Fisheries and Oceans Canada - Quarterly Financial Report for the Quarter Ended September 30, 2015

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 (A), as well as Canada's Economic Action Plan 2014 and 2015 (Budget 2014 and Budget 2015), 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 (A) for 2015-16. 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 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.

Budget 2015 was tabled in Parliament on April 21, 2015, after the tabling of the Main Estimates on February 24, 2015. As a result, the initiatives announced in the Budget 2015 could not be reflected in the 2015-16 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 2015-16 were $2,204.5 million, i.e. $523.8 million, or 31.2% higher than the $1,680.7 million authorized at the same point in 2014-15.

The total authorities available for Vote 1, Net Operating expenditures increased by $135.2 million when compared to the same quarter in 2014-15. 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 $351.1 million when compared to the same quarter in 2014-15.This is mainly due to the net effect of the following factors:

The total authorities available for Vote 10, Grants and Contributions increased by $35.4 million when compared to the same quarter in 2014-15. This is mainly due to the net effect of the following factors:

The total Budgetary Statutory authorities available for 2015-16 increased by $2.1 million when compared to the same quarter in 2014-15. 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 2015-16, total budgetary expenditures amounted to $483.7 million compared to $405.0 million reported in the same quarter of 2014-15.

Authorities used in Vote 1, Net Operating expenditures, increased by $8.9 million compared to the same quarter last year representing an increase of approximately 3.04% indicating no significant variance between the two years. The slight increase is due to higher spending on repair and maintenance expenditures for the CCG Vessel Life Extension Program.

Authorities used in Vote 5, Capital expenditures, increased by $64.3 million compared to the same quarter last year. This is mainly due to the acquisition of CCG Helicopters and architectural services for CCG Offshore Fisheries Science Vessels offset by a decrease in spending for CCG Mid Shore Patrol Vessels which have been delivered. The increase is also related to the Federal Infrastructure Initiative which has resulted in increased capital funding for Small Craft Harbours and Real Property.

Authorities used in Vote 10, Grants and Contributions expenditures, increased by $5.0 million compared to the same quarter last year. The increase is mainly a timing difference as a result of the Recreational Fisheries Contribution Program receiving its budget earlier in the year, which allowed the program to approve more projects during the second quarter of 2015-16. The total increase is also related to an increase in Aboriginal Fisheries Strategy agreements.

Statutory authorities increased by $0.5 million compared to the same quarter last year representing an increase of approximately 1.57% indicating no significant variance between the two years.

2.2 Statement of Departmental Budgetary Expenditures by Standard Object

The increase of $78.7 million in total net budgetary expenditures in the second quarter of 2015-16 as compared to the same quarter in 2014-15 is reflected primarily in the net effect of the following standard objects of expenditures:

Personnel expenditures increased slightly by a total of $2.4 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. An increase of $2.0 million is related to overtime payments mainly by CCG for additional hours worked. The total increase is also related to higher spending on part-time and casual employment.

Expenditures related to Professional and Special Services increased by a total of $24.2 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This is mainly due to capital expenditures related to architectural services for the Offshore Fisheries Science Vessels project.

Expenditures related to Repair and Maintenance increased by a total of $13.3 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This is mainly due to an increase in expenditures related to the CCG's Vessel Life Extensions. The increase is also related to Federal Infrastructure Initiative spending on Small Craft Harbours and Real Property.

Expenditures related to Utilities, Materials and Supplies decreased by a total of $11.3 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This is mainly due to the CCG fleet consuming less diesel fuel as the result of some ships being out of service as part of the Vessel Life Extension Program as well as a lower price for fuel.

Expenditures related to the Acquisition of Land, Buildings and Works increased by a total of $20.2 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This increase is mainly due to the Federal Infrastructure Initiative, which has resulted in an increased number of Small Craft Harbours projects being underway in the Gulf, Maritimes, and Newfoundland regions since the third quarter of 2014-15. The increase is also related to new financial management guidelines implemented at the beginning of fiscal year 2015-16, which transferred the coding of expenditures resulting in capital assets from Repair and Maintenance to expenditures related to the Acquisition of Land, Buildings and Works.

Expenditures related to the Acquisition of Machinery and Equipment increased by a total of $28.3 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This increase is mainly due to the purchase of CCG light-lift helicopters.

Expenditures related to Transfer Payments increased by a total of $5.0 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. An increase of $3.8 million is due to the Recreational Fisheries Contribution Program approving more projects earlier in the year. The total increase is also a result of a higher volume of Aboriginal Fisheries Strategy agreements.

