Canada Revenue Agency Quarterly Financial Report

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

For the quarter ended June 30, 2012

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 as well as Canada’s Economic Action Plan 2012 (Budget 2012).

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 2012-2013 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1st preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29th, after the tabling of Main Estimates on February 28, 2012.  As a result, the measures announced in the Budget 2012 could not be reflected in 2012-2013 Main Estimates.

In fiscal year 2012-2013, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In future years, the changes to departmental authorities will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament.

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

This report reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released on June 6, 2012.

As shown in the Statement of Authorities, CRA’s total Budgetary Authorities available for use have increased from $4,471 million in 2011-2012 to $4,623 million in 2012-2013, representing a 3% increase or $152 million. The components of this increase are discussed below.

The Vote 1 Gross Operating Expenditure Authority increased by $163 million or 5%, from $3,523 million in 2011-2012 to $3,686 million in 2012-2013. This year-over-year increase is the net result of numerous funding increases and decreases, the most significant of which are:

In 2012-2013, the CRA expects to spend $322 million to fulfill its administrative responsibilities in support of the Canada Pension Plan (CPP) and Employment Insurance (EI) program, up from $313 million in 2011-2012. This $9 million increase in Vote 1 Gross Operating Expenditure Authority is offset by a corresponding increase in revenues recovered from the CPP and EI Accounts.

The Vote 5 Capital Expenditure Authority decreased by $120 million or 59%, from $203 million in 2011‑2012 to $83 million in 2012-2013, primarily the result of the following technical adjustments:

Total Budgetary Statutory Authorities are forecasted to increase by $118 million or 11% from 2011-2012 to 2012-2013. The estimate for Softwood Lumber disbursements, established by the Department of Finance, was revised upwards by $140 million year‑over-year to reflect changing market conditions. This increase is partially offset by a decrease of $24 million in the spending of cost recovery revenues, as certain services previously provided by the CRA to the Canada Border Services Agency are now being delivered by SSC.

Analysis of Expenditures

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

Figure 1: Annual Authorities against Year-to-Date Expenditures

Annual Authorities against Year-to-Date Expenditures

A) Expended in the First Quarter by Authority

As displayed in the Statement of Authorities, the first quarter expenditures have decreased by $9 million, from $1,051 million in 2011-2012 to $1,042 million in 2012-2013, which represents a decrease of less than 1%. The components of this decrease are discussed below.

The Agency’s first quarter net Vote 1 Operating Expenditures have increased by $39 million or 5%, from $741 million in 2011-2012 to $780 million in 2012-2013. This increase in Vote 1 expenditures is primarily associated with the administration of the HST in the provinces of Ontario and British Columbia, which includes the integration of provincial employees into the Agency’s workforce, as well as timing differences in year-over-year expenditures.

First quarter Vote 5 Capital Expenditures have decreased by 74% or $6 million, from $8 million in 2011-2012 to $2 million in 2012-2013. This reduction was foreseen as a significant portion of the Agency’s capital asset acquisition responsibilities, specifically relating to data centres and networks, were transferred to SSC on November 15, 2011.

Expenditures for Total Budgetary Statutory Authorities have decreased year-over-year by $42 million, from $303 million in 2011-2012 to $261 million in 2012-2013, largely due to the reduction in the spending of cost recovery revenues.

B) Expended in the First Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, first quarter personnel expenditures have increased from $789 million in 2011-2012 to $810 million in 2012-2013, a change of 3%. In July 2010, the CRA assumed the responsibility for the administration of the HST in the provinces of Ontario and British Columbia. Provincial employees who accepted employment with the CRA, some 1,000 FTEs (full-time equivalents) primarily from Ontario, were integrated in waves with the largest group transitioning in March 2012, creating the increase in first quarter personnel expenditures.

Transportation and communications expenditures have decreased by $8 million or 25%, from $34 million in 2011-2012 to $26 million in 2012-2013, which relates to the transfer of telephony services to SSC of $10 million partially offset by a $2 million increase in postage expenditures incurred by the CRA.

