Quarterly Financial Report—Quarter ended June 30, 2012


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

1. Introduction

This quarterly 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 quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2012–13 as well as Canada's Economic Action Plan 2012 (Budget 2012).

A summary description of Industry Canada's program activities can be found in Part II of the Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes Industry Canada's spending authorities granted by Parliament and those used by Industry Canada, consistent with the Main Estimates and Supplementary Estimates for the 2012–13 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 1 preceding the new fiscal year. Budget 2012 was tabled in Parliament on March 29, after the tabling of the Main Estimates on February 28, 2012. As a result the measures announced in the Budget 2012 could not be reflected in the 2012-13 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.

As part of the departmental performance reporting process, Industry Canada prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian generally accepted accounting principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit. However, it has been reviewed by the Departmental Audit Committee.

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2. Highlights of fiscal quarter and fiscal year to date (YTD) results

2.1 Authorities available for use and planned expenditures

Industry Canada's total authorities available for use in 2012–13, $1.47 billion, increased by approximately $136.4 million in comparison with the same quarter of 2011–12, as illustrated in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. The primary reason for the change is related to increases in grants and contributions programs and in Vote 1—Net Operating Expenditures, as explained in sections 2.1.1 and 2.1.2 of this report.

2.1.1 Vote 10—Grants and Contributions ($63.4 million increase) and Statutory Grants and Contributions ($69.6 million increase)

The authority for Vote 10—Grants and Contributions increased by $63.4 million, primarily because of the fluctuating funding profiles of programs such as the Automotive Innovation Fund ($15.6 million), Canada Foundation for Innovation ($72 million), Technology Partnerships Canada / Strategic Aerospace and Defence Initiative ($11.4 million) and the Structured Financing Facility ($9 million), to match the expected cash requirements of recipients. Youth Internships at community access sites received $9.5 million in funding, and $10 million has been approved through Budget 2011 for the Perimeter Institute for Theoretical Physics, now included in 2012–13 appropriations. These increases are offset by the winding down of the Broadband Canada: Connecting Rural Canadians ($60 million) and the Canadian Institute for Advanced Research ($5 million) programs. The latter will be renewed later in 2012–13, as announced in Budget 2012.

Statutory authorities for grants and contributions increased by $69.6 million from 2011–12 to 2012–13, primarily because of the reprofiling of $52.5 million for the Knowledge Infrastructure Program for final payments occurring in 2012–13. In addition to changes to its existing funding profile, Genome Canada received additional funding in 2012–13 under Budget 2011, generating a net increase of $14.7 million. The Canadian Youth Business Foundation received its $10 million in funding in the third quarter of 2011–12, whereas, in 2012–13, it received its funding in the first quarter. Finally, the $6.5 million decrease in funding for Liabilities under the Canada Small Business Financing Act resulted from the lower anticipated payout of the program.

These variances are also reflected in Table 1: Departmental Budgetary Expenditures by Standard Object in the "transfer payments" standard object.

2.1.2 Vote 1—Net Operating Expenditures ($9.9 million increase)

Authorities available for use in Vote 1—Net Operating Expenditures increased by a total of $9.9 million. A major cause of this increase is the $29 million in additional funding received and paid for a legal settlement agreement, partially offset by the permanent transfer of $20.5 million and associated responsibilities to Shared Services Canada (SSC).

2.1.3 Departmental Budgetary Expenditures by Standard Object: Other Subsidies and Payments ($49.3 million increase)

Table 1: Departmental Budgetary Expenditures by Standard Object displays initial expenditure plans. These plans are subject to change during the fiscal year.

In addition to the previously explained variances for grants and contributions and net operating expenditures, the current variances in standard objects, specifically in "other subsidies and payments," pertain to the allocation of funding received in Supplementary Estimates for the "reinvestment of receipts from repayable contributions to support operating requirements." Used primarily to pay for personnel expenditures, this funding cannot be assigned directly to the "personnel" standard object because Industry Canada receives it in non-salary dollars; it will later be converted to salary dollars. Unlike in the first quarterly financial report issued in 2011–12, Industry Canada has now temporarily allocated $20 million of this funding to the "other subsidies and payments" standard object to avoid overstating the other non-salary standard objects (e.g., "transportation and communications" and "professional and special services").

