ARCHIVED - Quarterly Financial Report for the quarter ended September 30, 2015

1. Introduction

This Quarterly Financial Report (QFR) should be read in conjunction with the Main Estimates, Supplementary Estimates, and Budgets 2015, ARCHIVED - 2014, and ARCHIVED - 2013. It has been prepared by management as required under section 65.1 of the Financial Administration Act and in the form and manner prescribed by Treasury Board Accounting Standard 1.3. It has not been subject to an external audit or review.

1.1 Authority and mandate

Public Services and Procurement Canada (PSPC) plays an important role in the daily operations of the Government of Canada. It supports federal departments and agencies in the achievement of their mandated objectives as their central purchasing agent, real property manager, linguistic authority, treasurer, accountant, and pay and pension administrator. The Department's vision is to excel in government operations, and its strategic outcome and mission are to deliver high-quality, central programs and services that ensure sound stewardship on behalf of Canadians and meet the program needs of federal institutions.

The Department, founded in 1841, was instrumental in the building of our nation's canals, roads and bridges, the Houses of Parliament, post offices and federal buildings across the country. Today, PSPC has evolved into a sophisticated operational arm of government that employs approximately 12,000 permanent employees working in locations across Canada, with its headquarters in the National Capital Area. PSPC:

• Injects approximately $18 billion annually into the Canadian economy through government procurement for 140 federal departments and agencies;
• Handles over $2 trillion in cash flow transactions through the Receiver General function as treasurer;
• Issues more than 13.6 million federal pay and pension payments;
• Provides accommodation to parliamentarians and more than 265,000 public servants in 1,641 locations across Canada;
• Manages a Crown-owned property portfolio, including 18 engineering assets such as bridges and dams;
• Provides translation and interpretation services, annually, for more than 1,470 parliamentary sittings and parliamentary committee meetings, and manages translation for more than one million pages of text on behalf of other federal organizations; and
• Processes and images more than 30.4 million pages, annually, for federal government departments and agencies.

1.2 Basis of presentation

The authority of Parliament is required before monies can be spent by the government. This authority is granted in the form of legislation, which sets out annual limits.

This quarterly report has been prepared by management using an expenditure basis of accounting also known as modified cash accounting, and a special purpose financial reporting framework designed to present financial information on the authorities provided by Parliament. The accompanying Statement of Authorities compares PSPC's spending authorities granted by Parliament (consistent with those in the Main Estimates) to the amounts spent by the Department.

1.3 Public Services and Procurement Canada's financial structure

PSPC provides services to many government departments, agencies and Crown corporations through a variety of funding mechanisms. This includes budgetary authorities that are comprised of voted and statutory authorities, as well as non-budgetary authorities. The voted budgetary authorities include operating expenditures, vote-netted revenues and capital expenditures, while the statutory authorities are mainly comprised of revolving funds, employee benefit plans and payments in lieu of taxes (PILT). The non-budgetary authorities consist primarily of the Seized Property Working Capital Account (see description below).

PSPC's complex financial structure may result in significant fluctuations in authorities on a quarterly basis which are due to timing differences that are resolved by year end. These are summarized as follows:

• For the most part, PSPC delivers its services on a cost-recovery basis, generating revenues via revolving fund ("the Funds") organizations and programs within the operating vote. These organizations and programs are mainly designed to provide services to other government organizations, and are expected to recover the cost of their operations through revenues. However, the costs incurred by the Funds are usually disbursed prior to invoicing the client, which generally occurs upon completion of a project or after services are rendered, and thus revenues may be collected in a subsequent quarter.
• PSPC manages a variety of real property projects that progress through phases from planning to funding and from procurement to construction. Historical trends have shown that expenditures against these projects are not incurred evenly throughout the year; thus, quarter-to-quarter fluctuations are normal. Such projects include the Alaska Highway, in British Columbia and the Yukon, and the new Champlain Bridge in Montréal, Quebec.
• PILT issued by PSPC are funded through a statutory vote and paid on behalf of other participating federal departments. Payments are subsequently recovered from the participating departments and are recorded as statutory grants in the Public Accounts of Canada. Timing fluctuations can occur between the payments and the recoveries.
• PSPC also manages seized property for the Government of Canada pursuant to the Seized Property Management Act. The financial management of this activity is undertaken through the non-budgetary Seized Property Working Capital Account. Charged to this account are expenditures and advances made to maintain and manage any seized or restrained property. PSPC recovers its costs from this account once the property owner loses the right to the property and it is disposed of.

