ARCHIVED - Canadian Food Inspection Agency (CFIA) - Quarterly Financial Report (QFR) for the Quarter ended June 30, 2017

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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 2017-18 Main Estimates and the 2017-18 Supplementary Estimates (A), through which the Canadian Food Inspection Agency (CFIA) received $35.8 million of additional authorities for the renewal of four sunsetting initiatives. Main and Supplementary Estimates documents can be found on the Government of Canada's Planned government spending webpage.

A summary description of the program activities of the CFIA can be found in the CFIA's 2017-18 Departmental Plan.

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 CFIA administers and enforces 14 federal statutes and 34 sets of regulations. These statutes and regulations support a sustainable plant and animal resource base and regulate the safety and quality of food sold in Canada. 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 and the Supplementary Estimates (A) for the 2017-18 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 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. 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 first quarter, June 30, 2017 (Q1), the CFIA had $740.5 million of authorities available for use, as detailed in Table 1. This is a decrease of $38.1 million (4.9 per cent) compared to the end of the same quarter in 2016-17. Below is a breakdown of this variance.

Table 1: Authorities Available for Use for the Year Ending March 31, 2018 and March 31, 2017 (in thousands of dollars)
Authorities 2017-18 2016-17 Variances %
Vote 1 - Operating Expenditures and Contributions 556,603 544,150 12,453 2.3
Vote 5 - Capital Expenditures 49,791 95,143 (45,352) (47.7)
Budgetary Statutory Authorities
Employee benefit plan 77,400 82,554 (5,154) (6.2)
Compensation payments 3,500 3,500 0 0.0
Spending of revenues / Other 53,161 53,161 0 0.0
Total Authorities 740,455 778,508 (38,053) (4.9)

Numbers may not add due to rounding.

The $12.5 million (2.3 per cent) increase in Vote 1 – Operating expenditures and contributions is mainly due to new funding for Improving Food Safety - Budget 2016 and Securing Market Access - Budget 2015.

The $45.4 million (47.7 per cent) decrease in Vote 5 – Capital expenditures authorities is primarily due to the reduction in temporary funding for the Federal Infrastructure Initiative (FII) - Budget 2015, to maintain and upgrade federal infrastructure assets - Budget 2016, and for the Electronic Service Delivery Platform (ESDP) project.

Year-to-Date Expenditures

At the end of the 2017-18 first quarter, the CFIA had expenditures of $160.1 million as outlined in Table 2. This represents an overall increase of $3.2 million (2.0 per cent) compared to the end of the same quarter in 2016-17. Below is a breakdown of the variance.

Table 2: Year-to-Date Expenditures Used as of June 30, 2017 and June 30, 2016 (in thousands of dollars)
Expenditures 2017-18 2016-17 Variances %
Vote 1 - Operating Expenditures and Contributions 127,753 125,476 2,277 1.8
Vote 5 - Capital Expenditures 4,777 3,130 1,647 52.6
Budgetary Statutory Authorities
Employee benefit plan 18,247 19,490 (1,243) (6.4)
Compensation payments 2,615 1,152 1,463 127.0
Spending of revenues/Other 6,726 7,670 (944) (12.2)
Total Expenditures 160,118 156,918 3,200 2.0

Numbers may not add due to rounding.

Although Vote 5 – Capital authorities are lower in 2017-18, Q1 Capital expenditures are slightly higher than in 2016-17. This situation is mainly due to the initiation of FII projects during Q1 of 2016-17 versus full scale implementation of FII projects during Q1 of 2017-18.

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

Planned Expenditures (Equivalent to Authorities) by Standard Object

Transportation and communications planned expenditures decreased by $5.4 million (27.7 per cent), when compared to the previous year. Plans were reduced in accordance with Budget 2016 reductions. However, this reduction was partially offset by incremental year over year funding for Improving Food Safety – Budget 2016 and Securing Market Access – Budget 2015. Although planned expenditures for transportation and communications are lower, response to outbreaks, such as bovine tuberculosis, can result in temporary increases in transportation and communication requirements.

When compared to the previous year, the 2017-18 planned expenditures for professional and special services, utilities, materials and supplies, and acquisition of machinery and equipment have decreased by $17.3 million (16.7 per cent), $7.5 million (20.4 per cent) and $11.5 million (49.5 per cent) respectively, primarily due to the decrease in temporary funding received for implementation of FII and ESDP projects.

Year-to-Date Expenditures by Standard Object

Year to date expenditures by standard object variance did not meet the criteria required to be deemed significant or warrant further analysis.

Risks and Uncertainties

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates and Supplementary Estimates (A). The Agency anticipates receiving further 2017-18 funding from the Supplementary Estimates (B) and 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 (e.g. 2016 bovine tuberculosis and 2014 avian influenza outbreaks). 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.

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 costs above the funding set aside.

Collective Bargaining

The majority of the CFIA's collective agreements have expired and require renegotiation. In accordance with 2013 Speech from the Throne and Fall Update, as collective agreement settlements are negotiated, retroactive and ongoing 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 is working to mitigate the estimated financial risks for the current year, as well as future years.

Sunsetting Resources

Funding for several of the Agency's established programs will sunset; Improving food safety for Canadians and Securing Market Access in 2017-18; and, Bovine Spongiform Encephalopathy and, daily shift inspection presence in federally registered meat processing establishments in 2018-19. 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 for FII, the Agency received a total of $65.7 million over two years (2015-16 and 2016-17) in capital funds to accelerate the renewal and upgrade of critical infrastructure at CFIA laboratories. To date, 7 of the 21 FII projects have been completed and one project was cancelled. The remaining 13 projects extended into 2017-18, 2 of which have construction completion scheduled for 2018-19.

