Fisheries and Oceans Canada - Quarterly Financial Report for the quarter ended September 30, 2020

1. Introduction

This quarterly financial report has been prepared as required by section 65.1 of the Financial Administration Act. The quarterly report should be read in conjunction with the current year’s Main Estimates, Supplementary Estimates (A) as well as Budget 2019.

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

Further details on Fisheries and Oceans Canada's authority, mandate and programs may be found in the Departmental Plan and the Main Estimates (Part II).

1.1 Basis of Presentation

This quarterly report has been prepared using an expenditure basis of accounting. The accompanying Statement of Authorities includes Fisheries and Oceans Canada's spending authorities granted by Parliament and those used by the Department consistent with the 2020-21 Main Estimates, Supplementary Estimates (A) and the Operating and Capital Budget Carry Forwards. 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 moneys 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. In this quarter, the appropriation acts for 2020-21 Main Estimates includes 75% of Vote 1 and Vote 5 authorities, and approximately 90% of Vote 10 authorities. Full supply of 2020-21 Main Estimates is expected to be received by the end of the third quarter.

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

2. Highlights of the Fiscal Quarter and the Fiscal Year-to-Date (YTD) Results

The following section highlights the financial results and provides explanations for the fiscal quarter ended September 30, 2020 as compared to the same period last year.

Statement of Voted and Statutory Authorities

Total budgetary authorities available for use increased in 2020-21 from those in 2019-20 by $217.2 million (6.6%). This is the result of an increase in Vote 10 authorities of $363.3 million, an increase in spending authority for statutory payments of $479.3 million, a decrease in Vote 1 authorities of $341.8 million, and a decrease in Vote 5 authorities of $283.6 million. The Explanation of Changes table below includes variances between the receipt of full supply for the 2019-20 Main Estimates and the two interim supply periods for the 2020-21 Main Estimates. Full supply of 2020-21 Main Estimates is expected to be received by the end of the third quarter.

Amounts displayed in this table represent the achievement of project milestones, planned changes to funding profiles, as well as variances due to the timing that authorities are granted by Parliament. As such, the negative amounts do not represent cuts to program spending.

Authorities Used Analysis

In the second quarter of 2020-21, total budgetary expenditures amounted to $794.5 million compared to $718.5 million reported in the same quarter of 2019-20, which represents an increase of $76.0 million or 10.6%.

Authorities used in Vote 1, Net Operating expenditures, decreased by $67.2 million compared to the same quarter last year representing a variance of approximately 13.8% between the two years. This decrease is mainly attributed to a reduction in payments to settle claims against the crown, as well as decreased travel and relocation costs due to restrictions from COVID-19. This is partially offset by an increase in personnel expenditures in 2020-21 and the Big Bar landslide project.

Authorities used in Vote 5, Capital expenditures, increased by $18.1 million compared to the same quarter last year representing a variance of approximately 13.3% between the two years. This increase is primarily related to dry docking and betterment work for Canadian Coast Guard (CCG) vessels, as well as construction and engineering costs. This is offset by the acquisition of new CCG Search and Rescue stations in 2019-20 as well as an expected decrease in work related to Small Craft Harbours.

Authorities used in Vote 10, Grants and Contributions expenditures, decreased by $10.2 million compared to the same quarter last year representing a 18.7% variance between the two years. The decrease is mainly attributed to a reduction in the number of reconciliation agreements being signed and partially offset by an increase in spending in the Atlantic Fisheries Fund program.

Statutory authorities used increased by $135.4 million compared to the same quarter last year representing an increase of approximately 100.7%. The increase is mainly attributed to the introduction of the new program for self-employed fish harvesters affected by COVID-19, pursuant to the Public Health Events of National Concern Payments Act.

Statement of Departmental Budgetary Expenditures by Standard Object

The increase of $76.0 million in total net budgetary expenditures in the second quarter of 2020-21 as compared to the same quarter in 2019-20 is primarily due to the following:

Expenditures related to Personnel increased by a total of $27.0 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. The increase is in line with additional funding provided to the Department which has increased its complement of employees.

Expenditures related to Transportation and Communication decreased by a total of $12.6 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. The decrease is primarily related to decreased travel and relocation costs due to restrictions from COVID-19.

Expenditures related to Professional and Special Services increased by a total of $24.3 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. The increase is primarily related the Big Bar landslide project, as well as construction and engineering costs for the Offshore Oceanographic Science Vessel, and the Arctic Offshore Patrol Ships. This is offset by a decrease in architectural costs related to the Offshore Fisheries Science Vessels, which have all been delivered.

Expenditures related to Rentals increased by a total of $6.1 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. This increase is mainly related to the Big Bar landslide project as well as costs related to the rental of towing vessels.

Expenditures related to Repair and Maintenance decreased by a total of $5.3 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. This decrease is mainly attributed to timing delays and minimized access to contractors due to COVID-19. This is offset by dry-dock work completed on two CCG Vessels.

Expenditures related to Utilities, Materials, and Supplies decreased by a total of $5.7 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. This is primarily related to lower spending on fuel resulting from decreased commodity prices as well as less consumption.

Expenditures related to the Acquisition of Land, Buildings and Works decreased by a total of $16.6 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. This decrease is mainly attributed to the acquisition of new CCG Search and Rescue stations in 2019-20 as well as an expected decrease in work related to Small Craft Harbours.

