2013-14 Quarterly Financial Report for the quarter ended September 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 adjustment 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 via Supplementary Estimates B 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 second quarter of 2013-14 were $1,668.9 million, i.e. $126.8 million, or 7.1% less than the $1,795.7 million authorized at the same point in 2012-13.

The total authorities available for Vote 1, Net Operating expenditures decreased by $104.4 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 decreased by a total of $16.9 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 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 second quarter of 2013-14, Total Budgetary Authorities Used amounted to $410.7 million compared to $398.2 million reported in the same period of 2012-13.

Authorities used in Vote 1, Net Operating expenditures increased by $1.4 million compared to the same quarter last year representing an increase of approximately 0.5% indicating no significant variance between the two years.

Authorities used in Vote 5, Capital expenditures increased by $7.1 million compared to the same quarter last year. The increase mainly relates to the net effect of the implementation of the Vessel Life Extension program and the completion of a few major vessel construction projects.

Authorities used in Vote 10, Grants and Contributions expenditures increased by $4.8 million compared to the same quarter last year. The increase mainly relates to contribution agreements being signed earlier in the year in 2013-14 and the negotiation of multi-year contribution agreements which allowed for earlier payments to be made to recipients.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The increase by $12.4 million in total net budgetary expenditures in the second quarter of 2013-14 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 $3.1 million in the second 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, employee work force adjustments and retroactive payments as a result of collective bargaining agreements.

Expenditures related to Professional and Special Services decreased by a total of $6.3 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. A decrease of $2.0 million relates to a decrease in funding received in 2013-14 for real properties and the halibut and herring surveys. The remaining decrease is mainly due to the timing of payments including a delayed billing for ice reconnaissance services and the deferred processing of interdepartmental legal invoices.

Expenditures related to Rentals decreased by a total of $2.0 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. Hydrographic surveying activities in support of Canada's submission to the United Nations Convention on the Law of the Sea (UNCLOS) were conducted in 2012-13, but not in 2013-14, causing a decrease of $1.7 million in expenditures. The remaining decrease is mainly due to a collaborative agreement with industry for them to fund vessel charters for a snow crab survey.

Repair and Maintenance expenditures increased by a total of $10.7 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. An increase of $9.3 million relates to the implementation of the Vessel Life Extension program. The remaining increase is mainly due to the reconstruction of wharfs at Pointe-aux-Loups and Mingan in Québec.

Expenditures related to Utilities, Materials and Supplies decreased by a total of $3.7 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. This is mainly due to delayed billing for Canadian Coast Guard fleet diesel fuel purchases.

Expenditures related to the Acquisition of Machinery and Equipment decreased by a total of $2.0 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. This is mainly due to the completion of a few major vessel construction projects.

Transfer Payments expenditures increased by a total of $4.8 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. This is mainly due to contribution agreements being signed earlier in the year in 2013-14 and the negotiation of multi-year contribution agreements which allowed for earlier payments to be made to recipients.

Other Subsidies and Payments expenditures increased by a total of $9.4 million in the second quarter of 2013-14 when compared to the same quarter of 2012-13. This is mainly due to the timing of interdepartmental settlement transactions.

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 of fisheries markets, northern development and the expansion of navigable waters, environmental changes, technological advances, increased pressures on resources, changing maritime safety and security demands and conflicting demands from stakeholders are among the factors impacting the Department. The current environment of fiscal restraint 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 operating environment 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 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 Departmental 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.

In December 2012, the Departmental Management Board reduced this risk from the highest to the third highest mission critical risk for the Department. This decrease in severity resulted from several mitigating actions undertaken in 2012-13. The Departmental Management Board also decided to further mitigate this risk to an acceptable level and that a new set of action plans were required. These 2013-14 action plans are currently being implemented. Each of the 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.

Mid-year progress reports on these action plans are currently being collected and will be reported on in the next Fisheries and Oceans Canada Quarterly Financial Report.

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

A significant change made in personnel during the second quarter was the departure of the Honourable Keith Ashfield, Minister of Fisheries and Oceans Canada. The Honourable Gail Shea was appointed as the Minister of Fisheries and Oceans Canada on July 15, 2013.

Effective August 26, 2013, Helene Sheedy became the Acting Executive Director and Senior General Council until the 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 $33.0 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 achieved 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, 2013-14 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 September 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 September 30, 2012 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,119,719 298,965 549,947 1,224,136 297,611 545,548
Vote 5 - Capital expenditures 360,102 62,576 87,475 376,967 55,479 82,658
Vote 10 - Grants and Contributions 59,091 16,384 23,849 61,953 11,623 24,130
Statutory - Contributions to employee benefit plans 129,898 32,474 64,949 132,590 33,148 66,295
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 79 20 39 78 18 39
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 234 462 - 335 354
Statutory - Refunds of amounts credited to revenues in previous years - 2 77 - - 33
Total Budgetary Authorities 1,668,889 410,655 726,798 1,795,724 398,214 719,057
Non-Budgetary Authorities - - - - - -
Total Authorities 1,668,889 410,655 726,798 1,795,724 398,214 719,057
* 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 September 30, 2013 Year to date used at quarter-end Planned expenditures for the year ended March 31, 2013* Expended during the quarter ended September 30, 2012 Year to date used at quarter-end
Expenditures:
Personnel 876,516 242,035 483,712 889,880 238,979 472,550
Transportation and communications 49,007 14,179 23,505 61,802 14,976 25,104
Information 2,592 362 626 3,649 345 662
Professional and special services 147,571 41,451 60,875 179,206 47,712 65,531
Rentals 10,812 3,561 5,280 16,227 5,568 7,373
Repair and maintenance 144,957 38,943 50,861 170,600 28,268 43,289
Utilities, materials and supplies 63,513 24,651 38,053 78,327 28,378 41,346
Acquisition of land, buildings and works 73,720 2,055 2,660 71,451 2,498 2,698
Acquisition of machinery and equipment 279,856 21,859 34,636 300,031 23,865 40,568
Transfer payments 59,091 16,384 23,849 61,953 11,623 24,130
Other subsidies and payments 9,168 15,662 22,918 10,513 6,306 16,094
Total gross budgetary expenditures 1,716,804 421,142 746,975 1,843,639 408,518 739,345
Less Revenues netted against expenditures:
Sales of goods and services 47,915 10,487 20,177 47,915 10,304 20,288
Total Revenues netted against expenditures: 47,915 10,487 20,177 47,915 10,304 20,288
Total net budgetary expenditures 1,668,889 410,655 726,798 1,795,724 398,214 719,057
* Planned expenditures do not reflect measures announced in Budget 2012
** Planned expenditures do not reflect measures announced in Budget 2013

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