2.2 Authorities used and actual expenditures

The total authorities used in the first quarter of 2012–13 increased by $124.6 million compared with the same quarter last year, primarily in Vote 10—Grants and Contributions and Vote 1—Net Operating Expenditures.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use and Net Year-to-Date Expenditures as of June 30, 2012 and June 30, 2011

Comparison of Total Net Budgetary Authorities Available for Use and Net Year-to-Date Expenditures as of June 30, 2012 and June 30, 2011 (the long description is located below the image)
Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use and Net Year-to-Date Expenditures as of June 30, 2012 and June 30, 2011
(in millions of dollars) Fiscal Year
2012-13 2011-12
Net Budgetary Authorities 1,470 1,334
Net year-to-date expenditures ending June 30 480 355
2.2.1 Vote 10—Grants and Contributions and Statutory Grants and Contributions ($88.9 million increase)

In the first quarter of 2012–13, there was an $85.6 million net increase in Vote 10—Grants and Contributions spending compared with the same quarter of 2011–12. Details of the significant variances are as follows:

  • $16.5 million increase in expenditures in the Bombardier CSeries program due to timing differences. The payment to Bombardier was made late in the first quarter of 2012–13, but early in the second quarter of 2011–12.
  • $72.0 million increase in expenditures in the Canada Foundation for Innovation program as the payment depends on cash flow requirements and what is agreed upon in the project agreement. The timing of the payment varies from year to year.

In the first quarter of 2012–13, there was a $3.3 million net increase in Statutory Grants and Contributions spending compared with the same quarter in 2011–12. Details of the significant variances are as follows:

  • $6.1 million increase in expenditures due to timing differences for Genome Canada; the timing of the payment varies based on when the request is received from the recipient.
  • $1.4 million increase in other statutory grants and contributions resulting from refunds of overpayments of royalties following audits conducted by the department. These payments were unforeseen and therefore not planned for in the Estimates process.
  • $4.2 million decrease in liability payments made under the Canada Small Business Financing Act and the Small Business Loans Act as a result of fewer claims being received from lenders.

This $88.9 million increase is also reflected in the "transfer payment" standard object in Table 1: Departmental Budgetary Expenditures by Standard Object.

Graph 2: Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 10 and Statutory Grants and Contributions as of June 30, 2012 and June 30, 2011

Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 10 and Statutory Grants and Contributions as of June 30, 2012 and June 30, 2011 (the long description is located below the image)
Description of Graph 2
Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 10 and Statutory Grants and Contributions as of June 30, 2012 and June 30, 2011
(in millions of dollars) Fiscal Year
2012-13 2011-12
Net Budgetary Authorities: Vote 10 & Statutory Authorities – Grants and Contributions 1,015 882
Net year-to-date expenditures ending June 30 340 251
2.2.2 Vote 1—Net Operating Expenditures and the Canadian Intellectual Property Office Revolving Fund ($35.6 million increase)

In the first quarter of 2012–13, there was a $35.6 million net increase in authorities used for Vote 1—Net Operating Expenditures and the Canadian Intellectual Property Office (CIPO) Revolving Fund. As reflected in Table 1: Departmental Budgetary Expenditures by Standard Object, this variance is primarily the result of the following factors:

  • A $28.3 million increase in expenditures in the "other subsidies and payments" standard object as already explained in section 2.1.3.
  • A $7.1 million decrease in expenditures in the "personnel" standard object due to a reduction in headcount within the department, including the transfer of 123 employees to SSC in November 2011.
  • CIPO collected $35.7 million in revenues in the first quarter of 2012–13; however, because of a system issue, only $19.1 million was recorded against the revolving fund vote. This resulted in an artificial $16.7 million increase in CIPO's net expenditures. The system issue has since been rectified, and the entire $35.7 million in revenues has been recorded against the revolving fund, eliminating the net expenditure variance.

It is important to note that statutory authorities available for use are adjusted at year end to match expenditures. Some of the current variances for these statutory items may be different at year end in the Public Accounts of Canada.

Graph 3: Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 1 and the Canadian Intellectual Property Office Revolving Fund as of June 30, 2012 and June 30, 2011

Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 1 and the Canadian Intellectual Property Office Revolving Fund as of June 30, 2012 and June 30, 2011 (the long description is located below the image)
Description of Graph 3
Comparison of Net Budgetary Authorities Available for Use and Net Year to Date Expenditures for Vote 1 and the Canadian Intellectual Property Office Revolving Fund as of June 30, 2012 and June 30, 2011
(in millions of dollars) Fiscal Year
2012-13 2011-12
Net Budgetary Authorities – Vote 1 and Canadian Intellectual Property Office Revolving Fund 394 390
Net year-to-date expenditures ending June 30 125 89
2.2.3 Vote 5—Capital Expenditures ($731,000 increase)

In the first quarter of 2012–13, there was a $731,000 net increase in authorities used for Vote 5—Capital Expenditures. This variance is primarily due to the following factors:

  • A $625,000 increase in expenditures for the ongoing Spectrum Applications Modernization Project compared with the same quarter in 2011–12.
  • A $157,000 increase in expenditures for maintenance of the Communications Research Centre Canada (CRC) campus and equipment.