Purchase, repairs and maintenance expenditures have decreased by $17 million or 46%, from $38 million in 2011-2012 to $21 million in 2012-2013, attributable to the transfer of several information technology maintenance agreements to SSC.

Acquisition of machinery and equipment has decreased by $4 million or 74%, from $5 million in 2011-2012 to $1 million in 2012-2013, as fewer capital assets were acquired in the first quarter of 2012-2013 due to the transfer of responsibilities to SSC, as previously noted.

Risks and Uncertainties

The CRA maintains a corporate risk inventory to identify and address organizational risks. Mitigation strategies have been put in place to protect the Agency from the realization of these risks and the associated financial impacts.

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 March 31, 2013. Departments and agencies are required to absorb the cost of wage increases that take effect 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 are currently estimated to be $91 million for 2012‑2013, based on approved wage settlements. This estimate includes approximately $28 million associated with the latest agreement with the Professional Institute of the Public Service of Canada (PIPSC) which was signed in July 2012.

The collective agreement between the Agency and the Public Service Alliance of Canada (PSAC) is in the final contract year, expiring in October 2012.

Significant changes in relation to operations, personnel and programs

In 2011-2012, the Government of Canada announced the creation of Shared Services Canada (SSC), a new organization which represents a government-wide approach to managing information technology. The CRA transferred to SSC the control and supervision of operational domains related to email, data centres and network services. For the fiscal year 2012-2013, $153 million (excluding employee benefit plans) was transferred to SSC. Along with the transfer of financial resources, the Agency transferred to SSC some 700 FTEs (full-time equivalents).

SSC was not in a position to begin administering the pay files of transferred CRA employees in 2012‑2013, due to system limitations and complexities arising from the CRA’s separate employer status. The CRA has been asked to continue to administer the pay and benefits for the employees who have been transferred, amounting to $13 million in the first quarter. These costs will be transferred to SSC later in the fiscal year, which will reduce the Agency’s personnel expenditures.

On July 1, 2010, the Agency successfully implemented the harmonized sales tax (HST) in the provinces of Ontario and British Columbia. The CRA received funding of $157 million (excluding employee benefit plans and accommodations) in 2012-2013 for the continued implementation and administration of the HST in both provinces. This funding was required for IT system modifications, the onboarding of affected provincial employees to the Agency, program changes to address identified risks and to administer new province‑specific HST flexibilities. The province of British Columbia has decided to return to a provincial sales tax model on April 1, 2013. In the meantime, the Agency will continue to administer the HST in British Columbia.

Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that will be implemented in order to refocus government and programs; make it easier for Canadians and businesses to deal with their government; and modernize and reduce the back office.

The Government of Canada has set out a clear commitment to reduce the deficit and, as one of the federal government`s largest institutions, the CRA will be a significant contributor, with planned savings of $15 million in 2012‑2013, increasing to $253 million by 2016-2017 and ongoing.

To this end, the CRA will continue to modernize its operations and reduce red tape to enhance services to Canadians while reducing its overall costs. It is increasingly providing services electronically to make it easier for Canadians and businesses to interact with the CRA at the lowest possible cost. These strategies include the modernization of library services, centralizing intranet publishing functions, changing official language testing, updating the management development program, discontinuation of the Charities Partnership and Outreach Program, and reducing real property costs.

At the end of June 2012, Parliament passed the Jobs, Growth and Long-Term Prosperity Act. This legislation, which implemented many of the measures announced in Budget 2012, contained two areas of cost reduction for the CRA: the elimination of the requirement for the CRA to deliver Demands to File either in-person or via registered mail, and the requirement that tax preparers who prepare, for a fee, more than 10 returns are to file those returns electronically.

As the initial steps in the implementation of the various savings initiatives were not announced by the CRA until June 27, 2012, there are no material financial or non-financial impacts to report for the first quarter of 2012‑2013. More details will be provided in future quarters.

