Quarterly Financial Report for the quarter ended September 30, 2018

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 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 Canadian Grain Commission was established in 1912 and is the federal government department responsible for administering the provisions of the Canada Grain Act (CGA).

The Canadian Grain Commission’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 Canadian Grain Commission’s vision is "To be a world class, science-based quality assurance provider". The Minister of Agriculture and Agri-Food is responsible for the Canadian Grain Commission.

The Canadian Grain Commission’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 departmental results of this core responsibility are that domestic and international markets regard Canadian grain as dependable and safe, and that farmers are fairly compensated for their grain. The Canadian Grain Commission supports its core responsibility through its three programs: Grain quality, Grain research, and Safeguards for grain farmers. Internal Services supports all other programs within the Canadian Grain Commission.

Further details on the Canadian Grain Commission’s authority, mandate, and program activities may be found in the Departmental Plan (formerly the Report on Plans and Priorities) 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 Canadian Grain Commission uses the full accrual method of accounting to prepare and present its annual departmental financial statements included in the Departmental Results Report (formerly the Departmental Performance 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 Canadian Grain Commission 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 Canadian Grain Commission revolving fund authority, which allows the Canadian Grain Commission 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 Canadian Grain Commission in 1995 with the expectation that the Canadian Grain Commission would be largely self-funded through fees for service. Prior to August 1, 2013, Canadian Grain Commission user 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 Canadian Grain Commission’s falling cost recovery level caused the Canadian Grain Commission to rely on ad hoc government appropriation from 1999 to 2014 to fund operations annually.

The Canadian Grain Commission 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, 2018, the Canadian Grain Commission had reported an accumulated revolving fund surplus of approximately $130.677 million in the Public Accounts of Canada due to higher than expected grain volumes and relatively stable operating costs.

In 2017-18, the Canadian Grain Commission 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 Canadian Grain Commission 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 Canadian Grain Commission’s revenue projections for 2018-19 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 34.400 million metric tonnes and fees as set out in Schedule I to the Canada Grain Regulations. Planned revenue projections and FTEs for 2018-19 and beyond are available in the Canadian Grain Commission’s 2018-19 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 September 30, 2018
Authorities Available and Used For the period ended September 30, 2018
Authorities Available and Used For the period ended September 30, 2018 (In million $)
2018 to 2019 2017 to 2018
Annual Authority Available* YTD Authority Used Annual Authority Available* YTD Authority Used
Vote 1 5.048 2.158 4.781 1.881
Statutory (Access to Accumulated Surplus and Employee Benefits Plan) 0.660 0.325 0.553 0.294
Statutory (Revolving Fund Revenue) 57.126 27.055 57.082 28.414
Total 62.834 29.538 62.416 30.589
* 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 September 30, 2018 is $5.708 million, as compared to $5.334 million as at September 30, 2017. The increase of $0.374 million is primarily due to the revised salary base from collective agreement settlements implemented during 2017 and the increase of the Operating Budget Carry Forward.

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 September 30, 2018 is $2.407 million, as compared to $2.242 million as at the quarter ended September 30, 2017 The change of $0.165 million in total budgetary authority used can be attributed to:

  1. the overall decrease of $2.544 million in revenues received in the quarter ended September 30, 2018 primarily due to reduction of service fees related to outward official inspection and weighing and elimination of recoverable overtime; and
  2. the overall decrease of $2.379 million in expenditures is primarily a result of the following significant variances:
    • Personnel expenditures decreased by $1.724 million as compared to the same quarter last year primarily due to payment of retroactive pay in 2017;
    • Professional and services decreased by $0.780 million as compared to the same quarter last year primarily due to the timing of payments for leasehold improvement projects;
    • Utilities, materials and supplies increased by $0.339 million due to surplus investments for the enhancement of the Harvest Survey Program; and
    • Acquisition of machinery and equipment decreased by $0.423 million primarily due to the purchase of scales and benches in 2017.

The total budgetary authority used in the year to September 30, 2018 is $3.166 million as compared to $(5.670) million for the same period last year. The change of $8.836 million in budgetary authority used can be attributed to:

  1. the overall decrease of $9.887 million in revenues received in the quarter ended September 30, 2018 primarily due to reduction of service fees related to outward official inspection and weighing and elimination of recoverable overtime; and
  2. the overall decrease of $1.359 million in expenditures is primarily a result of the following significant variances:
    • Personnel expenditures decreased by $1.297 million as compared to the same quarter last year primarily due to payment of retroactive pay in 2017;
    • Professional and services decreased by $0.209 million as compared to the same quarter last year primarily due to the timing of payments for leasehold improvement projects;
    • Utilities, materials and supplies increased by $0.434 million due to surplus investment for the enhancement of the Harvest Survey Program; and
    • Acquisition of machinery and equipment decreased by $0.374 million primarily due to the purchase of scales and benches in 2017.

