2014-15 Quarterly Financial Report for the quarter ended September 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 second quarter of 2014-15 were $1,680.7 million, i.e. $11.8 million, or 0.7% more than the $1,668.9 million authorized at the same point in 2013-14.

The total authorities available for Vote 1, Net Operating expenditures increased by $19.4 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 increased by a total of $3.0 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 second quarter of 2014-15, total budgetary expenditures amounted to $405.0 million compared to $410.7 million reported in the same quarter of 2013-14, a decrease of $5.7 million.

Authorities used in Vote 1, Net Operating expenditures, decreased by $6.1 million compared to the same quarter last year. This is mainly related to a reduction in personnel expenditures offset by an increase in Canadian Coast Guard fuel purchases.

Authorities used in Vote 5, Capital expenditures, increased by $3.5 million compared to the same quarter last year. This is mainly due to an increase in Professional and Special Services expenditures related to the Offshore Fisheries Science Vessels project.

Authorities used in Vote 10, Grants and Contributions expenditures, decreased by $0.5 million compared to the same quarter last year representing a decrease of approximately 3.4% indicating no significant variance between the two years.

Statutory expenditures decreased by $2.5 million which is mainly due to a reduction in Employee Benefit Plan expenditures.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The decrease of $5.7 million in total net budgetary expenditures in the second 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 $17.9 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. A decrease of $7.8 million is due to fewer payments related to employee severance allowances and employee retroactive payments resulting from collective bargaining agreements. The remaining decrease is mainly due to a reduction in personnel and the associated performance pay and employer contribution to the Public Service Superannuation Account.

Expenditures related to Professional and Special Services increased by a total of $7.2 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to increased expenditures related to the Offshore Fisheries Science Vessels project, real property wharf projects in Quebec and coordination of the Federal Contaminated Sites Action Plan (FCSAP).

Repair and Maintenance expenditures increased by a total of $2.1 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to an increase in work on small craft harbour projects in the Gulf region.

Expenditures related to Utilities, Materials and Supplies increased by a total of $11.8 million in the second 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 related to the United Nations Convention on the Law of the Sea (UNCLOS) initiative.

Expenditures related to the Acquisition of Land, Buildings and Works increased by a total of $1.7 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. This increase is mainly due to the net effect of the completion of the Pangnirtung small craft harbour project in Nunavut in 2013-14 and an increased number of small craft harbour projects being underway in the Newfoundland region during the second quarter of 2014-15.

Expenditures related to the Acquisition of Machinery and Equipment decreased by a total of $6.8 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to the completion of major capital work related to the Mid Shore Patrol Vessel project.

Other Subsidies and Payments expenditures decreased by a total of $5.6 million in the second quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to the timing of interdepartmental settlement transactions.

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 $1,680.7 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. 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 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 second 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 September 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 September 30, 2013 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,139,109 292,834 569,922 1,119,719 298,965 549,947
Vote 5 - Capital expenditures 363,143 66,067 91,430 360,102 62,576 87,475
Vote 10 - Grants and Contributions 57,854 15,835 24,932 59,091 16,384 23,849
Statutory - Contributions to employee benefit plans 120,534 30,133 60,267 129,898 32,474 64,949
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 80 20 40 79 20 39
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 96 217 - 234 462
Statutory - Refunds of amounts credited to revenues in previous years - - - - 2 77
Total Budgetary Authorities 1,680,720 404,985 746,809 1,668,889 410,655 726,798
Non-Budgetary Authorities - - - - - -
Total Authorities 1,680,720 404,985 746,809 1,668,889 410,655 726,798
* 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 September 30, 2014 Year to date used at quarter-end Planned expenditures for the year ended March 31, 2014* Expended during the quarter ended September 30, 2013 Year to date used at quarter-end
Expenditures:
Personnel 851,122 224,182 459,161 876,516 242,035 483,712
Transportation and communications 49,461 14,951 21,917 49,007 14,179 23,505
Information 2,355 327 478 2,592 362 626
Professional and special services 162,723 48,675 70,095 147,571 41,451 60,875
Rentals 10,917 3,688 5,718 10,812 3,561 5,280
Repair and maintenance 157,627 41,062 57,625 144,957 38,943 50,861
Utilities, materials and supplies 68,414 36,458 53,194 63,513 24,651 38,053
Acquisition of land, buildings and works 69,754 3,706 5,491 73,720 2,055 2,660
Acquisition of machinery and equipment 286,929 15,029 24,012 279,856 21,859 34,636
Transfer payments 57,854 15,835 24,932 59,091 16,384 23,849
Other subsidies and payments 11,477 10,029 43,822 9,168 15,662 22,918
Total gross budgetary expenditures 1,728,635 413,942 766,445 1,716,804 421,142 746,975
Less Revenues netted against expenditures:
Sales of goods and services 47,915 8,957 19,636 47,915 10,487 20,177
Total Revenues netted against expenditures: 47,915 8,957 19,636 47,915 10,487 20,177
Total net budgetary expenditures 1,680,720 404,985 746,809 1,668,889 410,655 726,798
* Planned expenditures do not reflect measures announced in Budget 2013

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