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:
- An increase in authorities available for use from the prior fiscal year, $94 million;
- An increase, through a vote realignment, which transferred $83 million from the Capital Expenditure Authority (Vote 5) to correctly align the Agency’s base spending authorities with planned expenditures; the adjustment is technical in nature and does not represent a change in the Agency’s planned acquisitions or overall authorities;
- An increase associated with the administration of the harmonized sales tax (HST) in Ontario and British Columbia of $59 million;
- An increase for the implementation of tax measures, including the Hiring Credit for Small Business and new tax credits for individual, announced in the Federal Budget 2011, $33 million;
- An increase for the ongoing redesign of the personal income tax processing system, $8 million;
- A decrease reflecting the transfer to the new Shared Services Canada (SSC) organization of the control and supervision of operational domains relating to email, data centres and network services, $140 million.
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:
- A decrease due to the vote realignment, noted above, which transferred $83 million to the Agency’s Operating Expenditure Authority;
- A decrease in authorities available for use from prior fiscal year, $24 million;
- A decrease associated with the transfer to SSC, $13 million.
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
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):
- a one‑year extension of the Hiring Credit for Small Business
- increased transparency and accountability of registered charities and registered Canadian amateur athletic associations (RCAAAs); and
- changes to the Scientific Research and Experimental Development program to simplify the tax credit base and increase the cost effectiveness of the program.
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
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 |
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 |
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 |
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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