Expenditures related to Acquisition of Machinery and Equipment increased by a total of $20.4 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. The variance is mainly attributed to the construction of two CCG vessels, as well as an increase in costs related to vessel dry docking and betterment work.

Expenditures related to Transfer Payments decreased by a total of $9.7 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. This decrease is mainly attributed to a reduction in the number of reconciliation agreements being signed, partially offset by an increase in spending in the Atlantic Fisheries Fund program.

Expenditures related to Other Subsidies and Payments increased by a total of $47.7 million in the second quarter of 2020-21 when compared to the same quarter of 2019-20. The majority of the increase is due to the timing of the reallocation of the Interdepartmental Settlement (IS) with other government departments, largely related to payments to support Canada’s fish harvesters being processed by Employment and Social Development Canada. This is offset by a decrease in payments to settle claims against the Crown in the second quarter of 2019-20.

3. Risks and Uncertainties

Fisheries and Oceans Canada operates in a dynamic environment that is affected by a number of factors, including: increased northern development; expansion of navigable waters; environmental changes; climate change; severe weather events; demographics; technological advances; changing maritime safety and security demands; and global geopolitical and economic conditions. The Department continues to assess how it conducts its business, provides services and delivers its programs to meet client and stakeholder needs. The Department maintains a Departmental Risk Profile which assesses the most strategic corporate risks, which if not addressed, could impair DFO-CCG’s ability to deliver on its mandate and achieve results under the Department’s core responsibilities. Additional information regarding the Department’s key risk areas is presented in the 2020-21 Departmental Plan.

Certain risks would have financial impacts should they materialize, for example many factors affecting the timing of transfer payments lie outside the control of the Department and could require funds to be shifted to future years. To minimize these impacts, the Department continuously monitors its program funding and expenditures throughout the year.

The COVID-19 pandemic introduces elements of risks and uncertainties. The physical distancing measures introduced in Canada by mid-March 2020 in an attempt to reduce the spread of the virus within Canada meant that the DFO maintained onsite critical services while most employees were asked to work remotely. Unforeseen expenses have been incurred to help protect the health and safety of our employees while continuing to provide essential services to Canadians. Such expenses include personal protective equipment, or minor alterations to workplaces as examples. These additional expenses may result in gaps for existing commitments as their intended results won’t be achieved on time due to resources being redirected for COVID-19 related expenses. The department will explore realignment opportunities and is committed to deliver on any commitments that may have been delayed or deferred.

Since that time, governments are seeking to progressively resume more standard operations with provisions for safe re-entry to the workplace consistent with how developments in coronavirus unfold over time. The Department of Fisheries and Oceans has prepared its workplaces for the return of some employees, and is considering how best to gradually balance working remotely with traditional workplace presence.

The Government of Canada implemented a new pay system as part of the Transformation of Pay Administration Initiative in 2016. Given the complexity of our workforce coupled with the nature of our organization, the Department continues to experience pay related issues. To mitigate the impact on its employees, Fisheries and Oceans Canada created a pay support team to help employees whose pay has been impacted and to accelerate urgent matters to the Pay Centre and the Department will continue to work internally and with external stakeholders to resolve any and all issues.

4. Significant changes in relation to operations, personnel and programs

There were no changes in personnel during the second quarter.

New programs were established to support Canada’s fish harvesters and the Canadian Seafood Stabilization Fund pursuant to the Public Health Events of National Concern Payments Act though the COVID-19 pandemic.

4.1 Fish Harvesters Benefit

• On May 14, 2020 the Prime Minister announced new measures to support Canada’s fish harvesters, who are economically impacted by the COVID-19 pandemic but cannot access existing federal measures.
• The Fish Harvester Benefit ($267.6 million) will help provide income support for this year’s fishing seasons to eligible self-employed fish harvesters and sharespersons crew who cannot access the Canada Emergency Wage Subsidy.
• The Fish Harvester Grant ($201.8 million) will provide grants to help fish harvesters who are ineligible for the Canada Emergency Business Account or equivalent measures.

4.2 Canadian Seafood Stabilization Fund

• The $62.5 million Canadian Seafood Stabilization Fund was established to support the marine commercial fish and seafood sector, which is the primary economic force in many of Canada’s coastal and rural communities on the Atlantic and Pacific coasts.
• This investment will help ensure the resilience of the food system by allowing Canada’s fish and seafood processing sector to safely and efficiently process, store, package, and distribute healthy, high-quality products, sourced from our fish harvesters and aquaculture operators, onto the plates of Canadians.
• The Canadian Seafood Stabilization Fund will be delivered through three separate Regional Development Agencies: Atlantic Canada Opportunities Agency (ACOA); Canada Economic Development for Quebec Regions (CED); and Western Economic Diversification Canada (WD). Fisheries and Oceans is committed to working in concert with these partners to deliver the program.

5. Approval by Senior Officials

Approved by:

Ottawa, Canada

Statement of Authorities (unaudited)

(in thousands of dollars)

* Includes only Authorities available for use and granted by Parliament at quarter-end.

Departmental Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)

* Includes only Authorities available for use and granted by Parliament at quarter-end.

** $134.1M in expenditures incurred during the second quarter of 2020-21 for costs related to the Fish Harvesters Benefit will be re-allocated in order to properly reflect the nature of the expenditures. The adjustment will be completed in time for year-end reporting.