2013-14 Quarterly Financial Report for the quarter ended June 30, 2013

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 as well as Canada's Economic Action Plan 2012 and 2013 (Budget 2012 and Budget 2013), 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 2013-14. DFO did not seek an increase to its spending authorities through 2013-14 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.

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, 2012, 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 were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013-14, the changes to departmental authorities were reflected in the 2013-14 Main Estimates tabled in Parliament. Additional funding was sought by Fisheries and Oceans Canada through the 2012-13 Supplementary Estimates C. The department received this additional authority net of the planned savings or other amounts transferred by Treasury Board authority to a frozen allotment.

Budget 2013 was tabled in Parliament on March 21, 2013, after the tabling of the Main Estimates on February 25, 2013. As a result, the measures announced in the Budget 2013 could not be reflected in the 2013-14 Main Estimates. In fiscal year 2013-14, 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 2013. 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 for the year as at the end of the first quarter of 2013-14 were $1,668.9 million, i.e. $2.9 million, or 0.2% less than the $1,671.8 million authorized at the same point in 2012-13.

The total authorities available for Vote 1 Net Operating expenditures decreased by $43.9 million when compared to the same quarter in 2012-13. 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 $46.5 million when compared to the same quarter in 2012-13. This is mainly due to the net effect of the following factors:

The total authorities available for Vote 10, Grants and Contributions decreased by $2.9 million when compared to the same quarter in 2012-13. This is mainly due to the net effect of the following factors:

The total Budgetary Statutory authorities available for 2013-14 decreased by $2.7 million when compared to the same quarter in 2012-13. This is mainly due to the net effect of the following factor:

2.1.1 Authorities Used Analysis

In the first quarter of 2013-14, Total Budgetary Authorities Used amounted to $316.1 million compared to $320.8 million reported in the same period of 2012-13.

Authorities used in Vote 1, Net Operating expenditures, during the first quarter of 2013-14 increased by $3.0 million compared to the same quarter last year representing an increase of approximately 1% indicating no significant variance between the two years.

Authorities used in Vote 5, Capital expenditures, during the first quarter of 2013-14 decreased by $2.3 million compared to the same quarter last year. The decrease mainly relates to a decrease in Mid-Shore Patrol vessel payments, the completion of the Near Shore Fisheries Research vessels in 2012-13 and the conclusion of major refit for some large vessels in 2012-13.

Authorities used in Vote 10, Grants and Contributions expenditures, during the first quarter of 2013-14 decreased by $5.0 million compared to the same quarter last year. A decrease of $3.7 million relates to the ending of the Aquaculture Innovation and Market Access Program (AIMAP) in 2012-13 and to the winding down of the Atlantic Lobster Sustainability Measures program in 2013-14. The remaining decrease relates mainly to the timing of payments, which can vary for Grants and Contributions depending on the terms of the agreements.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The decrease by $4.7 million in total net budgetary expenditures in the first quarter as compared to the same period in 2012-13 is reflected primarily in the net effect of the following standard objects of expenditures:

Personnel expenditures increased by a total of $8.1 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. This is mainly due to an increased number of payments related to employee severance allowances and employee work force adjustments.

Expenditures related to Professional and Special Services increased by a total of $1.6 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. An increase of $1.4 million relates to differences in the timing of payments. The remaining increase is mainly due to the Windows 7 modernization project and an increase in consulting services for the Oracle Financial System Upgrade project.

Repair and Maintenance expenditures decreased by a total of $3.1 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. A decrease of $1.9 million can be attributed to the completion of major refits for some large vessels in the Canadian Coast Guard fleet including the CCGS Louis S. St-Laurent, the CCGS Des Groseilliers, the CCGS Sir Wilfrid Laurier and the CCGS Eckaloo. The remaining decrease in expenditures is mainly due to the timing of expenditures related to Small Craft Harbours and Real Property projects. Factors that affect the timing of these expenditures include the date of the contracts awarded, timing of the billing and timing of the projects. Compared to the same quarter last year, fewer Small Craft Harbours and Real Property projects were underway.

Expenditures related to the Acquisition of Machinery and Equipment decreased by a total of $3.9 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. 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 the timing of expenditures related to the Mid-Shore Patrol Vessels and by the completion of the Near Shore Fisheries Research Vessels.

Transfer Payments expenditures decreased by a total of $5.0 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. This is mostly due to a decrease of $3.7 million related to the ending of the Aquaculture Innovation and Market Access Program (AIMAP) in 2012-13 and to the winding down of the Atlantic Lobster Sustainability Measures program in 2013-14. The remaining decrease relates mainly to the net effect of the timing of transfer payments related to programs including Aboriginal Aquatic Resource and Oceans Management (AAROM), Small Craft Harbours Class Contributions, Aboriginal Fisheries Strategy (AFS) and Pacific Integrated Commercial Fisheries Initiative (PICFI).

Other Subsidies and Payments expenditures decreased by a total of $2.5 million in the first quarter of 2013-14 when compared to the same quarter of 2012-13. This decrease is mainly due to the timing of payments for International Fisheries Commissions Agreements and Third Party Liability Insurance Premiums.

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 19, 2013.

