Quarterly Financial Report of Transport Canada (Unaudited) for the quarter ended December 31st, 2017

Table of contents

Statement outlining results, risks and significant changes in operations, personnel and program

1. Introduction

This quarterly financial 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 Directive on Accounting Standards, GC 4400 Departmental Quarterly Financial Report, which as of April 1, 2017 has replaced the now-rescinded Treasury Board Accounting Standard (TBAS) 1.3 - Departmental and Agency Quarterly Financial Report.

The quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates (A) and (B).

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

1.1 Authority, Mandate and Program Activities

A summary description of Transport Canada’s program activities is presented in Part II of the Main Estimates.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes Transport Canada’s spending authorities granted by Parliament and those used by the department consistent with the Main Estimates and Supplementary Estimates (A) and (B) for the 2017-2018 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 money 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 purposes 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.

Transport Canada 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 fiscal quarter and fiscal year to date (YTD) results

2.1 Statement of Authorities

Transport Canada’s total authorities available for use increased by approximately $30 million, from $1,467 million as of December 31, 2016 to $1,497 million as of December 31, 2017, as summarized below:

Table 1: Significant changes in Authorities (in thousands of dollars):

Authorities

2017-2018 Footnote (1)

2016-2017 Footnote (1)

Variance

Vote 1 – Net operating expenditures

717,441

605,978

111,463

Vote 5 – Capital expenditures

163,553

151,672

11,881

Vote 10 – Grants and contributions – Gateways and corridors

113,976

257,904

(143,928)

Vote 15 – Grants and contributions – Transportation infrastructure

210,178

128,659

81,519

Vote 20 – Grants and contributions – Other

55,323

50,414

4,909

Budgetary statutory authorities

236,750

272,641

(35,891)

Total Authorities

1,497,221

1,467,268

29,953

 

The Statement of Authorities attached at the end illustrates the total authorities available for use, the authorities used for the quarter and the year-to-date authorities used for the current fiscal year as well as the comparative figures for the previous year. The major year-to-year changes for the quarter ended December 31, 2017 are explained below.

2.1.1 Vote 1 – Operating expenditures (increase of $111M)

Planned operating authorities increased by $111 million from 2016-2017 to 2017-2018 mostly explained by the following factors:

  • Increase in planned spending of:
    • $41 million in funding for the Oceans Protection Plan to improve marine safety and protect Canada’s marine environment;
    • $29 million for the divestiture phase of the Port Asset Transfer Program to facilitate divestiture of Canada’s ports;
    • $21 million for the retroactive salary payment related to the signature of the new collective agreements;
    • $11 million for the implementation of the Trade and Transportation Corridors Initiative to implement strategies and make direct investments in transportation infrastructure;
    • $8 million for Enhancing the Safety of Railways and Transportation of Dangerous Goods for the implementation of rail safety and reductions of injuries; and
    • $4 million for reinvestment of revenues from the sale or transfer of Real Property.
2.1.2 Vote 5 – Capital expenditures (increase of $12M)

Capital expenditures authorities increased by $12 million from 2016-2017 to 2017-2018, largely explained by the following factors:

  • An increase in planned spending of:
    • $15 million due to higher Capital Budget Carry Forward when compared to the prior year; and
    • $6 million for the divestiture phase of the Port Asset Transfer Program to facilitate divestiture of Canada’s ports.
  • Offset by a decrease in planned spending of:
    • $11 million for Ferry Services Contribution Program, as funds were received in 2016-2017 for terminal and vessel equipment upgrades.
2.1.3 Votes 10, 15 and 20 – Grants and contributions (decrease of $58M)

Grants and contributions (G&C) authorities as a whole decreased by $58 million from 2016-2017 to 2017-2018, largely explained by the following factors:

  • A decrease in planned spending for G&C Vote 10 – Gateways and corridors:
    • $140 million for the Gateways and Border Crossings Fund as the program approaches its maturity date; and
    • $4 million for the Asia Pacific Gateway and Corridor Initiative.
  • An increase in planned spending for G&C Vote 15 - Transportation infrastructure:
    • $68 million for the divestiture phase of the Port Asset Transfer Program;
    • $8 million for the Highway 5 project under the Outaouais Road Agreement Program; and
    • $5 million for the Airport Capital Assistance Program.
  • An increase in planned spending for G&C Vote 20 – Other
    • $12 million in funding for Enhancing the Safety of Railways and the Transportation of Dangerous Goods; and 
    • $6 million for the Oceans Protection Plan.
  • Offset by a decease in G&C Vote 20 – Other
    • $8 million in sun-setting of funding for the Ocean Networks Canada – Smart Oceans Contribution Program;
    • $6 million for Clean Initiatives as a result of a reduction in the current year cash flow requirement from recipients;
    • $2 million for the Navigable Waters Protection Act.
2.1.4 Budgetary statutory authorities (decrease of $36M)

