Canada Revenue Agency Quarterly Financial Report

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

For the quarter ended September 30, 2011

Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board. This report should be read in conjunction with the Main Estimates.

Further details on the Canada Revenue Agency’s (CRA) program activities can be found in the Report on Plans and Priorities and the Main Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the Canada Revenue Agency's spending authorities granted by Parliament and those used by the Agency consistent with the Main Estimates for the 2011-2012 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 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.

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.

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

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

Highlights of fiscal quarter and fiscal year to date (YTD) results

Analysis of Authorities

This report reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released on June 27, 2011.

As shown in the Statement of Authorities, CRA’s total authorities available for use have decreased from $4,636 million in 2010-2011 to $4,471 million in 2011-2012, representing a 4% decrease or $165 million. The components of this decrease, which remain unchanged from the Quarterly Financial Report published for the quarter ended June 30, 2011, are discussed below.

The Agency’s Vote 1 gross Operating authorities have increased by $88 million from $3,435 million in 2010-2011 to $3,523 million in 2011-2012. This is due to increased funding received for the administration of the Harmonized Sales Tax in Ontario and British Columbia and the Affordable Living Tax Credit in Nova Scotia.

In 2011-2012, the CRA expects to recover $313 million from the Canada Pension Plan (CPP) and Employment Insurance (EI) Accounts, up from $283 million in 2010‑2011, to cover the cost of the Agency’s administrative responsibilities under the respective CPP and EI legislation. This $30 million increase in revenues is netted against a corresponding increase in expenditures reflected in the Vote 1 gross Operating authorities.

The Vote 5 Capital authorities have increased year-over-year by 49% or $67 million. This increase in 2011-2012 relates to $52 million of unused Capital authorities available from the previous fiscal year, as permitted under the Agency’s two-year spending authority.

The forecasted expenditures under the Budgetary statutory authorities represent a net decrease of $290 million from 2010-2011 to 2011-2012. The estimate for Softwood Lumber disbursements, established by the Department of Finance, was revised downward by 71% or $339 million year‑over-year to reflect changing market conditions. This expected reduction is partially offset by an increase in required employee benefit plans contributions, as well as lesser adjustments in the authorities for Children’s Special Allowance payments and the spending of revenues received.

Analysis of Expenditures

A two year comparison of the Agency’s annual net authorities available for use against year‑to‑date and second quarter net expenditures as at September 30 is presented in Figure 1.

Figure 1: Annual Authorities against Year-to-Date and Second Quarter Expenditures

Annual Authorities against Year-to-Date  and Second Quarter Expenditures

A) Expended in the Second Quarter by Authority

As displayed in the Statement of Authorities table the Agency’s total second quarter expenditures have increased by $17 million, from $1,036 million in 2010-2011 to $1,053 million in 2011-2012, which represents an increase of 2%. The components of this increase are discussed below.

The Agency’s net Vote 1 Operating expenditures have decreased by $4 million from $795 million in 2010-2011 to $791 million in 2011-2012 which represents a minor reduction of less than 1%.

Vote 5 Capital expenditures in the second quarter have decreased by $10 million, from $26 million in 2010-2011 to $16 million in 2011-2012.  As noted in the first quarter report, this fluctuation in expenditures is not unusual as the quarterly distribution of capital expenditures changes from year to year, depending on the status of major investment projects and the timing of capital procurements.

Statutory expenditures for the second quarter have increased by $31 million, from $214 million in 2010-2011 to $245 million in 2011-2012. Employee benefit plans contributions and Softwood Lumber disbursements to the provinces, which are externally-driven and often fluctuate throughout the year, have increased in the second quarter. A further component of the increase relates to the spending of revenues received which varies during the fiscal year based on the timing of the received payment.

B) Expended in the Second Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, second quarter personnel expenditures have increased from $764 million in 2010-2011 to $773 million in 2011-2012, a 1% change related to increased contributions for employee benefit plans.

Professional and special service expenditures have increased by 20%, or $13 million and the cost of legal services provided by the Department of Justice and the Public Prosecution Service of Canada (PPSC) has increased by $23 million in the second quarter.  This is partially offset by a $6 million decrease in payments made for the administration of GST in the province of Québec as well as a $4 million reduction in consulting services expenditures.

