Canadian Food Inspection Agency (CFIA) - Quarterly Financial Report (QFR) for the Quarter ended September 30, 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 authorities received from Treasury Board Central Votes.

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.

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 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 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 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, the Supplementary Estimates (A) 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 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 second quarter, September 30, 2016 (Q2), the CFIA had $803.6 million of authorities available for use, as detailed in Table 1. This is an increase of $52.4 million (7.0 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 565,367 554,007 11,360 2.1%
Vote 5 - Capital expenditures 99,050 61,747 37,303 60.4%
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 803,632 751,240 52,392 7.0%

Numbers may not add due to rounding.

The $11.4 million (2.1 per cent) increase in Vote 1 – Operating expenditures and contributions is mainly due to 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. Other offsetting impacts are 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 an increase in funding for the Food Safety Oversight (FSO) initiative.

The $37.3 million (60.4 per cent) increase in Vote 5 – Capital expenditures authorities is primarily due to a significant increase in 2016-17 temporary funding compared to 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 experiencing delays related to contract tendering, fabrication and delivery, construction scheduling and work sequencing. As a result, the Agency does not expect to fully utilize its 2016-17 capital expenditures authorities, and will therefore pursue the reprofile of capital expenditure authorities into 2017-18 when it will complete these projects.

Year-to-Date Expenditures

At the end of the 2016-17 second quarter, the CFIA had expenditures of $336.0 million as outlined in Table 2. This represents an overall decrease of $14.4 million (4.1 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 September 30, 2016 and September 30, 2015 (in thousands of dollars)
Expenditures 2016-17 2015-16 Variances %
Vote 1 - Operating expenditures and contributions 261,435 271,877 (10,442) (3.8%)
Vote 5 - Capital expenditures 11,872 12,534 (662) (5.3%)
Budgetary statutory authorities
Employee benefit plan 38,981 38,979 2 0.0%
Compensation payments 2,052 12,495 (10,443) (83.6%)
Spending of revenues/Other 21,675 14,559 7,116 48.9%
Total Expenditures 336,015 350,444 (14,429) (4.1%)

Numbers may not add due to rounding.

The primary reason for the $10.4 million (83.6 per cent) expenditure decrease in Budgetary statutory authorities – Compensation Payments is due to 2015-16 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 $7.1 million (48.9 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 payment earlier in the year of a greater portion of these recoverable costs in 2016-17 Q1 and Q2, 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

Planned expenditures for transportation and communications have decreased by $9.0 million (30.1 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, anticipated requirements for transportation and communication have returned to their normal level.

Professional and special services planned expenditures increased by $18.6 million (21.6 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 Electronic Service Delivery Platform (ESDP).

The $5.5 million (57.7 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 equipment (e.g. photocopiers).

The 2016-17 authorities for utilities, materials and supplies have increased by $21.3 million (102.6 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 FSO funding.

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

The expenditure increase of $13.5 million (10.4 per cent) under expended during the quarter ended September 30, 2016 for personnel is due to the timing of month-end salary expenditures between June 30, 2015 (Q1) and September 30, 2015 (Q2), in 2015-16.

Year-to-Date Expenditures by Standard Object

The expenditure increase of $7.8 million (34.3 per cent) for the quarter ended September 30, 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 Q1 and Q2, as compared to 2015-16. Increased spending in support of the Electronic Service Delivery Platform (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 ESDP.

The $10.9 million (84.0 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, Supplementary Estimates (A) and authorities received from Treasury Board Central Votes. The Agency anticipates receiving further 2016-17 funding from the upcoming Supplementary Estimates (B) and (C) and other 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., 2012 XL Food Inc. E. coli contamination, 2014 avian influenza outbreak in British Columbia, Asian long horned beetle infestation).

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, the Agency has taken appropriate action to estimate and mitigate the risks associated with these incremental Agency costs when settlement occurs and for 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 (FII), 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 does not expect to fully utilize its 2016-17 capital expenditures authorities and will pursue the reprofile of capital expenditure authorities into 2017-18 when it will 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.

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 which is expected to take place in late 2016.

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

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.

Original signed by:

Paul Glover
President
Ottawa, Ontario
Date: November 25, 2016
Dominique Osterrath
Acting Vice-President, Corporate Management Branch and Chief Financial Officer
Ottawa, Ontario
Date: November 18, 2016
Annex A
Statement of Authorities (unaudited)
For the quarter ended September 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 September 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 September 30, 2015 Year to date used at quarter-end
Vote 1 - Operating expenditures and contributions 565,367 135,959 261,435 554,007 124,388 271,877
Vote 5 - Capital expenditures 99,050 8,742 11,872 61,747 8,059 12,534
Budgetary statutory authorities
Employee benefit plans 82,554 19,491 38,981 78,825 19,489 38,979
Compensation payments 3,500 900 2,052 3,500 3,635 12,495
Spending of revenues 53,161 14,001 21,657 53,161 10,525 14,527
Refunds of previous years revenue 0 4 18 0 5 30
Collection agency fees 0 0 0 0 1 1
Spending of proceeds from the disposal of surplus Crown assets 0 0 0 0 1 1
Total budgetary authorities 803,632 179,097 336,015 751,240 166,103 350,444

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 September 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 September 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 September 30, 2015 Year to date used at quarter-end
Expenditures:
Personnel 558,781 143,007 280,177 547,197 129,494 288,291
Transportation and communications 20,951 3,719 6,194 29,952 3,200 5,967
Information 4,357 1,416 1,459 4,112 47 87
Professional and special services 104,966 19,658 30,372 86,332 15,785 22,615
Rentals 15,131 1,611 2,559 9,592 3,039 3,349
Repair and maintenance 22,471 2,335 3,008 22,596 3,201 4,745
Utilities, materials and supplies 42,088 3,830 6,270 20,777 3,616 5,969
Acquisition of land, buildings and works 0 0 0 0 0 0
Acquisition of machinery and equipment 27,111 1,873 2,853 22,934 3,316 5,551
Transfer payments 4,319 900 2,075 4,319 3,856 12,969
Other subsidies and payments 3,457 748 1,048 3,429 549 901
Total gross budgetary expenditures 803,632 179,097 336,015 751,240 166,103 350,444

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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