Canada Revenue Agency Quarterly Financial Report

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

For the quarter ended December 31, 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 and Supplementary Estimates B.

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 and Supplementary Estimates B 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.

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

As shown in the Statement of Authorities, CRA's total authorities available for use have decreased from $4,622 million in 2010-2011 to $4,497 million in 2011-2012, representing a 3% decrease or $125 million. The components of this decrease are discussed below.

The Agency's Vote 1 gross Operating authority has increased by $244 million from $3,419 million in 2010-2011 to $3,663 million in 2011-2012. This is due to a vote realignment made through the 2011-2012 Supplementary Estimates B, transferring $116 million from the Agency's Capital authority to its Operating authority, as well as increased funding of $94 million received for the administration of the Harmonized Sales Tax in Ontario and British Columbia and the Affordable Living Tax Credit in Nova Scotia and $17 million for the implementation of tax measures announced in the Federal Budget 2011.

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 offset by a corresponding increase in expenditures reflected in the Vote 1 gross Operating authority.

The Vote 5 Capital authority has decreased year-over-year by 35% or $49 million. This decrease relates to an adjustment made through the 2011-2012 Supplementary Estimates B which transferred funds between the Capital and Operating Votes to correctly align the Agency's base spending authorities with planned expenditures. The adjustment is technical in nature, does not represent a change in the Agency's planned acquisitions or overall authorities, and is partially offset by unused Capital authority available from the 2010-2011 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 authority for Children's Special Allowance payments and the spending of cost recovery revenues.

Analysis of Expenditures

A two year comparison of the Agency's annual net authorities available for use against year‑to‑date and third quarter net expenditures as at December 31 is presented in Figure 1.

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

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

A) Expended in the Third Quarter by Authority

As displayed in the Statement of Authorities table, the Agency's overall total third quarter expenditures have decreased by $7 million, from $1,055 million in 2010-2011 to $1,048 million in 2011-2012, which represents a reduction of 1%. The components of this decrease are discussed below.

The Agency's net Vote 1 Operating expenditures have decreased by $45 million from $764 million in 2010-2011 to $719 million in 2011-2012 which represents a reduction of 6%.  Payments for legal services provided by the Department of Justice and Public Prosecution Service of Canada (PPSC) were made in the third quarter of 2010-2011 whereas in 2011-2012 they occurred in the second quarter resulting in a third quarter variance of $41 million.

Vote 5 Capital expenditures in the third quarter have decreased by $10 million, from $22 million in 2010-2011 to $12 million in 2011-2012.  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 third quarter have increased by $48 million, from $269 million in 2010-2011 to $317 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 third quarter. A further component of the increase relates to the spending of cost recovery revenues which vary during the fiscal year based on the timing of receipts.

B) Expended in the Third Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, third quarter personnel expenditures have increased from $754 million in 2010-2011 to $781 million in 2011-2012, a change of 4% or $27 million. This recent growth in personnel expenditures relates to increased contributions for employee benefit plans as well as the redirection of non-salary resources to address short term workload pressures.

Professional and special service expenditures have decreased by 42% or $46 million, the result of a year-over-year timing difference in the payments for legal services provided by the Department of Justice and the Public Prosecution Service of Canada (PPSC) and a $5 million decrease in the use of consulting services across the Agency.

Purchase, repairs and maintenance expenditures have increased by $8 million, the result of timing differences in invoices between fiscal years. Overall, spending on purchase, repair and maintenance by year-end is expected to be similar to last year.

Transfer payments have grown by $6 million, representing a 6% increase.  This is associated with an increase in Softwood Lumber disbursements of $8 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 $11 million, from $3,141 million in 2010-2011 to $3,152 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 $67 million from $2,318 million in 2010-2011 to $2,251 million in 2011-2012. This reduction is attributable to a reduction in non-personnel expenditures, including a $16 million decline in consulting services, $7 million reduction in contractual obligations with respect to telecommunications and a $7 million decrease in travel expenditures. In addition, reductions in both the year-to-date payments made for legal services of $14 million and the administration of GST in the province of Québec of $11 million contributed to the decrease.

Vote 5 Capital expenditures have decreased by $16 million from $52 million in 2010-2011 to $36 million in 2011-2012. This variance is the result of year over year changes in the timing and nature of the Agency's planned investments.

Year-to-date statutory expenditures have increased by $94 million, from $771 million in 2010‑2011 to $865 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 cost recovery revenues.

D) Year-to-Date Expenditures by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, year-to-date personnel expenditures have increased by $33 million or 1%, from $2,311 million in 2010-2011 to $2,344 million in 2011-2012, which is attributable to the increase in contributions to the employee benefit plans.

Transportation and communications expenditures have decreased by $15 million from $132 million in 2010-2011 to $117 million in 2011-2012. The majority of this reduction stems from the Agency's continuing efforts to reduce travel costs, $7 million, and reduced contractual obligations with respect to telecommunications, $7 million.

Year-to-date professional and special services have fallen by $43 million from $243 million in 2010-2011 to $200 million in 2011-2012. As previously explained, this variance is attributable to the reduced use of consulting services and timing differences in the payments for legal services and the administration of GST in the province of Québec.