Purchase, repairs and maintenance expenditures have decreased by $26 million as a result of a new accelerated approval process for information technology purchases in 2011-2012 which facilitated a greater number of purchases in the first quarter and thus reduced second quarter expenditures when compared to 2010-2011. Overall, spending on purchase, repair and maintenance by year-end is expected to be consistent between years.

Acquisition of machinery and equipment has increased by $12 million due to the timing of the purchase of information technology equipment in support of the Agency’s central infrastructure.

Transfer payment expenditures have grown by $13 million, representing a 14% increase.  This is associated with an increase in Softwood Lumber disbursements of $15 million, partly offset by a $2 million decrease in the Children’s Special Allowance payments.

C) Year-to-Date Expenditures by Authority

As displayed in the Statement of Authorities table the Agency’s total year-to-date expenditures have increased by $18 million, from $2,086 million in 2010-2011 to $2,104 million in 2011-2012, which represents an increase of less than 1%. The components of this increase are discussed below.

The Agency’s net Vote 1 Operating expenditures have decreased by $22 million from $1,554 million in 2010-2011 to $1,532 million in 2011-2012. A residual effect from the spending restraint exercised during the first quarter of 2011-2012 when the Agency was operating under Governor General Special Warrants, year to date salary expenditures have decreased by 1%.  A further reduction in operating expenditures is the decrease in the payments made for the administration of GST in the province of Québec.

Vote 5 Capital expenditures have decreased by $6 million from $30 million in 2010-2011 to $24 million in 2011-2012.

Year-to-date statutory expenditures have increased by $46 million, from $502 million in 2010‑2011 to $548 million in 2011-2012. As previously noted, this increase relates to employee benefit plans contributions, Softwood Lumber disbursements to the provinces, and the spending of revenues received.

D) Year-to-Date Expenditures by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, year-to-date personnel expenditures have increased by $6 million, from $1,556 million in 2010-2011 to $1,562 million in 2011-2012 which is attributable to the increase in contributions to the employee benefit plans.

Transportation and communications expenditures have decreased by $12 million from $88 million in 2010-2011 to $76 million in 2011-2012. The majority of this reduction results from the Agency’s continuing efforts to reduce travel costs, $6 million, and reduced contractual obligations with respect to telecommunications, $5 million.

Acquisition of machinery and equipment has increased by $11 million which relates to the timing of purchases of information technology equipment in support of the Agency’s central infrastructure.

Year-to-date transfer payments increased by $18 million from $209 million in 2010-2011 to $227 million in 2011-2012 a result of increased Softwood Lumber disbursements, $22 million, and a reduction in Children’s Special Allowance payments, $4 million.

Risks and Uncertainties

The measures to contain administrative costs throughout the government, announced in the Federal Budget 2010, froze operating budgets at 2010-2011 levels for all government departments and agencies and are in effect until 2012-2013. Departments and agencies are required to absorb collective agreement rate of pay increases for all employees that take affect after April 1, 2010, through the reprioritization of existing operating resources.

In response to the Budget 2010 measures, the Agency undertook a comprehensive internal spending review to identify potential sources of funding for key operating pressures, including non‑compensated wage increases, which amounted to approximately $13 million in 2010-2011.

The collective agreement between the Agency and the Professional Institute of the Public Service (PIPSC) is in the final contract year, expiring in December 2011.

The Government of Canada recently announced the creation of Shared Services Canada (SSC), a new organization which represents a government-wide approach to managing information technology. The CRA and SSC are currently working together to ensure a collaborative and well managed transition including the transfer of financial resources and personnel.

Significant changes in relation to operations, personnel and programs

The implementation of the Harmonized Sales Tax (HST) for Ontario and British Columbia transitioned provincial employees into the Agency’s workforce beginning in the fall of 2010 and will continue through to July 2012. Under a Memorandum of Understanding with the provinces of Ontario and British Columbia, these employees will be integrated into the Agency’s respective collective agreements and staffing classifications.  The Agency has received incremental funding in 2011‑2012 and future years for this initiative.

In August 2011, the province of British Columbia announced that they would restore the Provincial Sales Tax (PST) in conjunction with the Goods and Services Tax (GST), with a target date of March 31, 2013. The Department of Finance Canada continues to work with the British Columbia Ministry of Finance to achieve this.  The CRA will continue to administer the HST through the transition with a gradual wind-down of HST activities in that province.

