments decreased by a total of $7.5 million when compared to the same quarter in 2011-12. The decrease is the result of delayed payments in the Atlantic Integrated Commercial Fisheries and the Pacific Integrated Commercial Fisheries Inititiaves following the one-year renewal of the programs in the second quarter of 2012-13. The decrease is also attributed to significant payments made in 2011-12 in relation to the Atlantic Lobster Sustainability Measures program as this was the peek year for the program.

Expenditures on Other Subsidies and Payments increased by a total of $2.3 million compared to the same quarter in 2011-12. The net increase is mainly due to the timing of the International Fisheries Commissions Agreement payments.

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 28, 2012.

Planned spending for the fiscal year is now $1,795.7 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 has one of the largest asset bases within the federal community.

The Department currently operates in a dynamic and changing environment. Globalisation, northern development, environmental changes, technological advances, increased pressures on resources and conflicting demands from stakeholders are among the factors impacting the Department. The current environment of fiscal constraint has required the Department to reassess how it conducts its business, provides services and delivers on its programs to meet client and stakeholder needs.

This new operating reality raises many challenges to which the Department must be responsive. In this changing environment, the department has identified several key corporate risks. DFO's mission critical corporate risks are, in order of severity:

  1. Financial Capacity
  2. Communications & Reputation
  3. Human Capital
  4. Physical Infrastructure
  5. Legal and Compliance

The Financial Capacity risk, which has been deemed as having the greatest severity to the Department, has several key action plans designed to manage it to an acceptable level. These are:

  1. Implement rigorous forecasting, budgeting and internal controls
  2. Develop the framework for Shore-based Asset Renewal
  3. Analyse and review programs to reduce Departmental footprint related to real property

All these mission critical risks, including their response strategies and action plans, are regularly reviewed and adjusted as necessary by the Departmental Management Board and the external Departmental Audit Committee. The senior management cadre meets semi-annually to review the corporate risks, and considers management of these risks at each stage of the planning, review and reporting cycles.

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

As outlined in Budget 2011, Fisheries and Oceans Canada contributed $56.8 million as part of the 2010 round of strategic reviews in order to return to balanced budgets. For this year the reduction of funding due to Strategic Review is $18.9 million. By modernizing its fisheries management and marine infrastructure, aligning programs with the department's core mandate, and improving program delivery, the department is increasing its capacity to achieve better results for Canadians. These changes will ensure that Fisheries and Oceans Canada is better equipped to deliver services effectively and efficiently and is able to focus on emerging government priorities.

4.1 Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and business to deal with their government; and, modernize and reduce the back office.

Fisheries and Oceans Canada, including the Canadian Coast Guard, will achieve Budget 2012 savings of $79.3 million by fiscal year 2014-15 through efficiency measures and program reductions that align resources to its core mandate, scaling back where the need is reduced; transforming how it works internally; and, by consolidating and streamlining. Fisheries and Oceans Canada will restructure its operations, consolidate internal services and leverage technology to realize efficiencies and achieve savings.

With these changes, the Department will continue to focus on three strategic outcomes: economically prosperous maritime sectors and fisheries; sustainable aquatic ecosystems; and safe and secure waters.

In the first year of implementation, the Department will achieve savings of approximately $3.8 million. Savings will increase to $13.4 million in 2013-14 and will result in ongoing saving of $79.3 million by 2014-15.

Specifically, 2012-13 savings are achieved by:

In order to manage the Financial Capacity risk related to Budget 2012 measures, the Department is closely monitoring all measures related to Budget 2012.

There is a variance of $3.8 million in the Department's authorities between fiscal years 2011-12 and 2012-13 related to the following Budget 2012 initiatives:

The balance of 2012-13 Budget 2012 savings will be reflected later in the fiscal year.

Approval by Senior Officials

Claire Dansereau, Deputy Minister
Ottawa, Canada
Roch Huppé,
Chief Financial Officer

Statement of Authorities (unaudited)

(in thousands of dollars)

  Fiscal year 2012-13 Fiscal year 2011-12
Total available for use for the year ending March 31,
2013 *
Used during the quarter ended September 30, 2012 Year to date used at quarter-end Total available for use for the year ended March 31,
2012 *
Used during the quarter ended September 30, 2011 Year to date used at quarter-end
Vote 1 - Net Operating Expenditures 1,224,136 297,611 545,548 1,266,642 342,376 591,672
Vote 5 - Capital Expenditures 376,967 55,479 82,658 349,605 92,999 115,718
Vote 10 - Grants and Contributions 61,953 11,623 24,130 127,653 19,164 36,317
Budgetary Statutory Authorities 132,667 33,501 66,721 137,919 37,667 72,180
Total Budgetary Authorities 1,795,724 398,214 719,057 1,881,820 492,206 815,887
Non-Budgetary Authorities - - - - - -
Total Authorities 1,795,724 398,214 719,057 1,881,820 492,206 815,887
* Includes only Authorities available for use and granted by Parliament at quarter-end.

More information is available in the attached table.

Departmental Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)

  Fiscal year 2012-13 Fiscal year 2011-12
Planned expenditures for the year ending March 31, 2013 Expended during the quarter ended September 30, 2012 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2012 Expended during the quarter ended September 30, 2011 Year to date used at quarter-end
Expenditures:
Personnel 889,880 238,979 472,550 903,706 270,207 504,172
Transportation and communications 61,802 14,976 25,104 69,055 18,821 32,464
Information 3,649 345 662 4,431 557 857
Professional and special services 179,206 47,712 65,531 189,060 53,571 72,954
Rentals 16,227 5,568 7,373 21,225 4,843 6,821
Repair and maintenance 170,600 28,268 43,289 169,970 52,502 66,212
Utilities, materials and supplies 78,327 28,378 41,346 88,474 29,904 42,392
Acquisition of land, buildings and works 71,451 2,498 2,698 66,462 17,785 19,427
Acquisition of machinery and equipment 300,031 23,865 40,568 274,614 30,192 39,733
Transfer payments 61,953 11,623 24,130 127,653 19,164 36,317
Other subsidies and payments 10,513 6,306 16,094 15,185 4,019 12,649
Total gross budgetary expenditures 1,843,638 408,518 739,345 1,929,834 501,565 833,998
Less Revenues netted against expenditures:
Sales of goods and services 47,915 10,304 20,288 48,015 9,359 18,111
Total Revenues netted against expenditures 47,915 10,304 20,288 48,015 9,359 18,111
Total net budgetary expenditures 1,795,724 398,214 719,057 1,881,819 492,206 815,887

Due to rounding, figures may not add to the totals shown.