Other Subsidies and Payments expenditures decreased by a total of $0.5 million in the second quarter of 2015-16 when compared to the same quarter of 2014-15. This is mainly due to the transition payment made in 2014-15 as part of the implementation of payment in arrears within 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 18, 2015.

Planned expenditures for the fiscal year amount to $2,204.5 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 environment. Northern development, the expansion of navigable waters, environmental changes, 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 Department continues to assess how it conducts its business, provides services and delivers on 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.

As a result of two risk prioritization sessions, held with the Directors General Management Committee in October 2014 and with the Directors General Policy Committee in December 2014, the Program Delivery Risk was identified as the second highest risk in severity for the Department for 2015-16. The Deputy's Management Committee validated the prioritization of risks in December 2014 and decided to mitigate the Program Delivery 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 2015-16 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 change in personnel was made during the second quarter:

4.1 Budget 2013 Implementation

Budget 2013 savings measures were 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 modernized the organizational structure of its headquarters in order to provide cost-effective services to Canadians. For example, it reduced administrative overhead and pursued organizational changes to reduce duplication and improve decision-making processes. To complement these savings, Fisheries and Oceans Canada also improved 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 increased to $5.4 million in 2014-15 and resulted in ongoing savings of $33.0 million by 2015-16.

4.2 Operational Budget Freeze - Budget 2015 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

Approved by:

Original signed by 

_________________________
Matthew King, Deputy Minister

Ottawa, Canada
November 24, 2015

Original signed by

_________________________
Marty Muldoon CPA, CMA, MBA,
Chief Financial Officer

Statement of Authorities (unaudited)

(in thousands of dollars)

  Fiscal year 2015-16 Fiscal year 2014-15
Total available for use for the year ending March 31, 2016* Used during the quarter ended September 30, 2015 Year to date used at quarter-end Total available for use for the year ended March 31, 2015* Used during the quarter ended September 30, 2014 Year to date used at quarter-end
Vote 1 - Net Operating expenditures 1,274,291 301,745 541,555 1,139,109 292,834 569,922
Vote 5 - Capital expenditures 714,252 130,391 214,339 363,143 66,067 91,430
Vote 10 - Grants and Contributions 93,237 20,803 29,679 57,854 15,835 24,932
Statutory - Contributions to employee benefit plans 122,672 30,668 61,336 120,534 30,133 60,267
Statutory - Minister of Fisheries and Oceans - Salary and motor car allowance 82 21 41 80 20 40
Statutory - Spending of proceeds from the disposal of surplus Crown assets - 37 89 - 96 217
Statutory - Refunds of amounts credited to revenues in previous years - - - - - -
Total Budgetary Authorities 2,204,534 483,665 847,039 1,680,720 404,985 746,809
Non-Budgetary Authorities - - - - - -
Total Authorities 2,204,534 483,665 847,039 1,680,720 404,985 746,809
* 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 2015-16 Fiscal year 2014-15
Planned expenditures for the year ending March 31, 2016* Expended during the quarter ended September 30, 2015 Year to date used at quarter-end Planned expenditures for the year ended March 31, 2015* Expended during the quarter ended September 30, 2014 Year to date used at quarter-end
Expenditures:
Personnel 860,457 226,570 443,914 851,122 224,182 459,161
Transportation and communications 59,216 14,506 24,841 49,461 14,951 21,917
Information 2,577 346 598 2,355 327 478
Professional and special services 201,627 72,875 139,762 162,723 48,675 70,095
Rentals 13,419 3,962 5,986 10,917 3,688 5,718
Repair and maintenance 218,287 54,314 74,928 157,627 41,062 57,625
Utilities, materials and supplies 85,777 25,195 39,952 68,414 36,458 53,194
Acquisition of land, buildings and works 232,824 23,864 31,425 69,754 3,706 5,491
Acquisition of machinery and equipment 470,316 43,361 60,579 286,929 15,029 24,012
Transfer payments 93,237 20,803 29,679 57,854 15,835 24,932
Other subsidies and payments 14,712 9,487 16,227 11,477 10,029 43,822
Total gross budgetary expenditures 2,252,449 495,283 867,891 1,728,635 413,942 766,445
Less Revenues netted against expenditures:
Sales of goods and services 47,915 11,618 20,852 47,915 8,957 19,636
Total Revenues netted against expenditures: 47,915 11,618 20,852 47,915 8,957 19,636
Total net budgetary expenditures 2,204,534 483,665 847,039 1,680,720 404,985 746,809
* Includes only Authorities available for use and granted by Parliament at quarter-end

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