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Canadian Food Inspection Agency - Quarterly Financial Report for the quarter ended June 30, 2014

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 2014-15 Main Estimates, Canada's Economic Action Plan 2014 (Budget 2014), as well as Canada's Economic Action Plan 2012 (Budget 2012).

A summary description of the Canadian Food Inspection Agency's (CFIA) program activities can be found in the CFIA's 2014-15 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 the 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. In November 2012, the Safe Food for Canadians Act received Royal Assent. This new legislation, when in force, will also bring into effect new regulations that provide the necessary legal framework for a single, consistent approach to strengthening food inspection in Canada. The CFIA shares many of its core responsibilities with other federal departments and agencies, with provincial, territorial and municipal authorities 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 fisheries 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 for the 2014-15 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 funds 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.

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.

Savings initiatives announced in Budget 2012 are reflected in CFIA's 2013-14 Main Estimates and 2014-15 Main Estimates. However, incremental funding announced in Budget 2014 was not included in the 2014-15 Main Estimates and is therefore not included in CFIA's authorities as at the end of June 2014. The CFIA will seek access to these incremental resources via the 2014-15 Supplementary Estimates, subject to Treasury Board and Parliamentary approval, and CFIA's authorities will be updated accordingly.

For more information on Budget 2012 Implementation and Budget 2014 Announcements, please see the appropriate sections below.

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 to be significant. In these situations, further analysis is provided.

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

At the end of the first quarter of 2014-15, the CFIA had funding available for use of $619.3 million as detailed in Table 1. This is a decrease of $68.6 million as compared to the end of the same quarter in 2013-14. Below is a breakdown of this decrease.

Table 1: Authorities Available for Use for the Year Ending March 31, 2015 and March 31, 2014 (In thousands of dollars)
Authorities 2014-15 2013-14 Variances %
Vote 1 - Operating Expenditures and Contributions 470,030 534,383 (64,353) (12.0%)
Vote 5 - Capital Expenditures 24,264 17,816 6,448 36.2%
Budgetary Statutory Authorities
Employee benefit plans 68,373 79,025 (10,652) (13.5%)
Compensation payments 3,500 3,500 - 0.0%
Spending of revenues 53,161 53,161 - 0.0%
Total Authorities 619,328 687,885 (68,557) (10.0%)

Numbers may not add due to rounding.

The primary reasons for the $64.4 million decrease in Vote 1 — Operating Expenditures and Contributions authorities include:

The primary reasons for the increase of $6.4 million in Vote 5 — Capital Expenditures authorities include:

The primary reasons for the decrease of $10.7 million in Statutory Employee Benefit Plan authorities are:

At the end of the first quarter of 2014-15, the CFIA had expenditures of $165.9 million as detailed in Table 2. This represents an increase of $13.4 million as compared to the end of the same quarter in 2013-14. Below is a breakdown of this increase.

Table 2: Year-to-Date Expenditures used as of June 30, 2014 and June 30, 2013 (In thousands of dollars)
Expenditures 2014-15 2013-14 Variances %
Vote 1 - Operating Expenditures and Contributions 142,469 127,723 14,746 11.5%
Vote 5 - Capital Expenditures 1,237 1,046 191 18.2%
Budgetary Statutory Authorities
Employee benefit plans 17,093 19,756 (2,663) (13.5%)
Compensation payments 905 712 193 27.1%
Spending of revenues / Other 4,231 3,343 888 26.6%
Total Expenditures 165,934 152,580 13,354 8.8%

Numbers may not add due to rounding.

The primary reasons for the expenditure increase of $14.7 million in Vote 1 — Operating Expenditures and Contributions include:

Significant Changes on the Departmental budgetary expenditures by Standard Object table (Annex B at end of document)

Under "Planned expenditures for the year ending March 31, 2015", the CFIA's authorities for "Personnel" decreased by $50.4 million, and "Transportation and communications" decreased by $6.2 million when compared to the previous year.

As indicated previously, the primary reasons for these decreases are reductions resulting from the implementation of Budget 2012 savings initiatives (all savings related to Budget 2012 impact CFIA's Vote 1 — Operating Expenditures and Contributions, as well as Statutory Employee Benefit Plan expenditures), and the reduction related to sunsetting initiatives such as BSE, for which the renewal was announced in Budget 2014.