A number of tax measures referenced in Budget 2012 include (among others):

The required incremental funding for implementing and administering the various Budget 2012 tax measures is the subject of ongoing discussions with officials of the Department of Finance and the Treasury Board Secretariat. There are no material financial nor non‑financial impacts to report at this time.

Approval by Senior Officials

Approved by:

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

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

Ottawa , Canada
Date: August 21, 2012

Fiscal year 2012-2013
(in thousands of dollars)
Statement of Authorities (unaudited)      
  Total available for use for the year ending March 31, 2013 Footnote 1, Footnote 2 Used during the quarter ended June 30, 2012 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,685,918 860,220 860,220
Revenues netted against expenditures minus(322,368) minus(80,620) minus(80,620)
Net Vote 1 - Operating expenditures 3,363,550 779,600 779,600
Vote 5 - Capital expenditures 83,433 1,957 1,957
Budgetary statutory authorities      
Employee benefit plans 456,440 114,110 114,110
Softwood Lumber payments 280,000 59,837 59,837
Children's Special Allowance payments 233,000 58,670 58,670
Spending of revenues received 206,769 27,615 27,615
Other statutory authority payments 78 483 483
Total Budgetary authorities 1,176,287 260,715 260,715
Total authorities 4,623,270 1,042,272 1,042,272
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 Used during the quarter ended June 30, 2011 Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,523,143 819,815 819,815
Revenues netted against expenditures minus(312,978) minus(79,205) minus(79,205)
Net Vote 1 - Operating expenditures 3,210,165 740,610 740,610
Vote 5 - Capital expenditures 203,094 7,497 7,497
Budgetary statutory authorities      
Employee benefit plans 460,028 115,007 115,007
Softwood Lumber payments 140,000 63,155 63,155
Children's Special Allowance payments 227,000 54,435 54,435
Spending of revenues received 230,688 69,912 69,912
Other statutory authority payments 78 789 789
Total Budgetary authorities 1,057,794 303,298 303,298
Total authorities 4,471,053 1,051,405 1,051,405
Fiscal year 2012-2013
(in thousands of dollars)
Departmental Budgetary Expenditures by Standard Objects (unaudited)      
  Planned expenditures for the year ending March 31, 2013 Footnote 3 Expended during the quarter ended June 30, 2012 Year to date used at quarter-end
Expenditures:      
Personnel 3,192,062 809,793 809,793
Transportation and communications 204,992 26,106 26,106
Information 11,818 654 654
Professional and special services 364,390 55,429 55,429
Rentals 399,898 86,262 86,262
Purchase, repairs and maintenance 132,251 20,558 20,558
Utilities, materials and supplies 42,210 3,905 3,905
Acquisition of machinery and equipment 76,252 1,220 1,220
Transfer payments 516,760 118,508 118,508
Other subsidies and payments 5,005 457 457
Total gross budgetary expenditures 4,945,638 1,122,892 1,122,892
Less: Revenues netted against expenditures minus(322,368) minus(80,620) minus(80,620)
Total net budgetary expenditures 4,623,270 1,042,272 1,042,272
Fiscal year 2011-2012
(in thousands of dollars)
Departmental Budgetary Expenditures by Standard Objects (unaudited)      
  Planned expenditures for use for the year ending March 31, 2012 Footnote 3 Expended during the quarter ended June 30, 2011 Year to date used at quarter-end
Expenditures:      
Personnel 3,120,860 789,179 789,179
Transportation and communications 225,521 34,599 34,599
Information 12,593 232 232
Professional and special services 352,545 55,482 55,482
Rentals 377,225 85,465 85,465
Purchase, repairs and maintenance 132,794 37,993 37,993
Utilities, materials and supplies 44,646 4,583 4,583
Acquisition of machinery and equipment 144,242 4,725 4,725
Transfer payments 370,171 117,593 117,593
Other subsidies and payments 3,434 759 759
Total gross budgetary expenditures 4,784,031 1,130,610 1,130,610
Less Revenues netted against expenditures minus(312,978) minus(79,205) minus(79,205)
Total net budgetary expenditures 4,471,053 1,051,405 1,051,405

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