ARCHIVED - Quarterly Financial Report for the quarter ended December 31, 2015

1. Introduction

This Quarterly Financial Report (QFR) should be read in conjunction with the Main Estimates, and Supplementary Estimates. 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 Works and Government Services Canada (PWGSC) 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, PWGSC 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. PWGSC:

• 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.

Further details on PWGSC's authority, mandate and programs may be found in the ARCHIVED - 2015–16 Report on Plans and Priorities.

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 PWGSC's spending authorities granted by Parliament (consistent with those in the Main Estimates) to the amounts spent by the Department.

PWGSC uses the accrual method of accounting to prepare and present its annual Consolidated Departmental Financial Statements (DFS) that are published in the Departmental Performance Report. The main difference between the QFR and the DFS is the timing of when revenues and expenses are recognized. The QFR reports revenues only when the money is received and expenses only when the money is paid out. The DFS reports revenues when they are earned and expenses when they are incurred. In the latter case, revenues are recorded even if cash has not been received and expenses are incurred even if cash has not yet been paid out.

1.3 Public Works and Government Services Canada's financial structure

PWGSC 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).

PWGSC'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, PWGSC 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.
• PWGSC 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 PWGSC 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.
• PWGSC 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. PWGSC 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, PWGSC's authorities available for use increased by $211.8 million (2014–15: $2,930.5 million; 2015–16: $3,142.3 million) as reflected in the Table 1—Statement of authorities (unaudited). Major reasons for the increase are outlined below:

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 $211.8 million from the third quarter of 2014–15 can be explained by:

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. Amounts carried forward are primarily for projects that are continuing into 2015–16. This year, a carry-forward of $200 million was received as opposed to $106.0 million in 2014–15.

Federal Infrastructure—increase of $70.2 million

As announced in the Budget 2015, PWGSC has undertaken 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, the Alaska Highway and the Esquimalt Graving Dock on Vancouver Island, British Columbia.

Operation, Maintenance and Capital Projects for Federal Accommodation—increase of $37.5 million

PWGSC 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 $37.5 million is mainly the result of adjustments for volume and inflationary pressures on non-discretionary expenditures associated with the management of federal real property.

Cape Breton Operations—increase of $7.6 million

As of June 19, 2014, PWGSC assumed the responsibilities of Enterprise Cape Breton Corporation's real property holdings, in Sydney Nova Scotia, as well as its environmental and human resources obligations. The variance of $7.6 million corresponds to the difference between the full funding received at the beginning of 2015–16, and the partial funding received for 2014–15, which was only for July and beyond.

Collective Agreements and Employee Benefit Plan adjustment—increase of $2.0 million

In 2015–16, PWGSC received additional funding for the incremental compensation associated with the signed collective agreements ($0.4 million). In addition, this adjustment reflects the increase of the Employee Benefit Plan rate, as directed by the Treasury Board Secretariat ($1.6 million).

Other—increase of $4.7 million

This net increase of $4.7 million is the result of funding variances in miscellaneous projects and activities.

Controlled Goods—decrease of $4.2 million

This program allows to safeguard controlled goods (such as technologies that have military or national security significance) while in the custody of private companies. In Budget 2012 and 2015, PWGSC obtained temporary incremental funding to enhance the program through a set of security and business process improvement measures.

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 increased by $43.1 million when compared to the same quarter of the previous year (2014–15: $1,997.5 million; 2015–16: $2,040.6 million).

Overall, total spending at the end of the third quarter represents 65% of annual planned expenditures for 2015–16, which compares to the third quarter of 2014–15 at 68%.

The proportion of actual expenditures in comparison to planned expenditures is consistent with the previous year.

The net increase of $43.1 million is mainly attributable to:

Professional and special services—increase of $128.7 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 Rock Bay Remediation project in Victoria, British Columbia, for Transport Canada as part of the Federal Contaminated Sites Action Plan; and
  • Recapitalization of the Runway at Eureka Environmental Research Base in Nunavut for Environment Canada.
• Advancement of various projects on engineering assets such as the MacDonald Cartier Bridge Rehabilitation in the National capital region, and the Latchford Dam Replacement in Latchford, Ontario;
• Advancement of Long Term Vision Plan projects such as the West Block Rehabilitation and the Government Conference Centre as well as the completion of the Sir John A. Macdonald Building in Ottawa, Ontario;
• Advancement of the National Shipbuilding Procurement Strategy; and
• Increase in purchases for the Build in Canada Innovation Program.

Personnel—increase of $22.7 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
• Salary expenditures for Enterprise Cape Breton Corporation were fully paid by PWGSC in 2015–16 as opposed to partially paid in 2014–15.

Repair and maintenance—increase of $74.8 million

• Projects in Eastern Canada as part of the Federal Infrastructure program such as:
  • Highway 431 (Bonne Bay Road) resurfacing in Newfoundland & Labrador;
  • Black Harbor development in New Brunswick; and
  • Cape St-Mary's Breakwater and Groyne extensions in Nova Scotia.
• 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
• Timing difference in the receipt of invoices due to a new real property services provider.

Rentals—increase of $10.7 million

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

Other subsidies and payments—decrease of $35.4 million

• One-time transition payment in 2014–15 to implement salary payments in arrears by the Government of Canada.

Acquisition of land, buildings and works—increase of $22.2 million

• Acquisition of land on behalf of Infrastructure Canada for the construction of the new Champlain Bridge; and
• Work being completed for Parks Canada as part of the Kouchibouguac Rehabilitation project in New Brunswick.

Utilities, materials and supplies—decrease of $23.2 million

• Decrease in the vaccine program as two vaccines can now be purchased directly by the provinces and territories therefore no longer offered by the Department.

Transfer payments—increase of $27.4 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 expenditures—increase of $7.9 million

• The increase in other expenditure categories not listed above are due to decreased activity in various projects.

Revenues netted against expenditures—increase of $192.7 million

• Construction work on several projects for other government departments including:
  • The Canadian High Arctic Research Station for Aboriginal Affairs and Northern Development Canada;
  • The Kouchibouguac Rehabilitation project for Parks Canada;
  • The Rock Bay remediation project for Transport Canada; and
  • The Coldstream Well remediation project for Natural Resources Canada.
• 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.

3. Risks and uncertainties

PWGSC 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 PWGSC is carried out in accordance with the Treasury Board Secretariat (TBS) Framework for the Management of Risk, the Management Accountability Framework and the PWGSC Policy on Integrated Risk Management.

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

• PWGSC's dependency on clients' expenditures:  More than half of PWGSC'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 PWGSC could face unpredictable and reduced business volumes and associated reduced resources. In response to this risk PWGSC 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.
• PWGSC's ability to undertake and deliver complex, transformational and interdepartmental major projects and procurements: There are inherent risks in PWGSC 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, PWGSC 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

Effective as of December 17, 2015, the Deputy Minister appointed Julie Charron as the new acting Chief Financial Officer of PWGSC.

Approved by:

Table 1—Statement of authorities (unaudited)
For the quarter ended December 31, 2015
(in thousands of dollars)

Table 2—Departmental budgetary expenditures by standard object (unaudited)
For the quarter ended December 31, 2015
(in thousands of dollars)