ARCHIVED - Canadian Food Inspection Agency (CFIA) - Quarterly Financial Report (QFR) for the Quarter ended June 30, 2016

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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, as well as the 2016-17 Supplementary Estimates (A).

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

The 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 CFIA'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 CFIA 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 CFIA actively participates in international fora for the development of international science-based rules, standards, guidelines and policies. It also engages 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 and the Supplementary Estimates (A) 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 CFIAdetermined that variances which are greater than $5.0 million and represent 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.

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

Authorities Available for Use

At the end of the first quarter, June 30, 2016 (Q1), the CFIA had $778.5 million of authorities available for use, as detailed in Table 1. This is an increase of $41.0 million (5.6 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 544,150 545,149 (999) (0.2%)
Vote 5 - Capital Expenditures 95,143 56,900 38,243 67.2%
Budgetary Statutory Authorities
Employee benefit plan 82,554 78,825 3,729 4.7%
Compensation payments 3,500 3,500 0 0.0%
Spending of revenues / Other 53,161 53,161 0 0.0%
Total Authorities 778,508 737,535 40,973 5.6%

Numbers may not add due to rounding.

The $1.0 million (0.2 per cent) decrease in Vote 1 – Operating Expenditures and Contributions is mainly due to the offsetting impacts of decreases related to timing differences in the transfer of resources for Market Access and Growing Forward II initiatives, small decreases in year over year funding for various initiatives, the transfer of resources to other government departments and agencies and the increase in funding for the Food Safety Oversight initiative.

The $38.2 million (67.2 per cent) increase in Vote 5 – Capital Expenditures authorities is primarily due to:

  • A significant increase in 2016-17 funding compared to 2015-16 for the implementation of the Federal Infrastructure Initiative (Budget 2015); and,
  • New funding to maintain and upgrade federal infrastructure assets (Budget 2016).

Year-to-Date Expenditures

At the end of the 2016-17 first quarter, the CFIA had expenditures of $156.9 million as outlined in Table 2. This represents an overall decrease of $27.4 million (14.9 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 June 30, 2016 and June 30, 2015 (in thousands of dollars)
Expenditures 2016-17 2015-16 Variances %
Vote 1 - Operating Expenditures and Contributions 125,476 147,489 (22,013) (14.9%)
Vote 5 - Capital Expenditures 3,130 4,475 (1,345) (30.1%)
Budgetary Statutory Authorities
Employee benefit plan 19,490 19,490 0 0.0%
Compensation payments 1,152 8,860 (7,708) (87.0%)
Spending of revenues/Other 7,670 4,027 3,643 90.5%
Total Expenditures 156,918 184,341 (27,423) (14.9%)

Numbers may not add due to rounding.

The expenditure decrease of $22.0 million (14.9 per cent) in the 2016-17 Vote 1 – Operating Expenditures, as compared to the same quarter in 2015-16, is due to the recording of one additional pay period in the first quarter of 2015-16.

The $1.3 million (30.1 per cent) expenditure decrease in 2016-17 Vote 5 – Capital Expenditures, as compared to the same quarter in 2015-16, is mainly due to the first quarter delivery of fleet acquisitions in 2015-16.

The primary reason for the $7.7 million (87.0 per cent) expenditure decrease in Budgetary Statutory Authorities – Compensation Payments is due to payments made under the Health of Animals Act for the April 2015 Avian Influenza outbreak in southern Ontario.

The 2016-17 increase in statutory revenue expenditures of $3.6 million (90.5 per cent) is primarily attributable 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 Q1, as compared to 2015-16.

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

Planned Expenditures (Equivalent to Authorities) by Standard Object

Authorities for Transportation and Communications have decreased by $9.5 million (32.8 per cent) when compared to the previous year. Over the past several years, the Agency has made significant progress on reducing travel expenditures by utilizing available technology (e.g. video conferencing). However, in 2015-16 the Agency forecasted a temporary increase in transportation and communication requirements due to the anticipated impacts of the 2015 Avian Influenza outbreaks. In 2016-17, transportation and communication anticipated requirements have returned to their normal level.

Professional and Special Services authorities increased by $19.5 million (23.2 per cent) when compared to the previous year primarily due to incremental requirements resulting from temporary funding received for implementation of the Federal Infrastructure Initiative.

The $5.5 million (68.4 per cent) increase in 2016-17 Rentals authorities when compared to 2015-16, is primarily due to anticipated cost increases in building rental agreements, license and maintenance fees for operating systems and utility software, and the transition from purchase to the rental of specific high tech equipment (i.e. photocopiers).