The budgetary statutory authorities decreased by $36 million mainly as a result of a decrease in capital and operating requirements associated with the St. Lawrence Seaway Management Corporation (SLSMC). The SLSMC is responsible for managing and operating the Seaway, as well as the maintenance, repairs, acquisition and replacement of government-owned Navigation Seaway Assets. Transport Canada is responsible for funding any SLSMC financial requirements net of revenues. The decrease in planned spending is explained by the reduced funding provided by Transport Canada for the SLSMC’s Modernization Project as it nears completion.

2.2 Statement of Departmental budgetary expenditures by Standard Object

The statement of Departmental budgetary expenditures by standard object attached at the end illustrates the annual planned expenditures, the expenditures for the quarter and the year-to-date expenditures for the current fiscal year as well as the comparative figures for the previous year. Overall, the year-to-date expenditures at the end of the third quarter of 2017-2018 represent 49% of the annual planned expenditures which is consistent with the prior year.

Historically, most spending on high-dollar value, major infrastructure grants and contribution programs occurs in the fourth quarter. This is due to the fact that the majority of recipients submit their claims for reimbursement in the last quarter following the summer and fall construction period. For some categories of operating expenditures, the year-to-date actuals represent a small fraction of the planned expenditures, which is consistent with prior years and other federal government departments. This is mainly due to a timing difference between the date when the goods or services were obtained and when the invoices were received. In addition, there is also a ramp up of operational activities in the last quarter once the mid-year internal budget reallocations are completed as well as the increased funding for new initiatives such as the Oceans Protection Plan for which the expenditures will be mostly incurred in the fourth quarter.

The major year-to-year variances as at December 31, 2017 are as follows:

Planned Expenditures

  • The 2017-2018 increases in planned expenditures for the Standard Objects listed below are mainly as a result of the increases in funding for the Oceans Protection Plan, the Safety of Railways and Transportation of Dangerous Goods, the Port Asset Transfer Program and the Trade and Transportation corridors Initiative:
    • Transportation and communications: $18 million
    • Professional and special services: $7 million
    • Rentals: $6 million
    • Repair and Maintenance: $9 million
    • Utilities, materials and supplies: $6 million
    • Acquisitions of machinery and equipment: $20 million
  • Personnel

    The planned expenditures related to Personnel for 2017-2018 increased by approximately $47 million mostly as a result of increases in funding for the Oceans Protection Plan, Collective Agreements and Trade and Transportation Corridors Initiative.

  • Transfer payments

    The planned expenditures related to Transfer payments for 2017 2018 decreased by approximately $57 million when compared to the planned expenditures for 2016-2017. The causes of the variances are explained in section 2.1.3.

  • Other subsidies and payments

    The planned expenditures related to Other subsidies and payments for 2017 2018 decreased by approximately $31 million when compared to the planned expenditures for 2016-2017. The causes of the variances are explained in section 2.1.4 offset by an increase in Employee Benefit Plan of $5 million.

  • Vote netted revenues

    The planned revenues related to Vote netted revenues for 2017-2018 decreased by approximately $9 million when compared to the planned revenues for 2016-2017. The variance is mainly due to a decrease in the anticipated level of technical services provided by Transports Canada’s Aircraft Services Directorate to the Canadian Coast Guard (CCG) due to completion of the CCG’s helicopter fleet renewal project in 2016-17. Technical services include inspections, aircraft maintenance and modification, component overhaul, quality assurance, logistic support and the commissioning of the helicopters.

Year-to-Date Expenditures

  • Personnel

    The year-to-date expenditures related to Personnel at December 31, 2017 increased by approximately $57 million compared to the 2016-2017. Approximately $29 million is attributed to the payment of retroactive salaries related to the signature of the new collective agreements. Of this amount, $21 million was funded by the Treasury Board Secretariat while the remaining balance was funded within the department’s existing reference levels. The other main factor that resulted in the rise of personnel expenditures is an approximate increase of 400 employees since the beginning of the fiscal year for the Oceans Protection Plan, the Safety of Railways and Transportation of Dangerous Goods, the Port Asset Transfer Program and the Trade and Transportation corridors Initiative.

  • Transportation and communications

    The year-to-date expenditures related to Transportation and communications at December 31, 2017 increased by approximately $8 million when compared to the 2016-2017. This increase is mainly attributed to the increases in travel and relocation costs associated with the oversight activities and stakeholder consultations for new initiatives such as the Oceans Protection Plan and the Trade and Transportation corridors Initiative.

