2014-15 Quarterly Financial Report for the quarter ended June 30, 2014

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 2013 and 2014 (Budget 2013 and Budget 2014), 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 2014-15. DFO did not seek an adjustment to its spending authorities through the 2014-15 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 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 were 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 2014-15, the changes to departmental authorities were reflected in the 2014-15 Main Estimates tabled in Parliament. Additional funding was sought by Fisheries and Oceans Canada through the 2013-14 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 2014 was tabled in Parliament on February 11, 2014, shortly before the tabling of the Main Estimates on February 27, 2014. As a result, the initiatives announced in the Budget 2014 could not be reflected in the 2014-15 Main Estimates. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board Secretariat, 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 2014-15 were $1,605.3 million, i.e. $63.6 million, or 3.8% less than the $1,668.9 million authorized at the same point in 2013-14.

The total authorities available for Vote 1, Net Operating expenditures decreased by $18.1 million when compared to the same quarter in 2013-14. 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 $34.8 million when compared to the same quarter in 2013-14. This is mainly due to the net effect of the following factors:

The total authorities available for Vote 10, Grants and Contributions decreased by $1.2 million when compared to the same quarter in 2013-14. This is mainly due to the net effect of the following factors:

The total Budgetary Statutory authorities available for 2014-15 decreased by $9.4 million when compared to the same quarter in 2013-14. This is mainly due to the net effect of the following factors on the Employee Benefit Plans cost:

2.1.1 Authorities Used Analysis

In the first quarter of 2014-15, total budgetary expenditures amounted to $341.8 million compared to $316.1 million reported in the same quarter of 2013-14.

Authorities used in Vote 1, Net Operating expenditures, increased by $26.1 million compared to the same quarter last year. This is mainly due to a one-time transition payment of $24.7 million made as part of the implementation of salary payment in arrears by the Government of Canada.

Authorities used in Vote 5, Capital expenditures, increased by $0.5 million compared to the same quarter last year representing an increase of approximately 1.9% indicating no significant variance between the two years.

Authorities used in Vote 10, Grants and Contributions expenditures, increased by $1.6 million compared to the same quarter last year. This is mainly due to the timing of payments. There were more contribution payments made in the first quarter of 2014-15 than the first quarter of last year as a larger number of agreements were signed earlier in the year.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The increase of $25.7 million in total net budgetary expenditures in the first quarter of 2014-15 as compared to the same quarter in 2013-14 is reflected primarily in the net effect of the following standard objects of expenditures:

Personnel expenditures decreased by a total of $6.7 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. A decrease of $3.6 million is due to fewer payments related to employee retroactive payments resulting from collective bargaining agreement. The remaining decrease is due to a reduction in personnel and the associated employer contribution to the Public Service Superannuation Account.

Expenditures related to Transportation and Communications decreased by a total of $2.4 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This was mainly due to continued department-wide spending reductions related to travel.

Expenditures related to Professional and Special Services increased by a total of $2.0 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. The increase is mainly due to the timing of invoices related to helicopter operation and maintenance provided by Transport Canada and an increase in legal costs recovered by the Department of Justice.

Repair and Maintenance expenditures increased by a total of $4.6 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. An increase of $3.0 million is attributable to Canadian Coast Guard large vessel refit projects for the CCGS Louis St. Laurent, CCGS Henry Larsen, CCGS Des Groseilliers and CCGS Amundsen vessels. The remaining increase is due to the timing of real property projects as more projects were underway in the first quarter of 2014-15 than in the same quarter of 2013-14.

Expenditures related to Utilities, Materials and Supplies increased by a total of $3.3 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to an increase in Canadian Coast Guard fleet diesel fuel purchases as a result of increased demand for icebreaking services.

Expenditures related to the Acquisition of Land, Buildings and Works increased by a total of $1.2 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to an increased number of small craft harbour projects being underway in the Newfoundland region during the first quarter of 2014-15.

Expenditures related to the Acquisition of Machinery and Equipment decreased by a total of $3.8 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to the timing of payments related to Canadian Coast Guard projects for Mid-Shore Patrol Vessels and the National Marine Communications and Traffic Services Systems Modernization.

Transfer Payments expenditures increased by a total of $1.6 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to the timing of payments. There were more contribution payments made in the first quarter of 2014-15 than the first quarter of last year as a larger number of agreements were awarded earlier in the year.

Other Subsidies and Payments expenditures increased by a total of $26.5 million in the first quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to a one-time $24.7 million transition payment made as part of the implementation of salary payment in arrears by the Government of Canada.

3. Risks and Uncertainties

This Departmental Quarterly Financial Report reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released on June 19, 2014.

Planned expenditures for the fiscal year amount to $1,605.3 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. Northern development and the expansion of navigable waters, environmental changes and severe weather events, changes in the Canadian workforce, technological advances, changing maritime safety and security demands, and globalization of fisheries markets are among the factors impacting the Department. The current fiscal environment continues to require the Department to reassess how it conducts its business, provides services and delivers its programs to meet client and stakeholder needs.

