Canadian Food Inspection Agency (CFIA) – Quarterly Financial Report (QFR) for the Quarter ended December 31, 2016

Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the 2016-17 Main Estimates, the 2016-17 Supplementary Estimates (A) and (B), and authorities received from Treasury Board Central Votes.

A summary description of the program activities of the Canadian Food Inspection Agency's (CFIA) can be found in the CFIA's 2016-17 Report on Plans and Priorities at the following address: 2016-17 Report on Plans and Priorities.

This quarterly report has not been subject to an external audit or review.

CFIA Mandate

The Minister of Health is responsible for the CFIA and for the overall direction of the Agency. In addition, the Minister of Agriculture and Agri-Food is responsible for oversight of the Agency's non-food safety agricultural activities, including economic and trade issues, as well as important animal health and plant protection work.

The CFIA is headed by a President, who has the rank and all the powers of a Deputy Head of a Department. The President is also the Chief Executive Officer. The responsibilities of these roles are outlined in the Canadian Food Inspection Act 1997, c.6.

The Agency is responsible for administering and enforcing 13 federal statutes and 38 sets of regulations, for regulating the safety and quality of food sold in Canada, and for supporting a sustainable plant and animal resource base. It shares many of its core responsibilities with other federal departments and agencies, with provincial, territorial and municipal authorities, with private industry, and with other stakeholders.

The CFIA works with its partners to: implement food safety measures; manage food, animal and plant risks, incidents and emergencies; and promote the development of food safety and disease control systems to maintain the safety of Canada's high-quality agriculture, agri-food, aquaculture and fishery products. The Agency's activities include: verifying the compliance of imported products; registering and inspecting establishments; testing food, animals, plants and their related products; and, approving the use of many agricultural inputs.

Additionally, the Agency actively participates in international fora for the development of international science-based rules, standards, guidelines and policies. It also participates in the management of sanitary and phytosanitary committees, established under international agreements, and actively promotes the Canadian science-based regulatory system among foreign trading partners. The CFIA negotiates to resolve scientific and technical issues, contributing to market access for Canadian goods. It also provides scientific advice, develops new technologies, provides testing services, and conducts regulatory research.

At the CFIA, decisions are based on high-quality, timely, relevant science. Science informs policy development and program design and delivery through foresight, advice, risk assessment, the influence of international standards, research and development, and testing.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities (Annex A) includes the Agency's spending authorities granted by Parliament and those used by the Agency, consistent with the Main Estimates, the Supplementary Estimates (A) and (B), and authorities received from Treasury Board Central Votes for the 2016-17 fiscal year. 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 funding can be spent by the Government. Approvals are given through annual appropriation acts or legislation which provides statutory spending authority for specific purposes.

When Parliament is dissolved for the purpose of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

The Agency uses the full accrual method of accounting to prepare and present its annual Agency financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

Highlights of Fiscal Quarter and Fiscal Year-to-Date (YTD)

In line with previously reported variances in the Departmental Performance Report and Quarterly Financial Reports, the CFIA determined that variances which are greater than $5.0 million and representing more than a 10-per-cent change, in budget or expenditures from one year to the next, are deemed significant. When both of these criteria are met, further analysis is always provided. Further analysis is also provided when the dollar value is deemed significant.

Significant Changes in the Statement of Authorities (Annex A at end of document)

Authorities Available for Use

At the end of the third quarter, December 31, 2016 (Q3), the CFIA had $837.3 million of authorities available for use, as detailed in Table 1. This is an increase of $86.1 million (11.5 per cent) compared to the end of the same quarter in 2015-16. Below is a breakdown of this increase by vote.

Table 1: Authorities Available for Use for the Year Ending March 31, 2017 and March 31, 2016 (In thousands of dollars)
Authorities 2016-17 2015-16 Variances %
Vote 1 – Operating expenditures and contributions 592,871 554,048 38,823 7.0%
Vote 5 – Capital expenditures 103,269 61,747 41,522 67.2%
Budgetary statutory authorities
Employee benefit plan 84,534 78,825 5,709 7.2%
Compensation payments 3,500 3,500 0 0.0%
Spending of revenues/other 53,161 53,161 0 0.0%
Total Authorities 837,335 751,281 86,054 11.5%

Numbers may not add due to rounding.

The $38.8 million (7.0 per cent) increase in Vote 1 – Operating expenditures and contributions authorities is mainly due to new funding for Improving Food Safety – Budget 2016 and Securing Market Access – Budget 2015, and a larger operating budget carry-forward in 2016-17 as compared to 2015-16. Due to year-end impacts of the avian influenza outbreak and significant payments related to the settlement of collective agreements in 2014-15, the carry forward into 2015-16 was reduced.