2016-17 authorities for Utilities, Materials and Supplies have increased by $16.1 million (77.5 per cent) when compared to the previous year due to the incremental requirements resulting from temporary funding received for implementation of the Federal Infrastructure Initiative, as well as the increase in Food Safety Oversight funding.

Authorities for the Acquisition of Machinery and Equipment increase by $5.1 million (28.3 per cent) in 2016-17 due to the incremental requirements resulting from temporary funding received for the Federal Infrastructure Initiative.

Expended During the Quarter Ended June 30, 2016 by Standard Object

The expenditure decrease of $21.6 million (13.6 per cent) during the quarter ended June 30, 2016 for Personnel is primarily attributable to the recording of one additional pay period in the first quarter of 2015-16.

The $7.9 million (87.1 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 in April 2015.

Risks and Uncertainties

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

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.

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, the Agency has taken appropriate action to estimate, plan and mitigate the risks associated with these incremental Agency costs when settlement occurs and for future years.

As part of the Budget 2015 Federal Infrastructure Initiative (FII), a total of $65.7 million in capital funds over two years (2015-16 and 2016-17) was approved for the CFIA 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 recognizes that sound management of this initiative demands a disciplined approach and therefore set up a dedicated governance structure to oversee all projects undertaken as part of this initiative. In addition, the CFIA has established appropriate management, reporting, and financial controls to ensure that the Agency meets all project management and reporting requirements associated with this investment in the Agency's critical infrastructure.

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. However, 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 very unlikely that the Agency will require the financial contingencies originally identified.

In addition to the financial risks previously outlined, 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, 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 Model (ERA) 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.

By systematically assessing risk, the ERA model will allow the CFIA to apply greater precision to the way it designs programs, prioritizes its oversight activities, allocates resources, and drafts annual work plans. The ERA model also means more consistent, predictable, and transparent processes for regulated parties. Work on the ERA model began in 2012 with an extensive pilot project on several sectors. Implementation will be expanded in the fall of 2016 and all registered sectors should be implemented by June 2017.

Significant Changes in Relation to Operations, Personnel and Programs

Changes in Senior Management Personnel

On March 14, 2016, Colleen Barnes was appointed as the Vice-President of Human Resources Branch.

On April 4, 2016, Yves Bacon joined the Canadian Food Inspection Agency as the Chief Financial Officer and Vice President of Corporate Management Branch.

On April 18, 2016, Theresa Iuliano was appointed Executive Director, Audit and Evaluation Branch and will lead the Agency's work in the Government of Canada's initiative related to delivery and results as the Chief Delivery Officer for the Agency.

Original signed by:

Carolina Giliberti
Acting President

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

Ottawa, Ontario
Date: August 5, 2016

Ottawa, Ontario
Date: August 4, 2016

Annex A
Statement of Authorities (unaudited)
For the quarter ended June 30, 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 June 30, 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 June 30, 2015 Year to date used at quarter-end
Vote 1 - Operating expenditures and contributions 544,150 125,476 125,476 545,149 147,489 147,489
Vote 5 - Capital expenditures 95,143 3,130 3,130 56,900 4,475 4,475
Budgetary statutory authorities
Employee benefit plans 82,554 19,490 19,490 78,825 19,490 19,490
Compensation payments 3,500 1,152 1,152 3,500 8,860 8,860
Spending of revenues 53,161 7,656 7,656 53,161 4,002 4,002
Refunds of previous years revenue 0 14 14 0 25 25
Collection agency fees 0 0 0 0 0 0
Spending of proceeds from the disposal of surplus Crown assets 0 0 0 0 0 0
Total budgetary authorities 778,508 156,918 156,918 737,535 184,341 184,341

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 June 30, 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 June 30, 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 June 30, 2015 Year to date used at quarter-end
Expenditures:
Personnel 558,781 137,170 137,170 547,197 158,797 158,797
Transportation and communications 19,451 2,475 2,475 28,951 2,767 2,767
Information 857 43 43 2,612 40 40
Professional and special services 103,466 10,714 10,714 83,974 6,830 6,830
Rentals 13,631 948 948 8,092 310 310
Repair and maintenance 15,971 673 673 20,096 1,544 1,544
Utilities, materials and supplies 36,871 2,440 2,440 20,777 2,353 2,353
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 23,204 980 980 18,088 2,235 2,235
Transfer payments 4,319 1,175 1,175 4,319 9,113 9,113
Other subsidies and payments 1,957 300 300 3,429 352 352
Total gross budgetary expenditures 778,508 156,918 156,918 737,535 184,341 184,341

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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