The extension into 2017-18 and beyond is due to the overall complexity of these projects. Custom fabrication, delivery of equipment, seasonal constraints and on-site coordination of multiple projects are difficult to estimate and can result in schedule slippage and cost variances from initial plans. The Agency reprofiled $16.0 million of the total $54.9 million 2016-17 FII funding into 2017-18. In addition, the CFIA plans to pursue a reprofile of required funds into 2018-19 in order to complete the 2 remaining 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.

The phased implementation is designed to incrementally introduce system features allowing for delivery of less complex functionality earlier in the project. The ESDP project began its roll-out in the winter of 2016 and additional phases will continue in 2017, with completion of the roll-out anticipated in December 2017.

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 has explored improving its capabilities to manage risk and use resources more effectively by experimenting with new risk intelligence tools. The Agency integrates risk information in its planning and operations in order to reduce risk in delivering its mandate, and to improve how it mobilizes resources in response to new threats. Information on keys risks and response strategies are outlined in the CFIA's 2017-18 Departmental Plan.

Significant Changes in Relation to Operations, Personnel and Programs

Regulatory Framework

The Canadian Food Inspection Agency is committed to strengthening Canada's world-class food safety system. The CFIA is preparing regulations under the Safe Food for Canadians Act that would strengthen Canada's reputation as a leader in food safety by establishing consistent, prevention-focused requirements for food that is imported or prepared for export or interprovincial trade.

In January 2017, the Safe Food for Canadians Regulations were published in the Canada Gazette, Part I for 90 days of public comment. Over 1,300 submissions were received from stakeholders, including food businesses and consumers. This feedback is being reviewed and analyzed in order to finalize the regulations and prepare for implementation. Final publication in the Canada Gazette, Part II is anticipated in spring/summer 2018.

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 Alberta, 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) were activated.

The CFIA initiated an investigation into the case, working diligently with industry, producers and other government partners, which involves a significant number of premises, tracing of the movement of animals, and testing. The outbreak has been limited to Alberta and Saskatchewan; therefore, on February 10, 2017, NEOC was deactivated. The Western Area EOC remains active while the investigation is ongoing.

Personnel

The President of the Agency appointed Paul Mayers, previously the Vice-President of 'Policy and Program Branch', as the Vice-President of 'Science Branch' effective June 19, 2017. Barbara Jordan, the Associate Vice- President of 'Programs and Policy Branch', was asked to assume the position of Acting Vice-President for the Branch.

On June 28, 2017, the President announced that 'Policy and Programs Branch' will be separated into 'Policy Branch' and 'Programs Branch'. Similarly, Operations Branch will become two branches: 'Operations Branch'; and, 'Business Development and Services Branch'. Each Branch will be led by a Vice-President. The new structure will be fully launched in the fall, with the 'Business Development and Services Branch' to be the first put in place. Amanda Jane (AJ) Preece, from the Canada School of Public Service, was asked to join the CFIA as Vice-President of this first new Branch starting July 13, 2017.

In addition, in June 2017 Dr. Harpreet Kochhar, the Chief Veterinary Officer for Canada and Acting Vice-President of Operations Branch, announced his departure from the CFIA. Dr. Kochhar will take on the role of Assistant Deputy Minister, Operations, at Immigration, Refugees and Citizenship Canada effective July 10, 2017. Area Director Generals will alternate backfilling the role on an acting basis, until the President appoints a new Vice-President for Operations Branch.

Original signed by:

Paul Glover
President, CFIA

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

Ottawa, Ontario
Date: August 21, 2017

Ottawa, Ontario
Date: August 18, 2017

Annex A
Statement of Authorities (unaudited)
For the quarter ended June 30, 2017
(in thousands of dollars)
Fiscal year 2017-18 Fiscal year 2016-17
Total available for use for the year ending March 31, 2018 Table Note 1 Expended during the quarter ended June 30, 2017 Year to date used at quarter-end Total available for use for the year ending March 31, 2017 Table Note 1 Used during the quarter ended June 30, 2016 Year to date used at quarter-end
Vote 1 - Operating expenditures and contributions 556,603 127,753 127,753 544,150 125,476 125,476
Vote 5 - Capital expenditures 49,791 4,777 4,777 95,143 3,130 3,130
Budgetary statutory authorities
Employee benefit plans 77,400 18,247 18,247 82,554 19,490 19,490
Compensation payments 3,500 2,615 2,615 3,500 1,152 1,152
Spending of revenues 53,161 6,722 6,722 53,161 7,656 7,656
Refunds of previous years revenue 0 4 4 0 14 14
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 740,455 160,118 160,118 778,508 156,918 156,918

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, 2017
(in thousands of dollars)
Fiscal year 2017-18 Fiscal year 2016-17
Planned expenditures for the year ending March 31, 2018 Table Note 2 Expended during the quarter ended June 30, 2017 Year to date used at quarter-end 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
Expenditures:
Personnel 564,349 139,512 139,512 558,781 137,170 137,170
Transportation and communications 14,057 2,665 2,665 19,451 2,475 2,475
Information 1,576 146 146 857 43 43
Professional and special services 86,165 8,361 8,361 103,466 10,714 10,714
Rentals 14,395 232 232 13,631 948 948
Repair and maintenance 12,316 2,422 2,422 15,971 673 673
Utilities, materials and supplies 29,365 2,574 2,574 36,871 2,440 2,440
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 11,708 1,509 1,509 23,204 980 980
Transfer payments 4,319 2,615 2,615 4,319 1,175 1,175
Other subsidies and payments 2,205 82 82 1,957 300 300
Total gross budgetary expenditures 740,455 160,118 160,118 778,508 156,918 156,918

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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