The $41.5 million (67.2 per cent) increase in Vote 5 – Capital expenditures authorities is primarily due to new temporary funding for the Canadian Food Safety Information Network project and a significant increase in 2016-17 temporary funding, in comparison with 2015-16, for the implementation of the Federal Infrastructure Initiative (FII) – Budget 2015 and, new funding to maintain and upgrade federal infrastructure assets – Budget 2016. However, the Agency has experienced externally driven delays in certain FII projects. As a result, the Agency will not fully utilize its 2016-17 capital expenditure authorities, and has been granted approval to reprofile capital expenditure authorities into 2017-18 in order to complete these projects.

Further to the FII reprofile, the Agency has also been granted approval to reprofile capital expenditure authorities for the Electronic Service Delivery Platform (ESDP) project. The requirement to reprofile ESDP project funding from 2016-17 to 2017-18 is mainly due to a change in the approach to the implementation of the ESDP project, which is now designed to incrementally introduce system features allowing for delivery of less complex functionality earlier in the project.

Year-to-Date Expenditures

At the end of the 2016-17 third quarter, the CFIA had expenditures of $517.3 million as outlined in Table 2. This represents an overall decrease of $9.6 million (1.8 per cent) compared to the end of the same quarter in 2015-16. Below is a breakdown of the variances of expenditures by vote.

Table 2: Year-to-Date Expenditures Used as of December 31, 2016 and December 31, 2015 (In thousands of dollars)
Expenditures 2016-17 2015-16 Variances %
Vote 1 – Operating expenditures and contributions 402,088 407,367 (5,279) (1.3%)
Vote 5 – Capital expenditures 21,054 18,492 2,562 13.9%
Budgetary statutory authorities
Employee benefit plan 58,471 58,469 2 0.0%
Compensation payments 3,797 14,028 (10,231) (72.9%)
Spending of revenues/other 31,919 28,546 3,373 11.8%
Total Expenditures 517,329 526,902 (9,573) (1.8%)

Numbers may not add due to rounding.

The primary reason for the $10.2 million (72.9 per cent) expenditure decrease in Budgetary statutory authorities – Compensation Payments is due to 2015-16 payments made under the Health of Animals Act which had occurred in the April 2015 avian influenza outbreak in southern Ontario.

Significant Changes in the Departmental Budgetary Expenditures by Standard Object (Annex B at end of document)

Planned Expenditures (Equivalent to Authorities) by Standard Object

Personnel planned expenditures increased by $28.3 million (5.2 per cent), when compared to the previous year, largely due to new funding for Improving Food Safety and Securing Market Access, an increase in existing funding Food Safety Oversight, and the timing of receipt of authorities for the reimbursement of Paylist Expenditures.

Professional and special services planned expenditures increased by $26.1 million (30.3 per cent), when compared to the previous year, primarily due to incremental requirements resulting from temporary funding received for the implementation of the FII and the ESDP.

The 2016-17 planned expenditures for utilities, materials and supplies have increased by $21.4 million (103.0 per cent), when compared to the previous year, due to the incremental requirements resulting from temporary funding received for implementation of the FII, as well as the increase in Food Safety Oversight funding.

Year-to-Date Expenditures by Standard Object

The expenditure increase of $8.1 million (21.0 per cent) for the quarter ended December 31, 2016 for professional and special services is largely due to a timing difference in the reimbursement of other government department (OGD) costs by the CFIA. The new cost-recovery payment schedule negotiated with the Department of Justice and with Public Services and Procurement Canada has resulted in the reimbursement of a greater portion of these recoverable costs in 2016-17's first three quarters, as compared to 2015-16. Increased spending in support of the ESDP project also resulted in greater expenditures under professional and special services. During the implementation stage of this project the CFIA sought the services of a major systems integrator to assist in the delivery of the ESDP.

The $10.7 million (72.8 per cent) expenditure decrease in transfer payments is mainly due to the decrease in payments made under the Health of Animals Act for the avian influenza outbreak in southern Ontario which had occurred in April 2015.

Risks and Uncertainties

This quarterly financial report reflects the results of the current fiscal period in relation to Main Estimates, Supplementary Estimates (A) and (B), and authorities received from Treasury Board Central Votes. The Agency anticipates receiving further 2016-17 funding from Treasury Board Central Votes. In addition to managing the delivery of Agency programs based on anticipated total spending authorities, the Agency faces other financial and non-financial risks and uncertainties.

Emergencies

The CFIA operates in an uncertain environment and must be prepared to respond on an urgent basis to food safety emergencies and unplanned events related to plant and animal health. As the lead authority for monitoring, controlling and eradicating animal and plant diseases, and for safeguarding the food supply in Canada, the Agency must respond with prompt action above and beyond normal business activities when these temporary situations arise in order to safeguard Canadians and maintain access to export markets (e.g., 2016 Bovine Tuberculosis and 2014 avian influenza outbreak in British Columbia).