2. Highlights of fiscal quarter and fiscal year to date results

2.1 Significant changes to authorities

When compared to the same quarter of the previous year, PSPC's authorities available for use increased by $371.5 million (2014-15: $2,770.6 million; 2015–16: $3,142.1 million) as reflected in the Table 1—Statement of authorities (unaudited). Major reasons for the increase are outlined below:

Year over year variances in authorities available for use
(in millions of dollars)

Groupings can change between quarters due to materiality of initiatives.
Amounts may not balance with other public documents due to rounding.

The net increase of $371.5 million can be explained by:

Operation, maintenance and capital projects for federal accommodation—increase of $173.8 million

PSPC is mandated to meet the accommodation needs of federal organizations by providing and maintaining a cost effective portfolio of office space and other types of facilities. The variance of $173.8 million is the result of a timing difference. While total annual funding remains consistent with previous years, the funding is now being received earlier in the fiscal year.

Carry forward of unused funds from previous fiscal year—increase of $94.0 million

Treasury Board Secretariat allows departments to transfer a portion of unused funds from one fiscal year to the following year. In 2015–16, a carry forward of $200.0 million was received in the second quarter. During the same quarter last year, PSPC had received $106.0 million in carry forward. Amounts carried forward are primarily for projects that are continuing into 2015–16.

Federal infrastructure—increase of $70.2 million

As per Budget 2015, PSPC will undertake the construction and repair of new and existing federal infrastructure across Canada. The initial amount of $70.2 million includes repairs to various federal buildings and assets such as the Alexandra Bridge in the National Capital Region, Alaska Highway and Esquimalt Graving Dock on Vancouver Island, British Columbia.

Cape Breton operations—increase of $39.1 million

As of June 19, 2014, PSPC is now assuming Enterprise Cape Breton Corporation's real property holdings in Sydney, Nova Scotia, as well as their environmental and human resources obligations. An amount of $39.1 million related to these responsibilities was received in 2015–16.

Federal Contaminated Sites Action Plan - Phase II—increase of $5.4 million

Led by the Federal Contaminated Sites Action Plan (FCSAP) Secretariat, housed at Environment Canada, the purpose of the program is to lower environmental and human health risks, benefit local communities, and reduce the burden of future environmental liability for all Canadians.

Collective agreements and employee benefit plan adjustment—increase of $4.8 million

In 2015–16, PSPC received additional funding for the incremental compensation associated with recently signed collective agreements ($3.2M). In addition, this adjustment reflects the increase of the Employee Benefit Plan rate, as directed by Treasury Board Secretariat ($1.6M).

Build in Canada Innovation Program—increase of $2.5 million

Through the Build in Canada Innovation Program, PSPC continues to help companies bridge the pre-commercialization gap for their innovative products and services, support Canadian suppliers to connect with government users, and improve the efficiency and effectiveness of government operations.

Surplus federal real property for homelessness initiative—increase of $2.0 million

The Government of Canada continues to work in partnership with provinces and territories, communities, private sector and other stakeholders by making surplus federal real properties available for projects to help prevent and reduce homelessness. PSPC is providing expertise related to real property as well as information and assistance concerning available surplus federal real properties.

Deficit reduction action plan—decrease of $28.8 million

In accordance with Budget 2012, PSPC achieved additional savings in 2015–16 through space recapture and space modernization. PSPC continues to work with departments to recapture surplus space in a manner that ensures best value to Canadians, while also introducing a more modern workplace.

Other—increase of $8.5 million

This net increase of $8.5 million is the result of funding variances in miscellaneous projects and activities.

2.2 Significant changes to year-to-date net expenditures

As presented in the Table 2—Departmental budgetary expenditures by standard object (unaudited), the total net budgetary expenditures have decreased by $45.1 million when compared to the same quarter of the previous year (2014-15: $1,409.4 million; 2015–16: $1,364.3 million).

Overall, total spending at the end of the second quarter represents 43% of annual planned expenditures for 2015–16, which compares to the second quarter of 2014-15 at 51%.

Year over year variances in net budgetary expenditures (presented by standard object)
(in millions of dollars)

The net decrease of $45.1 million is mainly attributable to:

Personnel—increase of $11.0 million

• Continued implementation of the Consolidation of Pay Services Initiative in Miramichi, New Brunswick. This initiative is to hire, relocate, train and accommodate compensation employees; and
• Enterprise Cape Breton Corporation became a part of PSPC in late July of last fiscal year.

