Quarterly Financial Report for the quarter ended September 30, 2018

1.1 Authority, Mandate and Program Activities

The CGC was established in 1912 and is the federal government department responsible for administering the provisions of the Canada Grain Act (CGA).

The CGC’s mandate as set out in the act is to, "in the interests of the grain producers, establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada, to ensure a dependable commodity for domestic and export markets".

The CGC’s vision is "To be a world class, science-based quality assurance provider". The Minister of Agriculture and Agri-Food is responsible for the CGC.

The CGC’s Core Responsibility is Grain Regulation, or, to regulate grain handing in Canada and to establish and maintain science based standards for Canadian grain. The Commission regulates the handing of 20 grains^Footnote1 grown in Canada to protect producer rights and to ensure the integrity of grain transactions.

The departmental results of this core responsibility are that domestic and international markets regard Canadian grain as dependable and safe, and that farmers are fairly compensated for their grain. The CGC supports its core responsibility through its three programs: Grain quality, Grain research, and Safeguards for grain farmers. Internal Services supports all other programs within the CGC.

Further details on the CGC’s authority, mandate, and program activities may be found in the Departmental Plan, the Departmental Results Report, and the Main Estimates.

1.2 Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting (modified cash) and a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. The accompanying Statement of Budgetary Authorities compares the department’s spending authorities granted by Parliament to those used by the department. Information in the Statement of Authorities is consistent with that in the Main Estimates and Supplementary Estimates.

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 Appropriations Acts or through legislation in the form of statutory spending for specific purposes.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year.

The CGC uses the full accrual method of accounting to prepare and present its annual departmental financial statements included in the Departmental Results Report. However, the spending authorities voted by Parliament are on an expenditure basis (modified cash) of accounting.

1.3 CGC Financial Structure

The CGC funding structure is based on budgetary authorities that are comprised of both statutory and voted (non-statutory) authorities. The statutory authorities include employee benefit plan authority for appropriation-funded personnel costs and CGC revolving fund authority, which allows the CGC to re-spend fees that it has collected. The voted authority is Vote 1 – Program Expenditures, which includes annual appropriation authority and any one-time ad hoc appropriation authority for the fiscal year.

A revolving fund was set up for the CGC in 1995 with the expectation that the CGC would be largely self-funded through fees for service. Prior to August 1, 2013, CGC fees had not increased since 1991 despite continually increasing operating costs. As a result, overall cost recovery had fallen from approximately 90 percent in the early 1990s to between 50 and 60 percent. The CGC’s falling cost recovery level caused the CGC to rely on ad hoc government appropriation from 1999 to 2014 to fund operations annually.

The CGC updated fees on August 1, 2013, which eliminated the need for annual ad hoc funding going forward. Updated fees were based on a $60 million operating budget, and an annual average official inspection and weighing volume of 23.253 million metric tonnes of export grains. However, the actual volume of grain officially inspected and weighed was underestimated due to an unprecedented increase in production. Predicting grain volumes is inherently difficult due to ongoing annual variations from weather and numerous other conditions. As a result, as of March 31, 2018, the CGC had reported an accumulated revolving fund surplus of approximately $130.677 million in the Public Accounts of Canada due to higher than expected grain volumes and relatively stable operating costs.

In 2017-18, the CGC conducted fee consultations with stakeholders to update its funding model and fee schedule as part of the organization’s 5-year fee review cycle. The 2017 User Fees Consultation and Pre-Proposal Notification issued on March 1, 2017, proposed changes to fees and service standards to mitigate the risk of further accumulation of surplus funds and to align fees with operational costs. As a result, the CGC reduced fees for official inspection and official weighing services, effective August 1, 2017. Further fee updates came into effect April 1, 2018, to better align revenues and costs.

The CGC’s revenue projections for 2018-19 and beyond are based on the funding model identified in the 2017 User Fees Consultation and Pre-Proposal Notification and fees published in the Canada Gazette, Part II in March 2018. This includes a revised annual grain volume projection of 34.400 million metric tonnes and fees as set out in Schedule I to the Canada Grain Regulations. Planned revenue projections and FTEs for 2018-19 and beyond are available in the CGC’s 2018-19 Departmental Plan.

2.1 Authority Available Analysis

As reflected in the Statement of Budgetary Authorities, the department’s total authority available for use (net of Revolving Fund revenue) in the fiscal year as at September 30, 2018 is $5.708 million, as compared to $5.334 million as at September 30, 2017. The increase of $0.374 million is primarily due to the revised salary base from collective agreement settlements implemented during 2017 and the increase of the Operating Budget Carry Forward.

2.2 Authority Used Analysis

As reflected in the Departmental Budgetary Expenditures by Standard Object, the department’s total budgetary authority used in the quarter ended September 30, 2018 is $2.407 million, as compared to $2.242 million as at the quarter ended September 30, 2017. The change of $0.165 million in total budgetary authority used can be attributed to:

1. the overall decrease of $2.544 million in revenues received in the quarter ended September 30, 2018 primarily due to reduction of service fees related to outward official inspection and weighing and elimination of recoverable overtime; and
2. the overall decrease of $2.379 million in expenditures is primarily a result of the following significant variances:
   • Personnel expenditures decreased by $1.724 million as compared to the same quarter last year primarily due to payment of retroactive pay in 2017;
   • Professional and services decreased by $0.780 million as compared to the same quarter last year primarily due to the timing of payments for leasehold improvement projects;
   • Utilities, materials and supplies increased by $0.339 million due to surplus investments for the enhancement of the Harvest Survey Program; and
   • Acquisition of machinery and equipment decreased by $0.423 million primarily due to the purchase of scales and benches in 2017.

The total budgetary authority used in the year to September 30, 2018 is $3.166 million as compared to $(5.670) million for the same period last year. The change of $8.836 million in budgetary authority used can be attributed to:

1. the overall decrease of $9.887 million in revenues received in the quarter ended September 30, 2018 primarily due to reduction of service fees related to outward official inspection and weighing and elimination of recoverable overtime; and
2. the overall decrease of $1.359 million in expenditures is primarily a result of the following significant variances:
   • Personnel expenditures decreased by $1.297 million as compared to the same quarter last year primarily due to payment of retroactive pay in 2017;
   • Professional and services decreased by $0.209 million as compared to the same quarter last year primarily due to the timing of payments for leasehold improvement projects;
   • Utilities, materials and supplies increased by $0.434 million due to surplus investment for the enhancement of the Harvest Survey Program; and
   • Acquisition of machinery and equipment decreased by $0.374 million primarily due to the purchase of scales and benches in 2017.