The Agency has established a dedicated emergency reserve to manage the incremental response costs associated with emergencies which is reviewed every year as part of the Agency's planning process and is subject to ongoing monitoring. While the CFIA is confident that its emergency reserve is generally sufficient to cover the incremental costs related to emergency management on a yearly basis, it is recognized that, in some years, anomalies could drive up the costs above the funding set aside.

Collective Bargaining

The majority of the CFIA's collective agreements have expired and require renegotiation. As collective agreement settlements are negotiated, the retroactive and ongoing wage and salary increases applicable to the 2014-15 and 2015-16 fiscal years will have to be absorbed by the Agency. The exact cost is not yet known; however, based on recent federal government collective bargaining negotiations the Agency's estimations of the incremental costs are continuing to evolve. The Agency is working to mitigate the financial risks of the upcoming settlements for the current year, as well as future years.

Sunsetting Resources

In 2016-17, funding for four of the Agency's established programs will sunset; specifically funding to maintain: critical food safety activities to prevent, detect and respond to foodborne illness outbreaks (Listeria); daily shift inspection presence in federally registered meat processing establishments; the Food Safety Modernization program; and, Inspection Verification Teams. In addition, in 2018-19, funding for bovine spongiform encephalopathy programming will also sunset. The Agency will assess the level of resources required for these sunsetting programs and will seek renewal as required in order to maintain and continuously improve Canada's strong food safety system, safe and accessible food supply and plant and animal resource base.

Federal Infrastructure Initiative (FII)

As part of the Budget 2015 Federal Infrastructure Initiative, a total of $65.7 million in capital funds over two years (2015-16 and 2016-17) for 21 projects was approved for the Agency to accelerate its renewal and upgrades of various critical infrastructures. The magnitude of this initiative greatly exceeds the normal capacity and activities of the Agency. The Agency follows established management frameworks with a dedicated governance structure to oversee all projects undertaken as part of this initiative.

Infrastructure projects require invasive work to the building structures and systems and there is always a risk of discovering unanticipated hazardous materials and/or related problems arising from the condition of the building structures and systems, which can lead to increased project costs above the initial estimates. To provide the Agency with the ability to respond to these unforeseen risks, a measure of contingency was built into the initial costing estimates. To date, the Agency has not encountered significant unforeseen requirements. Instead, cost savings have been realized due to greater-than-expected industry and labour capacity, more efficient construction oversight, and design refinements. As a result, it is unlikely that the Agency will require the full financial contingencies originally identified.

As previously indicated, certain FII projects are experiencing externally driven delays. As a result, the Agency will not fully utilize its 2016-17 capital expenditures authorities, and therefore has been approved to reprofile capital expenditure authorities into 2017-18 in order to complete these projects.

Electronic Service Delivery Platform (ESDP)

ESDP is the digital tool that will make it possible for the CFIA to offer more electronic services to its industry stakeholders. Through ESDP, the Agency will be providing stakeholders with access to more efficient, online business services, while Agency staff will be equipped with modern technology. In the long term, ESDP will give industry access to improved services, CFIA staff access to better information, and the Agency a better understanding of the risk environment. It will also enable sharing of information more effectively with trading partners.

The CFIA recognizes that the ESDP project is a significant implementation in scale, complexity, and impact, since it will significantly change the way CFIA employees and industry clients operate. The management of the ESDP project and related risks follows an established Enterprise Project Management Framework (ePMF) with a dedicated governance structure, which is aligned with industry and government best practices to successfully manage projects.

As previously indicated the Agency has been approved to reprofile capital expenditure authorities for ESDP. The requirement to reprofile ESDP project funding from 2016-17 to 2017-18 is mainly due to a change in the approach to the implementation of the ESDP project, which is now designed to incrementally introduce system features allowing for delivery of less complex functionality earlier in the project.

Program Risk

The CFIA is responsible for identifying and managing risks to the plant and animal resource base and the food supply on which safe food and a prosperous economy depend. Across the Agency, integrated risk management is an integral part of policy, program design, priority setting, planning, delivery, review and reporting activities.

Integrated risk management is at the core of the CFIA's modernization initiatives. The Agency operates in a dynamic and complex risk environment that continues to change rapidly. The sectors that the CFIA regulates are constantly changing their business models and technologies; industry is always developing new and innovative products, and new pathways for risk are emerging.

The CFIA is adopting an Integrated Risk Management Framework and expanding the Establishment-based Risk Assessment (ERA) model to better understand the broader risk landscape and focus efforts where they are most needed. The Integrated Risk Management Framework aligns Canada with other leading countries using risk-informed systems, and will increase confidence among both consumers and our trading partners in the CFIA's regulatory system.

Regulatory Framework

The Canadian Food Inspection Agency is committed to strengthening Canada's world-class food safety system. The federal government took an important step toward this goal when Parliament passed the Safe Food for Canadians Act (SFCA) in November 2012. Although the SFCA received Royal Assent, new regulations are needed to enforce it.