  • Professional and special services

    The year-to-date expenditures related to Professional and special services at December 31, 2017 increased by approximately $6 million when compared to the 2016-2017. This increase is mainly attributed to services related to the remediation of contaminated sites in Prairie and Northern Region such as Iqaluit Metal Dump and the Whitehorse International Airport North Apron.

  • Transfer payments

    The year-to-date expenditures related to Transfer payments at December 31, 2017 decreased by approximately $18 million when compared to the 2016-2017. This decrease is largely attributed to a reduction in contributions from the Port Asset Transfer Program as a result of the transfer of the Cornwall Port Facility to the City of Cornwall completed in 2016-2017 ($5 million) and a reduction in the Ferry and Costal Freight Services and in the Ferry Services Contribution Program with Northumberland Ferries Ltd ($6 million). The decrease in the contribution to Northumberland Ferries Ltd is mainly due last year’s unforeseen expenses related to the MV Holiday Island. In addition, there was a decrease in the transfer payments related to Regional Remote Rail-Tshieutin Railway and Port of Trois-Rivieres Multipurpose Terminal ($10 million).

  • Other Subsidies and Payments

    The year-to-date expenditures related to Other Subsidies and Payments at December 31, 2017 decreased by approximately $50 million when compared to the 2016-2017. This decrease is mainly due to a lower cash flow requirement to the St. Lawrence Seaway Management Corporation as their Modernization Project nears completion.

3. Risks and Uncertainties

Transport Canada maintains a Corporate Risk Profile which identifies and assesses high-level risks that could affect the achievement of the Department’s objectives and priorities. The identification of risks and the development of risk responses contribute to making decisions related to setting departmental priorities, planning, allocating resources, developing policies, managing programs and reporting on performance. Additional information regarding the Department’s key risk areas is presented in the 2017-18 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 re-profiled to future years. To minimize these impacts, the Department continuously monitors its program funding and expenditures, including a monthly senior management review of plans and forecasts.

Transport Canada implemented the Phoenix pay system on April 7, 2016 as part of the Government of Canada pay transformation initiative. Since its implementation, the new pay system has experienced issues, which Public Services and Procurement Canada (PSPC) is working to resolve as quickly as possible. To mitigate the impact on its employees, Transport Canada has issued emergency salary advances to employees not receiving their basic pay. The pay issues and the workload associated with the signing of new collective agreements have also resulted in a backlog of compensation transactions, most notably acting pay transactions. The pay system issues have also generated salary overpayments. The department works with the employee to recover the funds through a repayment plan to ensure there is no undue hardship for the employee. The impact of the pay system issues on the year-to-date expenditures reflected in the Quarterly Financial Report is not material. Transport Canada will deal with these matters on an expedited basis when the required updates to the Phoenix pay system are implemented.

As described in section 4 below, Transport Canada is currently implementing major initiatives that have risks associated with inter-departmental coordination, cooperation and performance, as well as with the outcome of consultations with key transportation stakeholders and indigenous groups. The Department’s Transformation Plan is also designed to improve the Department’s financial sustainability and regulatory environment for the future. There are risks and uncertainties associated with implementing needed legislative changes, introducing new cost recovery initiatives and realizing planned savings from identified efficiency opportunities. The recruitment of a significant number of qualified resources within a short time frame could also be a challenge for the department in delivering on its planned activities.

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

Transport Canada has started advancing the Oceans Protection Plan (OPP) and the Trade and Transportation Corridors Initiatives. These two initiatives, highlighted in previous quarterly financial reports, are part of the department’s transformation agenda that will better anticipate and respond to the present and future demands of the transportation sector and support innovation, while ensuring that the department remains on a sustainable financial footing for the long term.

As part of its transformation agenda, Transport Canada will also be rolling out six modernization initiatives over the coming years, consisting of:

  • Modernizing outdated legislation and regulations;
  • Modernizing its oversight regimes;
  • Modernizing its cost-recovery regime;
  • Modernizing the marine and aviation safety regulatory frameworks;
  • Strengthening Canada’s engagement with international partners; and
  • Strengthening the economic competitiveness of Canada’s aerospace sector.

Additional details on these initiatives are presented in the 2016-17 Departmental Results Report.

During the quarter, the Department’s authorized spending levels increased by $94 million to $1,497 million. This increase was attributable to the following:

  • $21 million for the retroactive salary payment related to the signature of the new collective agreements; and
  • $73 million of funding received through Supplementary Estimates (B).