Transportation and communications—decrease of $5.8 million

• Reduced cost of postage as a result of the Direct Deposit Initiative.

Information—increase of $7.9 million

• Investment in information technology infrastructure as part of the Long Term Vision and Plan to preserve the Parliament Buildings.

Professional and special services—increase of $44.6 million

• Construction work on several projects for other government departments including:
  • The High Arctic Research Station in Cambridge Bay, Nunavut, for Aboriginal Affairs and Northern Development Canada;
  • The Giant Mine Remediation Project in Yellowknife, Northwest Territories, for Aboriginal Affairs and Northern Development Canada;
  • The Rock Bay Remediation project in Victoria, British Columbia, for Transport Canada as part of the Federal Contaminated Sites Action Plan; and
  • Road resurfacing project at the Pacific Rim National Park in British Columbia, for Parks Canada.
• Advancement of various projects on engineering assets such as MacDonald Cartier Bridge Rehabilitation in the National Capital Region, and Latchford Dam Replacement in Latchford, Ontario; and
• Increase in purchase of innovation for the Build in Canada Innovation Program.

Rentals—decrease of $6.2 million

• Timing differences in the payment of leases and other rentals.

Repair and maintenance—increase of $31.7 million

• Increase in repair and maintenance of engineering assets such as Alaska Highway and on behalf of other government departments (e.g. Parks Canada, Department of Fisheries and Oceans); and,
• Offset by timing differences in the receipt of invoices from a new real property services provider.

Utilities, materials and supplies—decrease of $13.0 million

• Decrease in the vaccine program as two vaccines are being purchased directly by the provinces and territories therefore no longer offered by the Department; and,
• Timing differences in the receipt of invoices from a new real property services provider.

Acquisition of land, buildings and works—increase of $26.5 million

• Acquisition of land on behalf of Infrastructure Canada for the construction of the new Champlain Bridge.

Transfer payments—decrease of $5.2 million

• Timing differences between when a payment in lieu of taxes (PILT) is issued and when the cost is recovered from other government departments.

Other subsidies and payments—decrease of $27.4 million

• One-time transition payment in 2014-15 to implement salary payment in arrears by the Government of Canada; and
• Offset by timing differences in the recovery of expenses.

Revenues netted against expenditures—increase of $107.0 million

• Increased revenues as a result of various projects such as the new Champlain Bridge and the MacDonald-Cartier Bridge; and,
• Timing difference in the billing cycle between 2014-15 and 2015–16.

Other expenditures—decrease of $2.2 million

3. Risks and uncertainties

PSPC integrates risk management principles into business planning, decision-making and organizational processes to minimize negative impacts and maximize opportunities across our diverse range of services and operations. Risk management in PSPC is carried out in accordance with the Treasury Board Secretariat (TBS) Framework for the Management of Risk, the Management Accountability Framework and the PSPC Policy on Integrated Risk Management.

The following key risks were identified as having a potential financial impact:

• PSPC's dependency on clients' expenditures:  More than half of PSPC's financial and human resources are directly tied to cost recovered services and activities. In a context of reduced expenditures on the part of client departments and agencies, there is a risk that PSPC could face unpredictable and reduced business volumes and concomitant reduced resources.  In response to this risk PSPC will adjust to reduced operational demands while maintaining the quality of its services. This includes sustaining rigorous management of revenues, expenditures, forecasting and commitment monitoring and working closely with other departments through the client service network to identify changing requirements and their impacts on the Department.
• PSPC's ability to undertake and deliver complex, transformational and interdepartmental major projects and procurements:  There are inherent risks in PSPC undertaking and delivering complex, transformational and interdepartmental major projects and procurements on time, within the approved budget and according to scope which could ultimately have an impact on the Department's service strategy. In order to address these risks, PSPC has implemented disciplined investment and project management processes; established service agreements and service standards with clear identification of responsibilities; ensured sound contract management; engaged early with client departments and other stakeholders; and developed the Departmental Integrated Investment Plan (IIP).

4. Significant changes to operations, personnel and programs

Subsequent to the end of the second quarter and effective November 4, 2015, the Prime Minister appointed a new Minister for PSPC. In addition, the name of the Department changed from Public Works and Government Services Canada to Public Services and Procurement Canada. The departmental activities will continue reflecting governmental priorities.

Approved by:

Table 1—Statement of authorities (unaudited)
For the quarter ended September 30, 2015
(in thousands of dollars)

Table 2—Departmental budgetary expenditures by standard object (unaudited)
For the quarter ended September 30, 2015
(in thousands of dollars)