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3. Risks and Uncertainties

In the first quarter of 2012–13, Industry Canada continued to manage the impact of a number of government-wide budgetary restraint measures, discussed in detail in the Fiscal Restraint section that follows. By 2014–15, the combined impact of these measures on Industry Canada's operating budget will represent a decrease of 15 per cent compared with 2011–12.

Fiscal Restraint

Industry Canada continues to manage measures stemming from Budget 2010 and Budget 2011.

Budget 2010 stipulated that departments' operating budgets would be frozen at their 2010-11 levels for fiscal years 2011–12 and 2012–13. Furthermore, budgets would not be increased to fund the 1.5 per cent increase in annual wages for the federal public service or to fund increases set out in collective agreements.

As a result, Industry Canada will have to absorb $9.3 million in 2012–13. The total annual impact of this measure on Industry Canada is $14.4 million for 2013–14 and ongoing.

In order to manage this reduction, Industry Canada continues to carefully control its employee numbers and all staffing decisions. The headcount funded by voted appropriations decreased by 487 (including 123 employees transferred to SSC) between April 1, 2011, and March 31, 2012, from a starting point of approximately 4,000 people at the beginning of the year. This decrease was achieved through a combination of attrition and a targeted approach to filling vacant positions.

In addition, the results of Industry Canada's strategic review, which were announced in Budget 2011, identified $15.8 million in annual savings by April 1, 2014. The strategic review focused on efficiencies in five areas within Industry Canada. Efficiencies include realigning resources to eliminate duplication, aligning program activities to Industry Canada's core mandate, and ensuring existing programming focused on current government priorities. This includes a savings of $8.2 million by 2012-13, as described below.

  • Industry-Specific Policy and Analysis ($1.56 million by 2012–13)
    • Realigning resources dedicated to developing industrial and related policy analyses to allow Industry Canada to focus on delivering strategic advice to the government on business issues and emerging economic situations.
  • Communications ($700,000 by 2012–13)
    • Streamlining communications functions and resources.
  • Spectrum Management and Telecommunications ($887,000 by 2012–13)
    • Focusing on consolidating regional spectrum management teams and adopting best practices across the country.
  • Automotive Innovation Fund (savings of $5 million in both 2011–12 and 2012–13)
    • Ensuring better alignment of the program with current demand for the types of large scale research projects eligible for funding under the Automotive Innovation Fund. These reductions constitute less than five per cent of the program's funding base.
  • CRC (Funding transfer to capital budget: $1.5 million ongoing)
    • Shifting funds from the CRC's operating budget to its capital budget to address critical needs for the replacement of scientific equipment and the maintenance of facilities.

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4. Significant changes in relation to operations, personnel and programs

Effective November 15, 2011, the control and supervision of certain portions of the Federal Public Administration known as the Email, Data Centre and Network Services Unit were transferred to Shared Services Canada in accordance with Order-in-Council P.S. 2011–1297. This transfer resulted in a decrease of $24.7 million in authorities available for use in 2012–13: $20.5 million for Vote 1, $2.3 million for Vote 5, and $1.9 million for Employee Benefit Plans.

Industry Canada began fiscal year 2012–13 with a new Chief Financial Officer, Susan Bincoletto, who was appointed to the position on March 19, 2012.

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5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012, which sets out the government's plan to reduce the federal deficit and return to fiscal balance over the medium term.

In the first year of implementation, the Department will achieve savings of $49.2 million. Savings will increase to $65.2 million for 2013–14 and will result in ongoing savings of $79.5 million by 2014–15. The decrease will largely come from reductions in repayable contributions that the Department is allowed to access through Supplementary Estimates.

Long-term financial affordability has been a key focus of all financial decisions. Industry Canada's prudent financial management, including the savings already realized in 2011–12, is central to Industry Canada's approach looking ahead to 2012–13 and beyond. In identifying its reductions, Industry Canada worked to ensure that it continues to be able to deliver its mandate and its core activities, including regulatory compliance and enforcement.