In addition, the following changes in senior personnel occurred during the third quarter:

  • On October 10, 2017, the Deputy Minister and Associate Deputy Minister announced the appointment of Lori MacDonald to the position of Assistant Deputy Minister, Safety and Security, effective November 1, 2017;
  • On November 17, 2017, Prime Minister, Justin Trudeau announced the appointment of Thao Pham to the position of Associate Deputy Minister of Transport, effective November 20, 2017; and
  • On December 21, 2017, the Deputy Minister and Associate Deputy Minister announced that Donald Roussel, Associate Assistant Deputy Minister, Safety and Security, will assume the position of Senior Advisor to the Assistant Deputy Minister, effective January 8, 2018. The department will be launching an advertised process to staff the Associate ADM position on an indeterminate basis. Aaron McCrorie, Director General, Civil Aviation, will act as Associate ADM for four months starting January 8, 2018.

Approved by:

Original Signed by

Michael Keenan,
Deputy Minister
Ottawa, Canada

February 28, 2018

Original Signed by

André Lapointe,
Chief Financial Officer
Ottawa, Canada

February 26, 2018

Statement of Authorities (unaudited)

(in thousands of dollars)

Fiscal year 2017-2018

Fiscal year 2016-2017

Total available for use for the year ending March 31, 2018 Footnote (1)

Used during the quarter ended December 31, 2017

Year to date used at quarter-end

Total available for use for the year ending March 31, 2017 Footnote (1)

Used during the quarter ended December 31, 2016

Year to date used at quarter-end

Vote 1 - Operating expenditures

786,423

175,144

477,606

684,407

143,134

402,106

Vote 1 - Revenue credited to the vote

(68,982)

(20,466)

(51,136)

(78,429)

(18,979)

(51,221)

Vote 1 – Net operating expenditures

717,441

154,678

426,470

605,978

124,155

350,885

Vote 5 - Capital expenditures

163,553

21,693

43,674

151,672

31,974

47,333

Vote 10 - Grants and contributions – Gateways and corridors

113,976

9,079

20,771

257,904

5,539

19,596

Vote 15 - Grants and contributions – Transportation infrastructure

210,178

24,821

49,888

128,659

31,843

70,866

Vote 20 - Grants and contributions – Other

55,323

2,291

3,846

50,414

1,194

2,503

Budgetary statutory authorities

           

Contributions to employee benefit plans

74,700

11,468

45,872

76,713

5,868

41,075

Minister of Transport – Salary and motor car allowance

84

21

63

84

15

47

Railway Company – Victoria Bridge, Montreal

3,300

700

2,279

3,300

1,167

2,743

Northumberland Strait Crossing Subsidy Payment

65,845

-

64,942

65,344

-

63,588

Refunds of amounts credited to revenues in previous years

-

29

29

-

-

1

Spending of proceeds from Crown Asset

-

1

1

-

-

-

Payments in respect of St. Lawrence Seaway Agreements

92,821

42,672

71,248

127,200

70,634

121,473

Total Budgetary statutory authorities

236,750

54,891

184,434

272,641

77,684

228,927

 

 

 

 

 

 

 

Total budgetary authorities

1,497,221

267,453

729,083

1,467,268

272,389

720,110

 

Departmental budgetary expenditures by Standard Object (unaudited)

(in thousands of dollars)

Fiscal year 2017-2018 Fiscal year 2016-2017
Planned expenditures for the year ending Expended during the quarter ended Year to date used at quarter-end Planned expenditures for the year ending Expended during the quarter ended Year to date used at quarter-end
Expenditures:        
Personnel 564,283 133,264 413,747 517,678 110,746 356,339
Transportation and communications 43,437 9,744 20,690 25,654 5,723 12,761
Information 3,902 807 1,599 4,466 526 1,150
Professional and special services 196,809 33,211 65,965 190,171 26,069 60,335
Rentals 13,123 1,456 5,730 7,236 1,405 5,997
Repair and maintenance 15,733 3,422 5,693 6,857 1,828 3,840
Utilities, materials and supplies 20,700 4,893 11,911 14,227 4,353 9,459
Acquisition of land, buildings and works 103,329 15,443 27,019 105,920 22,601 26,996
Acquisition of machinery and equipment 52,788 4,509 10,462 33,043 4,357 9,853
Transfer payments 448,622 36,891 141,727 505,622 39,744 159,296
Other subsidies and payments 103,477 44,279 75,676 134,823 74,016 125,305
Total gross budgetary expenditures 1,566,203 287,919 780,219 1,545,697 291,368 771,332
Less Revenues netted against expenditures:        
Vote-netted revenues (68,982) (20,466) (51,136) (78,429) (18,979) (51,222)
Total Revenues netted against expenditures (68,982) (20,466) (51,136) (78,429) (18,979) (51,222)
       
Total net budgetary expenditures 1,497,221 267,453 729,083 1,467,268 272,389 720,110