Planned expenditures for the fiscal year amount to $1,668.9 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. Globalization, 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 continues to require 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. Physical Infrastructure
  2. Human Resources: Employee Engagement
  3. Financial Capacity
  4. Human Resources: Workforce
  5. Hazard and Crisis

All of DFO's mission critical risks, including their response strategies and action plans, are regularly reviewed and adjusted as necessary by the Departmental Management Board. The external Departmental Audit Committee reviews the Corporate Risk Profile, and provides advice and assurance on the robustness of the integrated risk management regime. 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.

The Financial Capacity risk which impacts all three of the Department's strategic outcomes is defined as follows: Increasing operational costs and increasing stakeholder expectations could mean that sufficient resources may not be available to maintain appropriate service levels for internal and external stakeholders and client groups.

This risk had been rated as the highest to the Department in the fiscal year 2012-13. However, as a result of mitigation actions taken during the last year, the severity of this risk has been lowered and it is no longer deemed to be the risk with the greatest potential impact to the Department. In December 2012, the Departmental Management Board reduced it to the third highest mission critical risk for the Department for 2013-14 and decided that it should be mitigated further.

Towards this, a set of action plans were put in place to manage this risk to an acceptable level. Each of these action plans has a lead at the Assistant Deputy Minister level, is integrated into the business planning process, and is monitored throughout the year for progress.

The upcoming 2013-14 Mid-year Review will assess the progress made on these current actions and will provide an indication of how well the risk is being managed.

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

A significant change made in personnel during the first quarter was the departure of Mr. Roch Huppé, Chief Financial Officer, on May 27, 2013. Mr. Denis Bombardier will act in this role until this position is staffed on a permanent basis.

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 a balanced federal budget. 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.

As outlined in Budget 2013, Fisheries and Oceans Canada identified internal departmental efficiencies rising to $33 million per year by 2015-16. The Department will modernize the organizational structure of its headquarters in order to provide cost-effective services to Canadians. For example, it will reduce administrative overhead and will pursue organizational changes to reduce duplication and improve decision-making processes. To complement these savings, Fisheries and Oceans Canada will also improve regional program efficiency by reducing management overhead and consolidating decision-making authority. Organizational changes required to generate these savings will not impact front line staff or services to Canadians.

4.1 Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being 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.

Approval by Senior Officials

Matthew King, Deputy Minister
Ottawa, Canada
Denis Bombardier,
Acting Chief Financial Officer

Statement of Authorities (unaudited)

(in thousands of dollars)

  Fiscal year 2013-14 Fiscal year 2012-13
Total available for use for the year ending March 31,
2014*, ***
Used during the quarter ended June 30, 2013 Year to date used at quarter-end Total available for use for the year ended March 31,
2013*, **
Used during the quarter ended June 30, 2012 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,119,719 250,982 250,982 1,163,570 247,937 247,937
Vote 5 - Capital expenditures 360,102 24,899 24,899 313,589 27,180 27,180
Vote 10 - Grants and Contributions 59,091 7,465 7,465 61,953 12,508 12,508
Statutory - Contributions to employee benefit plans 129,898 32,474 32,474 132,590 33,147 33,147
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 79 20 20 78 21 21
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 228 228 - 18 18
Statutory - Refunds of amounts credited to revenues in previous years - 75 75 - 33 33
Total Budgetary Authorities 1,668,889 316,143 316,143 1,671,779 320,845 320,845
Non-Budgetary Authorities - - - - - -
Total Authorities 1,668,889 316,143 316,143 1,671,779 320,845 320,845
* Includes only Authorities available for use and granted by Parliament at quarter-end
** Total available for use does not reflect measures announced in Budget 2012
*** Total available for use does not reflect measures announced in Budget 2013

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

More information is available in the table below.

Departmental Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)

  Fiscal year 2013-14 Fiscal year 2012-13
Planned expenditures for the year ending March 31, 2014 Expended during the quarter ended June 30, 2013 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2013 Expended during the quarter ended June 30, 2012 Year to date used at quarter-end
Expenditures:
Personnel 876,516 241,677 241,677 889,880 233,573 233,573
Transportation and communications 49,007 9,326 9,326 54,608 10,128 10,128
Information 2,592 264 264 3,224 317 317
Professional and special services 147,571 19,424 19,424 158,346 17,820 17,820
Rentals 10,812 1,719 1,719 14,338 1,805 1,805
Repair and maintenance 144,957 11,918 11,918 150,742 15,020 15,020
Utilities, materials and supplies 63,513 13,402 13,402 69,209 12,968 12,968
Acquisition of land, buildings and works 73,720 604 604 59,261 200 200
Acquisition of machinery and equipment 279,856 12,777 12,777 248,843 16,703 16,703
Transfer payments 59,091 7,466 7,466 61,953 12,508 12,508
Other subsidies and payments 9,168 7,256 7,256 9,289 9,788 9,788
Total gross budgetary expenditures 1,716,804 325,833 325,833 1,719,693 330,830 330,830
Less Revenues netted against expenditures:
Sales of goods and services 47,915 9,690 9,690 47,915 9,985 9,985
Total Revenues netted against expenditures: 47,915 9,690 9,690 47,915 9,985 9,985
Total net budgetary expenditures 1,668,889 316,143 316,143 1,671,779 320,845 320,845

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