Acquisition of machinery and equipment has increased by over $8 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 $24 million from $310 million in 2010-2011 to $334 million in 2011-2012, a result of increased Softwood Lumber disbursements, $30 million, and a reduction in Children's Special Allowance payments, $6 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 which identified sources of funding for key operating pressures, including non‑compensated wage increases, which will amount to approximately $48 million in 2011-2012.

The collective agreement between the Agency and the Professional Institute of the Public Service (PIPSC) expired in December 2011; contract negotiations between parties are ongoing.

Significant changes in relation to operations, personnel and programs

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 will transfer to SSC the control and supervision of operational domains related to email, data centres and network services. Pursuant to the Order-in-Council, effective November 15, 2011, $52 million of Operating authority and $2 million of Capital authority is deemed to be appropriated to SSC from the CRA for 2011-2012. During the transition period, the CRA's Quarterly Financial Report continues to reflect consolidated financial information, including authorities and expenditures attributable to the transferred services.

The Harmonized Sales Tax (HST) was implemented in the province of Ontario on July 1, 2010.  In August 2011, the province of British Columbia (BC) decided to withdraw from the HST initiative and reinstate a separate provincial sales tax. The exact timeframe for transition back to the goods and services tax (GST) has yet to be confirmed, and is the subject of ongoing discussion between the Department of Finance Canada and the BC Ministry of Finance.  During the transition period, the CRA will continue to administer the HST 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: February 22, 2012

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], [Footnote 3] Used during the quarter ended December 31, 2011 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,663,379 797,290 2,487,320
Revenues netted against expenditures minus(312,978) minus(77,978) minus(236,388)
Net Vote 1 - Operating expenditures 3,350,401 719,312 2,250,932
Vote 5 - Capital expenditures 89,034 11,654 35,742
Budgetary statutory authorities      
Softwood Lumber payments 140,000 51,789 169,860
Employee benefit plans 460,028 115,007 345,021
Spending of revenues received 230,688 94,939 185,459
Children's Special Allowance payments 227,000 54,743 163,480
Other statutory authority payments 78 346 1,389
Total Budgetary authorities 1,057,794 316,824 885,209
Total authorities 4,497,229 1,047,790 3,151,883
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 December 31, 2010 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,419,471 840,960 2,548,531
Revenues netted against expenditures minus(283,054) minus(76,558) minus(230,231)
Net Vote 1 - Operating expenditures 3,136,417 764,402 2,318,300
Vote 5 - Capital expenditures 137,896 22,282 51,977
Budgetary statutory authorities      
Softwood Lumber payments 479,000 43,947 139,715
Employee benefit plans 416,700 104,175 312,525
Spending of revenues received 226,894 63,908 148,848
Children's Special Allowance payments 225,000 56,344 169,104
Other statutory authority payments 79 327 842
Total Budgetary authorities 1,347,673 268,701 771,034
Total authorities 4,621,986 1,055,385 3,141,311
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], [Footnote 3] Expended during the quarter ended December 31, 2011 Year to date used at quarter-end
Expenditures:      
Personnel 3,137,919 781,012 2,343,561
Transportation and communications 227,749 40,611.15 117,063
Information 12,796 1,072 1,601
Professional and special services 356,019 63,998 200,028
Rentals 377,225 86,339 257,251
Purchase, repairs and maintenance 134,106 22,839 76,753
Utilities, materials and supplies 45,087 8,447 17,652
Acquisition of machinery and equipment 145,667 12,490 37,392
Transfer payments 370,171 107,110 334,227
Other subsidies and payments 3,468 1,850 2,743
Total gross budgetary expenditures 4,810,207 1,125,768 3,388,271
Less Revenues netted against expenditures minus(312,978) minus(77,978) minus(236,388)
Total net budgetary expenditures 4,497,229 1,047,790 3,151,883
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 December 31, 2010 Year to date used at quarter-end
Expenditures:      
Personnel 2,971,212 754,165 2,310,561
Transportation and communications 203875 43428 131531
Information 10,266 3018 3831
Professional and special services 351626 110,108 242,513
Rentals 351210 80185 248624
Purchase, repairs and maintenance 121338 15348 74173
Utilities, materials and supplies 37119 9,603 21,152
Acquisition of machinery and equipment 142272 14854 28763
Transfer payments 707127 101,045 309,725
Other subsidies and payments 3,981 189 669
Total gross budgetary expenditures 4,905,040 1,131,943 3,371,542
Less Revenues netted against expenditures minus(283,054) minus(76,558) minus(230,231)
Total net budgetary expenditures 4,621,986 1,055,385 3,141,311

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.
[Footnote 3]
Pursuant to s. 31.1 of the Financial Administration Act and Order in Council P.C. 2011-1291 to P.C. 1297 effective November 15, 2011, $52 million and $2 million is deemed to have been appropriated to Shared Services Canada Operating Expenditures and Capital Expenditures, which results in a reduction of the same amounts in Canada Revenue Agency's Vote 1 and Vote 5, Appropriation Act No.1, 2011-2012.
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