The evolving operating environment raises many challenges for the Department that are reflected in several key external mission-critical corporate risks, which are, in order of severity:

All of DFO's mission critical risk response strategies and action plans are regularly reviewed and adjusted as necessary by the Deputy Minister's Management Committee. 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 Department has identified the risk to Program Delivery as an internal mission critical corporate risk with financial considerations. This risk, which impacts all three of the Department's strategic outcomes, is defined as follows: As a result of increasing operational costs, reliance on third parties, increasing stakeholder expectations, and an internal environment of transformation, there is a risk that the Department may not be able to align resources to future program delivery needs.

In December 2013, the Departmental Management Board (currently known as the Deputy Minister's Management Committee) identified this as a new corporate risk, resulting from a combination of several related drivers, including drivers of the Department's former Financial Capacity Risk. This new risk was prioritized as the second highest risk in severity for the department. As such, the Departmental Management Board decided to mitigate this risk through the implementation of action plans. Each action plan has a lead at the Assistant Deputy Minister level, is integrated into the business planning process, and is monitored throughout the year.

The finance-related risk action plans for the Program Delivery Risk are as follows:

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

The following changes in personnel were made during the first quarter:

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.

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 $3.8 million. Savings increased to $13.4 million in 2013-14 and will result in ongoing savings of $79.3 million by 2014-15.

Specifically, 2014-15 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.

4.2 Budget 2013 Implementation

This section provides an overview of the savings measures announced in Budget 2013 that are being implemented in order to identify savings to support the Government's commitment to return to balanced budgets over the medium term. As outlined in Budget 2013, Fisheries and Oceans Canada identified savings of $33.0 million per year by 2015-16 resulting mainly from the realization of internal departmental efficiencies.

The Department will modernize the organizational structure of its headquarters in order to provide cost-effective services to Canadians. For example, it is reducing administrative overhead and is pursuing 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.

In the first year of implementation, the Department achieved savings of $4.0 million. Savings will increase to $5.4 million in 2014-15 and will result in ongoing savings of $33.0 million by 2015-16.

4.3 Operational Budget Freeze - Budget 2014 Implementation

The 2013 Speech from the Throne declared that the Government "will freeze the overall federal operating budget, which will continue to restrain hiring.” These measures took effect on April 1, 2014 and will be in force for two years of collective agreements, during which any new collective agreement settlements will be permanently funded from the existing salary base.

Approval by Senior Officials

Matthew King, Deputy Minister
Ottawa, Canada
Marty Muldoon CPA, CMA, MBA,
Chief Financial Officer

Statement of Authorities (unaudited)

(in thousands of dollars)

  Fiscal year 2014-15 Fiscal year 2013-14
Total available for use for the year ending March 31, 2015* Used during the quarter ended June 30, 2014 Year to date used at quarter-end Total available for use for the year ended March 31, 2014*, ** Used during the quarter ended June 30, 2013 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,101,570 277,088 277,088 1,119,719 250,982 250,982
Vote 5 - Capital expenditures 325,273 25,363 25,363 360,102 24,899 24,899
Vote 10 - Grants and Contributions 57,854 9,098 9,098 59,091 7,465 7,465
Statutory - Contributions to employee benefit plans 120,534 30,133 30,133 129,898 32,474 32,474
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 80 20 20 79 20 20
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 121 121 - 228 228
Statutory - Refunds of amounts credited to revenues in previous years - - - - 75 75
Total Budgetary Authorities 1,605,311 341,824 341,824 1,668,889 316,143 316,143
Non-Budgetary Authorities - - - - - -
Total Authorities 1,605,311 341,824 341,824 1,668,889 316,143 316,143
* Includes only Authorities available for use and granted by Parliament at quarter-end
** 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 2014-15 Fiscal year 2013-14
Planned expenditures for the year ending March 31, 2015 Expended during the quarter ended June 30, 2014 Year to date used at quarter-end Planned expenditures for the year ended March 31, 2014* Expended during the quarter ended June 30, 2013 Year to date used at quarter-end
Expenditures:
Personnel 851,122 234,978 234,978 876,516 241,677 241,677
Transportation and communications 45,451 6,966 6,966 49,007 9,326 9,326
Information 2,164 151 151 2,592 264 264
Professional and special services 149,529 21,420 21,420 147,571 19,424 19,424
Rentals 10,032 2,030 2,030 10,812 1,719 1,719
Repair and maintenance 144,847 16,563 16,563 144,957 11,918 11,918
Utilities, materials and supplies 62,867 16,736 16,736 63,513 13,402 13,402
Acquisition of land, buildings and works 62,348 1,785 1,785 73,720 604 604
Acquisition of machinery and equipment 256,465 8,983 8,983 279,856 12,777 12,777
Transfer payments 57,854 9,098 9,098 59,091 7,466 7,466
Other subsidies and payments 10,547 33,793 33,793 9,168 7,256 7,256
Total gross budgetary expenditures 1,653,225 352,504 352,504 1,716,804 325,833 325,833
Less Revenues netted against expenditures:
Sales of goods and services 47,915 10,680 10,680 47,915 9,690 9,690
Total Revenues netted against expenditures: 47,915 10,680 10,680 47,915 9,690 9,690
Total net budgetary expenditures 1,605,311 341,824 341,824 1,668,889 316,143 316,143
* Planned expenditures do not reflect measures announced in Budget 2013

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