3.0 Risks and Uncertainties

The Canadian Grain Commission receives funding through voted appropriations and fees related to services and licenses it provides to the grain sector. Fee 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 Canadian Grain Commission 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 Canadian Grain Commission 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 Canadian Grain Commission is required to draw on its surpluses. The annual budget is also re-profiled throughout the year to deal with shifting needs and priorities, including risk mitigation strategies that enable the Canadian Grain Commission to accommodate up to a 20 percent swing in forecasted grain volumes.

The Canadian Grain Commission updated fees on August 1, 2013. These changes eliminated the need for annual ad hoc funding going forward and created a more stable environment for business and people management. A stable funding environment has reduced overall organizational financial risk and allows the Canadian Grain Commission to continue to successfully deliver its program activities and achieve its departmental result.

After the Canadian Grain Commission implemented its fee schedule on August 1, 2013, the Canadian Grain Commission has inspected and weighed significantly higher than projected export grain volumes while operating costs remained relatively constant. While the updated funding model and fees eliminated the Canadian Grain Commission’s dependence on annual ad hoc federal appropriations, higher than expected grain volumes resulted in revolving fund surpluses of $25.902 million in 2016-17. This led to a total authority available for future years of $121.789 million as of March 31, 2017 reported in the Public Accounts of Canada. The Canadian Grain Commission continued to report a surplus in its 2017-18 quarterly financial reports.

Effective August 1, 2017, the Canadian Grain Commission mitigated the risk of further accumulation of surplus funds through reducing fees for official inspection and weighing services by 24% as these fees were generating the majority of the surplus. This fee reduction occurred 8 months ahead of the end of the Canadian Grain Commission’s 5-year review cycle. Further fee updates came into effect April 1, 2018 to better align revenues and costs, and factor in projected increases in grain volumes inspected and weighed by the Canadian Grain Commission. In 2017-18, the fee reductions resulted in sector savings of $10.8 million. Going forward the Canadian Grain Commission expects that these reductions will result in sector savings of approximately $15.5 million annually.

The Canadian Grain Commission is planning to consult the sector further on individual initiatives that may be funded under the Surplus Investment Framework, and welcomes stakeholder’s input. The Canadian Grain Commission is committed to working with stakeholders over the coming months to develop additional strategic initiatives that provide clear benefits to the grain sector. Delays to the implementation of the Surplus Investment Framework may occur as a result of further consultations

To mitigate the risks associated with the funding model, the Canadian Grain Commission:

  • completed a review of its fee structure to ensure that user fees accurately reflect the costs of providing services;
  • updated grain volume projections, as well as the uncertainty associated with these projections. The Canadian Grain Commission’s updated model for projecting grain volumes uses time-series analysis. Annual grain volumes of approximately 34.405 MMT are projected over the next five years. The previous historical average annual grain volume model for forecasting annual revenue projections was replaced because higher than projected annual grain volumes over the past several years have led to total revolving fund revenue being higher than expected;
  • completed user fees consultations during the first quarter of 2017 to ensure the user fees amendment process, as per the Service Fees Act, was completed in a timely manner;
  • conducted consultations with stakeholders regarding potential uses of available surplus funds; and
  • will continue to engage collaboratively with all stakeholders to understand their priorities and to expand awareness of what the Canadian Grain Commission does and how it adds value.

4.0 Significant Changes to Operations, Personnel, and Programs

From fiscal year 2012 to 2013 to fiscal year 2015 to 2016, the Canadian Grain Commission transformed itself into a streamlined and financially sustainable organization. This was achieved by moving the responsibility for inward inspection and weighing from the Canadian Grain Commission to the private sector and updating the Canadian Grain Commission's fees to cover the costs of providing its services. Changes resulted in a reduction in operational spending of $21.835 million between 2012 to 2013 and 2015 to 2016.

