2014-15 Quarterly Financial Report for the quarter ended December 31, 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, Supplementary Estimates (B) 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 and Supplementary Estimates (B) 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 third quarter of 2014-15 were $1,862.7 million, i.e. $35.9 million, or 1.9% less than the $1,898.6 million authorized at the same point in 2013-14.

The total authorities available for Vote 1, Net Operating expenditures decreased by $76.5 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 $47.3 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 expenditures increased by $2.7 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 third quarter of 2014-15, total budgetary expenditures amounted to $394.9 million compared to $411.4 million reported in the same quarter of 2013-14.

Authorities used in Vote 1, Net Operating expenditures, decreased by $28.0 million compared to the same quarter last year. The decrease is mainly related to a reduction in personnel expenditures. The remaining reduction is related to a reduction in professional services expenditures due to the winding down of the clean-up work for Zalinski.

Authorities used in Vote 5, Capital expenditures, increased by $13.1 million compared to the same quarter last year. This is mainly due to an increase in acquisition in machinery and equipment related to the purchase of Canadian Coast Guard (CCG) helicopters and an increase in capital salary related to CCG's vessel maintenance and modernization projects. The remaining increase is related to an increase in Small Craft Harbour projects in the Newfoundland region.

Authorities used in Vote 10, Grants and Contributions expenditures, increased by $0.4 million compared to the same quarter last year representing an increase of approximately 3.5% indicating no significant variance between the two years.

Statutory expenditures decreased by $2.1 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 $16.5 million in total net budgetary expenditures in the third 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 $10.1 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. A decrease of $5.2 million is due to a reduction of payments related to employee severance pay and termination benefits. The remaining variance is related to a reduction in personnel which resulted in a decrease in pay and employer contribution to the Public Service Superannuation Account.

Expenditures related to Professional and Special Services decreased by a total of $9.0 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to a decrease in expenditures for environmental consultants as clean-up work on the vessel Zalinski winds down.

Expenditures related to Rental decreased by a total of $2.0 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. $1.0 million of the decrease is related to the decrease in ship rentals related to the wind down of the clean-up work on the vessel Zalinski. The remaining decrease is mainly due to the timing of a ship charter invoice in the Central and Arctic region.

Repair and Maintenance expenditures increased by a total of $2.0 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. This is due to an increase in expenditures related to the CCG's Vessel Life Extensions project which is offset by a decrease in expenditures related to Small Craft Harbour in the Quebec region as several projects have come to a close.

Expenditures related to Utilities, Materials and Supplies decreased by a total of $2.2 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. This is mainly due to a decrease in CCG 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 $3.2 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. This increase is mainly due to an increased number of small craft harbour projects being underway in the Newfoundland region during the third quarter of 2014-15.

Expenditures related to the Acquisition of Machinery and Equipment increased by a total of $6.6 million in the third quarter of 2014-15 when compared to the same quarter of 2013-14. This variance is a net effect of an increase in the purchases of CCG helicopters and a decrease in expenditures related to software and information technology projects.

Other Subsidies and Payments expenditures decreased by a total of $3.4 million in the third 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 $1,862.7 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 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 three external mission-critical corporate risks, which are listed below:

All of DFO's mission critical risk response strategies and action plans are regularly reviewed and adjusted as necessary by the Deputy'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 regularly 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'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 2014-15 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 third quarter:

4.1 Budget 2011 Implementation

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 increased its capacity to achieve better results for Canadians. These changes ensured that Fisheries and Oceans Canada is better equipped to deliver services effectively and efficiently and is able to focus on emerging government priorities.

4.2 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.

4.3 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.

4.4 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 December 31, 2014 Year to date used at quarter-end Total available for use for the year ended March 31, 2014* Used during the quarter ended December 31, 2013 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,164,685 276,069 845,991 1,241,177 304,057 854,004
Vote 5 - Capital expenditures 486,380 75,289 166,719 439,086 62,181 149,656
Vote 10 - Grants and Contributions 90,971 12,995 37,927 88,314 12,554 36,403
Statutory - Contributions to employee benefit plans 120,534 30,133 90,400 129,898 32,480 97,429
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 80 20 60 79 20 59
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 301 518 - 145 607
Statutory - Refunds of amounts credited to revenues in previous years - 94 94 - 1 78
Total Budgetary Authorities 1,862,651 394,901 1,141,710 1,898,554 411,438 1,138,236
Non-Budgetary Authorities - - - - - -
Total Authorities 1,862,651 394,901 1,141,710 1,898,554 411,438 1,138,236
* Includes only Authorities available for use and granted by Parliament at quarter-end

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 December 31, 2014 Year to date used at quarter-end Planned expenditures for the year ended March 31, 2014 Expended during the quarter ended December 31, 2013 Year to date used at quarter-end
Expenditures:
Personnel 863,428 226,556 685,717 887,270 236,627 720,339
Transportation and communications 50,358 14,040 35,957 55,222 13,856 37,361
Information 2,360 441 918 3,026 265 891
Professional and special services 173,913 50,668 120,763 215,249 59,677 120,552
Rentals 11,020 4,218 9,936 14,810 6,224 11,504
Repair and maintenance 158,560 44,751 102,376 164,926 42,718 93,579
Utilities, materials and supplies 69,746 22,216 75,410 75,748 24,462 62,515
Acquisition of land, buildings and works 86,954 6,347 11,838 84,990 3,181 5,841
Acquisition of machinery and equipment 391,778 25,909 49,921 346,530 19,267 53,903
Transfer payments 90,971 12,995 37,927 88,314 12,554 36,403
Other subsidies and payments 11,477 -2,509 41,313 10,384 939 23,857
Total gross budgetary expenditures 1,910,565 405,631 1,172,076 1,946,469 419,770 1,166,745
Less Revenues netted against expenditures:
Sales of goods and services 47,915 10,730 30,367 47,915 8,332 28,509
Total Revenues netted against expenditures 47,915 10,730 30,367 47,915 8,332 28,509
Total net budgetary expenditures 1,862,651 394,901 1,141,710 1,898,554 411,438 1,138,236

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