Quarterly Financial Report for the quarter ended June 30, 2019

1.0 Introduction

This quarterly financial report should be read in conjunction with the Main Estimates and Supplementary Estimates. It has been prepared by Canadian Grain Commission (CGC) management as required by section 65.1 of the Financial Administration Act and is in the form and manner prescribed by the Treasury Board Accounting Standard 1.3. This quarterly report has not been subject to an external audit or review.

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 grainsFootnote1 grown in Canada to protect producer rights and to ensure the integrity of grain transactions.

The CGC’s Departmental Results are that domestic and international markets regard Canadian grain as dependable and safe, and that farmers are fairly compensated for their grain. The CGC has three programs: Grain Quality, Grain Research and Safeguards for Grain Farmers. Internal Services supports these programs.

Further details on the CGC’s authority, mandate, and programs 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 Canadian Grain Commission 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, 2019, the CGC had reported an accumulated revolving fund surplus of approximately $134.334 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 2019-20 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 34.405 million metric tonnes and fees as set out in Schedule I to the Canada Grain Regulations.. Planned revenue projections and FTEs for 2019-20 and beyond are available in the CGC’s 2019-20 Departmental Plan.

2.0 Highlights of Fiscal Year to Date

This section highlights any significant items that affected the year-to-date results and/or contributed to the net change in resources available for the year and actual expenditures. It should be read in conjunction with the Statement of Budgetary Authorities and the Departmental Budgetary Expenditures by Standard Object, which can be found at the end of this report.

Authorities Available and Used For the period ended June 30, 2019
Authorities Available and Used For the period ended June 30, 2019
Authorities Available and Used For the period ended June 30, 2019 (In million $)
2019 to 2020 2018 to 2019
Annual Authority Available* YTD Authority Used Annual Authority Available* YTD Authority Used
Vote 1 4.847 0.948 5.147 3.540
Statutory (Access to Accumulated Surplus and Employee Benefits Plan) 0.664 0.145 0.660 0.492
Statutory (Revolving Fund Revenue) 59.013 12.433 57.126 41.418
Total 64.524 13.526 62.933 45.450
* Authority available based on amounts approved through the Estimates process. Amounts detailed in Statement of Authorities.

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 June 30, 2019 is $6.141 million, as compared to $5.507 million as at June 30, 2018. The increase of $0.634 million is primarily due to anticipated spending on the continued enhancement of the Harvest Sample Program.

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 June 30, 2019 is ($0.609 million), as compared to $0.758 million as at the quarter ended June 30, 2018. The change of ($1.367 million) in total budgetary authority used can be attributed to:

  1. the overall decrease of $0.106 million in revenues received in the quarter ended June 30, 2019 primarily due to a large accounts receivable payment in 2018; and
  2. the overall decrease of $1.473 million in expenditures, primarily a result of the following variances:
    1. Transportation and communication expenditures decreased by $0.196 million as compared to the same quarter last year, primarily due to a reduction in Public Servant travel in the Industry Services Division;
    2. Professional and special services expenditures decreased by $0.768 million as compared to the same quarter last year, primarily due to the timing of payment for pay services to Public Services and Procurement Canada;
    3. Acquisition of machinery and equipment expenditures decreased by $0.125 million as compared to the same quarter last year, primarily due to delays in investment in infrastructure; and
    4. Other subsidies and payments decreased by $0.128 as compared to the same quarter last year, primarily due to a decrease in recovery of salary overpayments.

3.0 Risks and Uncertainties

The CGC receives funding through voted appropriations and fees related to services and licences it provides to the grain sector. Fees revenue is largely based on grain volumes, which fluctuate from year to year. In addition, grain volumes are not fully known prior to commencement of the fiscal year. This can result in significant variances between CGC projected revenues and actual revenues. Because actual grain volumes vary from year to year, in years with higher-than-average grain volumes, revenues may exceed costs and the CGC could accumulate surpluses (shown as unused authority carried forward in Public Accounts). In years with lower-than-average grain volumes, revenues could be less than costs and the CGC would be required to draw on its surpluses. The Canadian grain sector continues to face uncertainty regarding access to international markets due to heightened market sensitivity related to real and perceived grain quality and safety issues. Restricted access has potential to result in lower than expected grain volumes and revenues. The annual budget is reviewed throughout the year to accommodate shifting needs and priorities, including risk mitigation strategies that enable the CGC to accommodate up to a 20 percent variance in forecasted grain volumes.

On August 1, 2018, the CGC announced plans to invest approximately $130 million of accumulated surplus funds in programs and services through a investment framework. The CGC plans to spend $90 million on strategic investment, with the remainder held as a contingency fund to mitigate the risk of fluctuating grain volumes. The key areas of investment are as follows:

  • Strengthening safeguards for producers;
  • Investing in grain quality assurance; and
  • Enhancing grain quality science and innovation

As part of theSurplus Investment Framework, the CGC announced enhancements to the Harvest Sample Program. Starting for the 2018-19 crop year, the Harvest Sample Program will provide deoxynivalenol (DON), also known as vomitoxin, and Falling NumberFootnote2 results for wheat samples, and DON results for corn samples. Producers can use this quality information to help make marketing and delivery decisions. The CGC has allocated $4 million to fund these enhancements to the Harvest Sample Program over five years.