Under "Year-to-date used at quarter-end", the increase of $16.6 million under "Other Subsidies and payments" is due to a one-time transition payment of $16.7 million for implementing salary payment in arrears by the Government of Canada.

Risks and Uncertainties

This Quarterly Financial Report (QFR) reflects the results of the current fiscal period in relation to Main Estimates for which full supply was released on June 20, 2014.

The CFIA strives to fulfill its mandate and responsibilities by balancing both risks and opportunities when designing its policies, programs and services.

The Agency has adopted an integrated approach to corporate risk management called the Integrated Risk Management (IRM). This is a continuous proactive and systematic process for assessing, managing and communicating risk from an organization-wide perspective. The Corporate Risk Profile (CRP) lies at the foundation of the Agency's corporate risk management process. The research, consultations and collaborative processes leading to its development serve to:

The results of the CRP directly inform the priorities presented in the Agency's Report on Plans and Priorities and are the basis for the key strategic initiatives pursued by the Agency for upcoming years. As a practice - and a culture - Integrated Risk Management is integrated within the Agency.

Through exercises such as the maintenance of the CRP, cyclical assessments of business line risks and the development of the Agency's new risk-based oversight processes to guide inspection activities, the CFIA is continually refining and improving how it views risk and applies risk knowledge in its decision making — both at the corporate and operational levels. This, in turn, supports the achievement of the CFIA's strategic outcome — a safe and accessible food and plant and animal resource base.

Budget 2010 announced that the operating budgets of departments would be frozen at their 2010-11 levels for the fiscal years 2011-12 and 2012-13. The area most impacted by this freeze has been personnel costs, as they amount to nearly 80 per cent of planned expenditures. The outstanding collective agreements have been ratified; therefore the retroactive wage increases for 2011-12 and 2012-13, as well as the ongoing costs, will be absorbed within existing budgets. The Agency has taken appropriate action to mitigate this risk in the future years.

Significant Changes in relation to Operations, Personnel and Programs

Implementation of new Inspection Verification Teams

On June 17, 2014, the Minister of Health announced the implementation of the Canadian Food Inspection Agency's Inspection Verification Teams to oversee the performance of Canada's food safety system. Starting in June 2014, six teams of three inspection verification officers began conducting targeted verifications at federally registered food establishments such as slaughter and meat production facilities. The verifications will ensure a consistent level of thoroughness is applied in inspections of these facilities across the country so that Canadian families have confidence in Canada's inspection system. The verifications will also focus on areas critical to the inspection and production of safe food, such as plant sanitation and the effectiveness of a company's response to food recalls.

Changes in Senior Management Personnel

On June 20, 2014, Prime Minister Stephen Harper announced changes in the senior ranks of the Public Service. This included Carolina Giliberti's appointment as Executive Vice-President of the CFIA, effective August 5, 2014.

In addition, Daniel G. Paquette was appointed to the position of Chief Financial Officer and Vice President of the Corporate Management Branch, effective April 1, 2014.

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that are being implemented in order to refocus government and programs: making it easier for Canadians and business to deal with their government and to modernize and reduce the back office.

The Agency has not reduced staff or cut programs that would in any way impact food safety or place the health and safety of Canadians at risk.

Like all federal departments and agencies, the CFIA was asked to review its activities and processes to see where savings could be found and to contribute to the government's overall Economic Action Plan. The CFIA's savings for 2014-15 totaled $55.8 million. This is an ongoing reduction.

The CFIA's budget savings focused on five general categories. Below are a few examples of savings measures that have been implemented:

There are no financial risks or uncertainties related to any of the Budget 2012 savings measures.

Additional information can be found at CFIA's Budget 2012.

All reductions related to Budget 2012 savings initiatives affect the authorities and expenditures of CFIA's Vote 1 - Operating Expenditures and Contributions, as well as the associated Statutory Employee Benefit Plans. As previously indicated, the 2013-14 to 2014-15 $64.4 million decrease in Vote 1 authorities is mainly due to the Budget 2012 savings initiatives.

The changes the CFIA is making as a result of Budget 2012 reflect its goal of focusing on activities that deliver on its core mandate of food safety and consumer protection, while building on recent investments made in Canada's food safety program.