Planned operational spending began to stabilize at approximately $60.537 million in 2015 to 2016. This includes $5.475 million from annual appropriation and projected spending of approximately $55.062 million of revenue earned through user fees as adjusted for inflation. Planned human resource requirements decreased from approximately 731 full time equivalents (FTEs) (as at March 31, 2013) to 404 FTEs by the end of 2015 to 2016.

The Canadian Grain Commission reduced fees for official inspection and weighing services as well as eliminated recoverable overtime as of August 1, 2017. Further fee updates came into effect April 1, 2018 to better align revenues and costs, and factored in projected increases in grain volumes inspected and weighed by the Canadian Grain Commission.

In early 2016, the federal government implemented the policy on results. The policy requires departments to establish and implement a Departmental Results Framework (DRF). The Canadian Grain Commission’s DRF was approved on October 30, 2017 and the new framework took effect April 1, 2018. The DRF identifies the Canadian Grain Commission’s one core responsibility as Grain Regulation, and includes a Program Inventory of three programs: Grain quality, Grain research, and Safeguards for grain farmers. These three programs replace the programs and sub-programs established in the Program Alignment Architecture.

On August 1, 2018, the Canadian Grain Commission announced plans to invest approximately $130 million of accumulated surplus funds in programs and services through a surplus investment framework. The Canadian Grain Commission plans to spend $90 million on strategic investment, with the remainder held as a contingency fund. 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 the surplus investment framework, the Canadian Grain Commission announced enhancements to the Harvest Sample Program (HSP). Starting for the 2018-2019 crop year, the HSP will provide deoxynivalenol (DON), also known as vomitoxin, and falling number results for wheat samples. Producers can use this quality information to help make marketing and delivery decisions. The Canadian Grain Commission will allocate $4 million to fund these additions to the HSP for the next five years.

Approval by Senior Official

Approved by:

Patricia Miller
Chief Commissioner
Winnipeg, Manitoba
November 28, 2018

Cheryl Blahey
Chief Financial Officer
Winnipeg, Manitoba
November 28, 2018

Statements of Budgetary Authorities (Unaudited)

For the quarter ended September 30, 2018
Fiscal Year 2018 to 2019 Fiscal Year 2017 to 2018
(in thousands of dollars) Total available for use for the year ending March 31, 2019* Used during the quarter ended September 30, 2018 Year-to date used at quarter end Total available for use for the year ending March 31, 2018* Used during the quarter ended September 30, 2017 Year-to date used at quarter end
Vote 1
Appropriation including Ad hoc $ 5,048 1,034 2,158 4,781 931 1,881
Statutory Authorities:
Revolving Fund Gross Expenditures 57,126 13,348 27,055 57,082 15,842 28,414
Revolving Fund Gross Revenues (57,126) (12,132) (26,372) (57,082) (14,676) (36,259)
Revolving Fund Net Expenditures $0 1,216 683 $0 1,166 (7,845)
Employee Benefit Plan 660 157 325 553 145 294
Total Statutory Authorities 660 1,373 1,008 553 1,311 (7,551)
Total Budgetary Authorities $5,708 2,407 3,166 $5,334 2,242 (5,670)
* 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 September 30, 2018
Fiscal Year 2018 to 2019 Fiscal Year 2017 to 2018
(in thousands of dollars) Planned Expenditures for the year ending March 31, 2019* Expended during the quarter ended September 30, 2018 Year-to date used at quarter end Planned Expenditures for the year ending March 31, 2018* Expended during the quarter September 30, 2017 Year-to date used at quarter end
Expenditures:
Personnel $43,203 10,737 21,552 $42,646 12,461 22,849
Transportation and communications 2,885 667 1,286 3,515 594 1,198
Information 279 51 82 330 81 116
Professional and special services 3,485 364 1,238 2,677 1,144 1,447
Rentals 6,679 1,320 2,821 6,014 1,280 2,690
Repair and Maintenance 1,243 367 670 1,931 199 516
Utilities, materials and supplies 1,250 610 953 880 271 519
Acquisition of machinery and equipment 3,810 394 740 4,423 817 1,114
Other Subsidies and payments 0 29 196 0 71 140
Total Gross Budgetary Expenditures 62,834 14,539 29,538 62,416 16,918 30,589
Revolving Fund Revenue (To be credited to Vote) (57,126) (12,132) (26,372) (57,082) (14,676) (36,259)
Total Net Budgetary Expenditures $5,708 2,407 3,166 $5,334 2,242 (5,670)
* 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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