When the Surplus Investment Framework was announced, the CGC committed to working with stakeholders and stated its intent to consult the sector on further investment initiatives. At that time the CGC envisioned rolling out investments over a two-year time frame, but as a result of Budget 2019’s announcement of a Canada Grain Act review, the CGC has paused further consultations and rollout of investments.

Budget 2019 confirmed the Government’s commitment to reviewing the Canada Grain Act in response to stakeholder input received through the Regulatory Review and the Economic Strategy Roundtable. Agriculture and Agri-Food Canada (AAFC) will lead the review with support from the CGC. Until the review is complete, and decisions are taken the impact to CGC operations, personnel, programs, and budgets in unknown.

4.0 Significant Changes to Operations, Personnel, and Programs

Over the last 10 years, the grain sector has experienced a period of significant transformation. In order to add-value and deliver clear results to this dynamic sector, since fiscal 2012-13 the CGC has been streamlining operations and become a financially sustainable organization.

Planned operational spending has stabilized at approximately $61 million. Planned human resource requirements are approximately 450 Full Time Equivalents.

During the 1st quarter of 2019-20 and going forward, the following changes to executive management structure have or will be taking place:

  • CGC’s Chief Audit Executive retired from the Public Service. A competitive process is underway to staff the position;
  • The Director General, Grain Research Laboratory, Dr Stefan Wagener announced his retirement effective August 2019. Dr Esther Salvano has been appointed to the position;
  • To support AAFC with the regulatory review of the Canadian Grain Act, Nathan Gerelus has assigned as Director, Service Delivery Review for one year; and
  • Michelle Dedieu, Director of Human Resources, has been assigned as Acting Director, Industry Services Division for one year. Ruth Moulton has been assigned as Acting Director, Human Resources for one year.

Approval by Senior Official

Approved by:

Patricia Miller
Chief Commissioner
Winnipeg, Manitoba
August 26, 2019

Cheryl Blahey
Chief Financial Officer
Winnipeg, Manitoba
August 26, 2019

Statements of Budgetary Authorities (Unaudited)

For the quarter ended June 30, 2019
Fiscal Year 2019 to 2020 Fiscal Year 2018 to 2019
(in thousands of dollars) Total available for use for the year ending March 31, 2020* Used during the quarter ended June 30, 2019 Year-to date used at quarter end Total available for use for the year ending March 31, 2019* Used during the quarter ended June 30, 2018 Year-to date used at quarter end
Vote 1
Appropriation including Ad hoc $ 4,847 948 948 $ 4,847 1,123 1,123
Statutory Authorities:
Revolving Fund Gross Expenditures 59,013 12,432 12,432 57,126 13,707 13,707
Revolving Fund Gross Revenues (58,383) (14,134) (14,134) (57,126) (14,240) (14,204)
Revolving Fund Net Expenditures $ 630 (1,702) (1,702) $ 0 (533) (533)
Employee Benefit Plan 664 145 145 660 168 168
Total Statutory Authorities 1,294 (1,557) (1,557) 660 (365) (365)
Total Budgetary Authorities $6,141 (609) (609) $ 5,507 758 758
* Includes only Authorities available for use and granted by Parliament at quarter-end. Due to rounding, totals may not add to totals shown.

Departmental Budgetary Expenditures by Standard Object (Unaudited)

For the quarter ended June 30, 2019
Fiscal Year 2019 to 2020 Fiscal Year 2018 to 2019
(in thousands of dollars) Planned Expenditures for the year ending March 31, 2020* Expended during the quarter ended June 30, 2019 Year-to date used at quarter end Planned Expenditures for the year ending March 31, 2019* Expended during the quarter June 30, 2018 Year-to date used at quarter end
Expenditures:
Personnel $44,301 10,861 10,861 $43,203 10,815 10,815
Transportation and communications 2,979 422 422 2,885 618 618
Information 190 22 22 279 31 31
Professional and special services 2,868 106 106 3,485 875 875
Rentals 6,534 1,391 1,391 6,478 1,501 1,501
Repair and Maintenance 1,552 221 221 1,243 303 303
Utilities, materials and supplies 2,207 243 243 1,250 343 343
Acquisition of machinery and equipment 3,893 220 220 3,810 345 345
Other Subsidies and payments 0 39 39 0 167 167
Total Gross Budgetary Expenditures 64,524 13,525 13,525 62,633 14,998 14,998
Revolving Fund Revenue (To be credited to Vote) (58,383) (14,134) (14,134) (57,126) (14,240) (14,240)
Total Net Budgetary Expenditures $ 6,141 (609) (609) $ 5,507 758 758
* Includes only Authorities available for use and granted by Parliament at quarter-end. Due to rounding, totals may not add to totals shown.
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