Budget 2014 Announcements

The CFIA continues to strengthen Canada's food safety system and protect Canadian families. As such, Budget 2014 announced $390.0 million over 5 years to strengthen Canada's food safety system, including:

As previously indicated, the CFIA will seek access to these incremental resources through the 2014-15 Supplementary Estimates, subject to Treasury Board and Parliamentary approval.

Original signed by:

B.A. (Bruce) Archibald, PhD
President
Ottawa, Ontario
August 27, 2014

Daniel G. Paquette, CPA, CA
VP, CMB and Chief Financial Officer
Ottawa, Ontario
August 25, 2014

Annex A

Statement of Authorities (unaudited)

For the quarter ended June 30, 2014 (in thousands of dollars)

Fiscal year 2014-15
Total available for use for the year ending March 31, 2015 (1)(2) Used during the quarter ended June 30, 2014 Year to date used at quarter-end
Vote 1 - Operating Expenditures and Contributions 470,030 142,469 142,469
Vote 5 - Capital Expenditures 24,264 1,237 1,237
Budgetary Statutory Authorities
Employee benefit plans 68,373 17,093 17,093
Compensation payments 3,500 905 905
Spending of revenues 53,161 4,229 4,229
Refunds of previous years revenue - 2 2
Collection Agency fees - - -
Spending of proceeds from the disposal of surplus Crown assets - - -
  Total budgetary authorities 619,328 165,934 165,934
Fiscal year 2013-14
Total available for use for the year ending March 31, 2014 (1)(2) Used during the quarter ended June 30, 2013 Year to date used at quarter-end
Vote 1 - Operating Expenditures and Contributions 534,383 127,723 127,723
Vote 5 - Capital Expenditures 17,816 1,046 1,046
Budgetary Statutory Authorities
Employee benefit plans 79,025 19,756 19,756
Compensation payments 3,500 712 712
Spending of revenues 53,161 3,242 3,242
Refunds of previous years revenue - -
Collection Agency fees - 1 1
Spending of proceeds from the disposal of surplus Crown assets - 100 100
  Total budgetary authorities 687,885 152,580 152,580

Numbers may not add due to rounding.

(1) Includes only authorities granted by Parliament at quarter-end.
(2) Reflects savings initiatives announced in Budget 2012 as the changes to departmental authorities were reflected in the 2013-14 Main Estimates and 2014-15 Main Estimates.

Annex B

Departmental budgetary expenditures by Standard Object (unaudited)

For the quarter ended June 30, 2014 (in thousands of dollars)

Fiscal year 2014-15
Planned expenditures for the year ending March 31, 2015 (1)(2) Expended during the quarter ended June 30, 2014 Year to date used at quarter-end
Expenditures
Personnel 482,752 134,919 134,919
Transportation and communications 19,326 2,301 2,301
Information 1,274 36 36
Professional and special services 54,976 7,120 7,120
Rentals 6,842 228 228
Repair and maintenance 15,345 613 613
Utilities, materials and supplies 13,765 2,094 2,094
Acquisition of land, buildings and works - - -
Acquisition of machinery and equipment 18,168 1,023 1,023
Transfer payments 4,319 905 905
Other subsidies and payments 2,561 16,696 16,696
Total gross budgetary expenditures 619,328 165,934 165,934
Fiscal year 2013-14
Planned expenditures for the year ending March 31, 2014 (1)(2) Expended during the quarter ended June 30, 2013 Year to date used at quarter-end
Expenditures
Personnel 533,194 138,106 138,106
Transportation and communications 25,486 3,146

3,146

Information 1,518 106 106
Professional and special services 57,939 6,273 6,273
Rentals 7,702 279 279
Repair and maintenance 19,939 599 599
Utilities, materials and supplies 16,595 2,470 2,470
Acquisition of land, buildings and works 3,378 - -
Acquisition of machinery and equipment 17,816 749 749
Transfer payments 4,319 712 712
Other subsidies and payments - 139 139
Total gross budgetary expenditures 687,885 152,580 152,580

Numbers may not add due to rounding.

(1) Includes only authorities granted by Parliament at quarter-end.
(2) Reflects savings initiatives announced in Budget 2012 as the changes to departmental spending authorities were reflected in the 2013-14 Main Estimates and 2014-15 Main Estimates.

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