The Agency has held three rounds of consultations on the regulatory framework for bringing the Safe Food for Canadians Act into force. The CFIA reached over 10,000 stakeholders in 2013 and 2014, and conducted additional consultations in 2015 with micro and small businesses.

Before new regulations can be put into place, they must be published in the Canada Gazette, Part I (1) – the official newspaper of the Government of Canada – for public comment. Feedback on the proposed regulatory approach from all stakeholders, including consumers and food businesses, will be important. The Agency is currently working towards the official consultation in January 2017.

To raise awareness of the upcoming public comment period and to help food businesses understand what the proposed requirements could mean for their businesses, the CFIA has revised its Safe Food web page and added information resources.

Significant Changes in Relation to Operations, Personnel and Programs

Operations

On September 21, 2016, the U.S. Department of Agriculture (USDA) informed the CFIA of a positive bovine tuberculosis (TB) result associated with a five-year-old bovine from Canada. The CFIA moved quickly to mobilize resources from across the Agency to support the response to this bovine TB outbreak. The CFIA's Western Area Emergency Operations Centre (EOC) and the National Emergency Operations Centre (NEOC) have been activated.

Personnel

B.A. (Bruce) Archibald, PhD, President of the Canadian Food Inspection Agency announced his retirement, effective October 28, 2016.

On October 21, 2016, Prime Minister Justin Trudeau announced Paul Glover as the new President of the Canadian Food Inspection Agency, effective October 31, 2016.

Dr. Martine Dubuc, Vice-President, Science Branch announced she would be leaving the Agency to take on an Associate Deputy Minister position with Environment and Climate Change Canada, effective January 20, 2017.

Original signed by:

Paul Glover
President, CFIA

Yves Bacon
Vice President,
Corporate Management Branch and
Chief Financial Officer, CFIA

Ottawa, Ontario

Ottawa, Ontario

Date: February 23, 2017

Date: February 8, 2017

Annex A
Statement of Authorities (unaudited)
For the quarter ended December 31, 2016
(in thousands of dollars)
Fiscal year 2016-17 Fiscal year 2015-16
Total available for use for the year ending March 31, 2017 Table Note 1 Expended during the quarter ended December 31, 2016 Year to date used at quarter-end Total available for use for the year ending March 31, 2016 Table Note 1 Used during the quarter ended December 31, 2015 Year to date used at quarter-end
Vote 1 – Operating expenditures and contributions 592,871 140,653 402,088 554,048 135,490 407,367
Vote 5 – Capital expenditures 103,269 9,182 21,054 61,747 5,957 18,492
Budgetary statutory authorities
Employee benefit plans 84,534 19,490 58,471 78,825 19,490 58,469
Compensation payments 3,500 1,745 3,797 3,500 1,533 14,028
Spending of revenues 53,161 10,231 31,888 53,161 13,980 28,507
Refunds of previous years revenue 0 7 24 0 0 30
Collection agency fees 0 0 0 0 0 1
Spending of proceeds from the disposal of surplus Crown assets 0 7 7 0 8 8
Total budgetary authorities 837,335 181,315 517,329 751,281 176,458 526,902

Numbers may not add due to rounding.

Table Note

Table Note 1

Includes only authorities granted by Parliament at quarter-end.

Return to table note 1 referrer

Annex B
Departmental budgetary expenditures by Standard Object (unaudited)
For the quarter ended December 31, 2016
(in thousands of dollars)
Fiscal year 2016-17 Fiscal year 2015-16
Planned expenditures for the year ending March 31, 2017 Table Note 2 Expended during the quarter ended December 31, 2016 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2016 Table Note 2 Expended during the quarter ended December 31, 2015 Year to date used at quarter-end
Expenditures:
Personnel 575,519 137,819 417,996 547,240 140,478 428,770
Transportation and communications 25,669 5,354 11,548 29,951 3,801 9,769
Information 8,612 341 1,800 4,112 1,014 1,101
Professional and special services 112,457 16,069 46,441 86,331 15,762 38,377
Rentals 15,354 1,204 3,763 11,092 3,422 6,771
Repair and maintenance 22,471 3,986 6,993 21,096 2,284 7,028
Utilities, materials and supplies 42,173 4,159 10,429 20,777 3,837 9,806
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 27,305 3,224 6,077 22,934 1,095 6,646
Transfer payments 4,319 1,913 3,988 4,319 1,688 14,656
Other subsidies and payments 3,456 7,246 8,294 3,429 3,077 3,978
Total gross budgetary expenditures 837,335 181,315 517,329 751,281 176,458 526,902

Numbers may not add due to rounding.

Table Note

Table Note 2

Includes only authorities granted by Parliament at quarter-end.

Return to table note 2 referrer

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