Approval by Senior Officials

Approved by:

[original signed by]
________________________
Linda Lizotte-MacPherson, Commissioner

[original signed by]
_______________________
Filipe Dinis, Chief Financial Officer

Ottawa , Canada
Date: November 15, 2011

Fiscal year 2011-2012
(in thousands of dollars)
Statement of Authorities (unaudited)      
  Total available for use for the year ending March 31, 2012 [Footnote 1], [Footnote 2] Used during the quarter ended September 30, 2011 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,523,144 870,217 1,690,031
Revenues netted against expenditures minus(312,978) minus(79,205) minus(158,410)
Net Vote 1 - Operating expenditures 3,210,166 791,012 1,531,621
Vote 5 - Capital expenditures 203,094 16,591 24,088
Budgetary statutory authorities      
Softwood Lumber payments 140,000 54,915 118,071
Employee benefit plans 460,028 115,007 230,014
Spending of revenues received 230,687 20,608 90,520
Children's Special Allowance payments 227,000 54,302 108,737
Other statutory authority payments 78 255 1,044
Total Budgetary authorities 1,057,793 245,087 548,386
Total authorities 4,471,053 1,052,690 2,104,095
Fiscal year 2010-2011
(in thousands of dollars)
Statement of Authorities (unaudited)      
  Total available for use for the year ending March 31, 2011 [Footnote 1] Used during the quarter ended September 30, 2010 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,434,820 871,913 1,707,570
Revenues netted against expenditures minus(283,054) minus(76,837) minus(153,674)
Net Vote 1 - Operating expenditures 3,151,766 795,076 1,553,896
Vote 5 - Capital expenditures 136,085 26,447 29,696
Budgetary statutory authorities      
Softwood Lumber payments 479,000 39,903 95,768
Employee benefit plans 416,700 104,175 208,350
Spending of revenues received 226,896 13,757 84,940
Children's Special Allowance payments 225,000 56,144 112,760
Other statutory authority payments 79 227 515
Total Budgetary authorities 1,347,673 214,206 502,333
Total authorities 4,635,524 1,035,729 2,085,925
Fiscal year 2011-2012
(in thousands of dollars)
Departmental Budgetary Expenditures by Standard Objects (unaudited)      
  Planned expenditures for the year ending March 31, 2012 [Footnote 1], [Footnote 2] Expended during the quarter ended September 30, 2011 Year to date used at quarter-end
Expenditures:      
Personnel 3,120,860 773,369 1,562,551
Transportation and communications 225,521 41,854 76,452
Information 12,593 297 529
Professional and special services 352,545 80,548 136,030
Rentals 377,225 85,447 170,912
Purchase, repairs and maintenance 132,794 15,921 53,914
Utilities, materials and supplies 44,646 4,623 9,205
Acquisition of machinery and equipment 144,242 20,178 24,902
Transfer payments 370,171 109,524 227,117
Other subsidies and payments 3,434 134 893
Total gross budgetary expenditures 4,784,031 1,131,895 2,262,505
Less Revenues netted against expenditures minus(312,978) minus(79,205) minus(158,410)
Total net budgetary expenditures 4,471,053 1,052,690 2,104,095
Fiscal year 2010-2011
(in thousands of dollars)
Departmental Budgetary Expenditures by Standard Objects (unaudited)      
  Planned expenditures for use for the year ending March 31, 2011 [Footnote 1] Expended during the quarter ended September 30, 2010 Year to date used at quarter-end
Expenditures:      
Personnel 2,979,421 764,440 1,556,394
Transportation and communications 202,862 44,879 88,104
Information 10,266 428 813
Professional and special services 349,878 67,117 132,405
Rentals 365,828 84,230 168,439
Purchase, repairs and maintenance 120,735 41,518 58,826
Utilities, materials and supplies 36,935 5,061 11,549
Acquisition of machinery and equipment 141,565 8,430 13,909
Transfer payments 707,127 96,193 208,680
Other subsidies and payments 3,961 270 480
Total gross budgetary expenditures 4,918,578 1,112,566 2,239,599
Less Revenues netted against expenditures minus(283,054) minus(76,837) minus(153,674)
Total net budgetary expenditures 4,653,524 1,035,729 2,085,925

Footnotes

[Footnote 1]
Includes only authorities available for use and granted by Parliament at quarter-end.
[Footnote 2]
Includes incremental funding of $112.6M for the ongoing implementation of the Harmonized Sales Tax (HST) in Ontario and British Columbia, and associated tax credit programs.