In 2012–13, Industry Canada will continue to manage risks related to the anticipated costs of implementing workforce reduction measures in order to meet the budget reductions set out in Budget 2012 and previous budgets. Workforce adjustment costs will vary depending on the choices made by opting employees and the timing of their departure.

The printed version is signed by:

Simon Kennedy
Acting Deputy Minister
Ottawa, Canada

2012-08-29
Date

Johanne Bernard
Acting Chief Financial Officer

2012-08-29
Date

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Industry Canada
Quarterly Financial Report
For the quarter ended June 30, 2012

Statement of Authorities (unaudited)

Fiscal Year 2012–2013
(in thousands of dollars) 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 – Net Operating expenditures 383,120 109,618 109,618
Vote 5 – Capital expenditures 7,728 1,026 1,026
Vote 10 – Grants and contributions 773,985 271,956 271,956
Total voted authorities 1,164,833 382,600 382,600
Budgetary statutory authorities:
Revolving Fund Gross expenditures 156,964 34,168 34,168
Revolving Fund Revenues (146,102) (19,135) (19,135)
Revolving Fund Net expenditures 10,862 15,033 15,033
Grants and Contributions
Genome Canada 74,600 58,100 58,100
Perimeter Institute for Theoretical Physics - - -
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 103,467 8,679 8,679
Knowledge Infrastructure Program 52,460 - -
Canadian Youth Business Foundation 10,000 - -
Other statutory grants and contributions - 1,423 1,423
Total Statutory Grants and Contributions 240,527 68,202 68,202
 
Employee Benefit Plans 54,081 13,520 13,520
Other Statutory 82 147 147
Total budgetary statutory authorities 305,552 96,902 96,902
Total Budgetary authorities 1,470,385 479,502 479,502
Non-budgetary authorities 800 - -
Total authorities 1,471,185 479,502 479,502
Fiscal Year 2011–2012 (continued)
(in thousands of dollars) Total available for use for the year ending March 31, 2012 Footnote 3 Used during the quarter ended June 30, 2011 Year to date used at quarter-end
Vote 1 – Net Operating expenditures 373,238 90,675 90,675
Vote 5 – Capital expenditures 5,949 295 295
Vote 10 – Grants and contributions 710,615 186,344 186,344
Total voted authorities 1,089,802 277,314 277,314
Budgetary statutory authorities:
Revolving Fund Gross expenditures 161,477 32,135 32,135
Revolving Fund Revenues (144,958) (33,786) (33,786)
Revolving Fund Net expenditures 16,519 (1,651) (1,651)
Grants and Contributions
Genome Canada 59,900 52,000 52,000
Perimeter Institute for Theoretical Physics 1,010 - -
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 110,050 12,847 12,847
Knowledge Infrastructure Program - - -
Canadian Youth Business Foundation - - -
Other statutory grants and contributions - 10 10
Total Statutory Grants and Contributions 170,960 64,857 64,857
 
Employee Benefit Plans 56,642 14,160 14,160
Other Statutory 82 193 193
Total budgetary statutory authorities 244,203 77,559 77,559
Total Budgetary authorities 1,334,005 354,873 354,873
Non-budgetary authorities 800 - -
Total authorities 1,334,805 354,873 354,873

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Industry Canada
Quarterly Financial Report
For the quarter ended June 30, 2012

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)

Fiscal Year 2012-2013
(in thousands of dollars) Planned expenditures for the year ending March 31, 2013 Footnote 4 Expended during the quarter ended June 30, 2012 Year to date used at quarter-end
Expenditures:
Personnel 471,605 121,901 121,901
Transportation and communications 19,887 3,217 3,217
Information 3,883 310 310
Professional and special services 98,782 14,296 14,296
Rentals 10,376 2,661 2,661
Repair and maintenance 10,499 1,740 1,740
Utilities, materials and supplies 7,238 863 863
Acquisition of land, buildings and works - 10 10
Acquisition of machinery and equipment 8,553 1,155 1,155
Transfer payments 1,014,511 340,158 340,158
Other subsidies and payments 49,251 29,218 29,218
Total gross budgetary expenditures 1,694,585 515,529 515,529
Less Revenues netted against expenditures:
Revolving Fund Revenues 146,102 19,135 19,135
Sales of Services and Other Revenue 78,098 16,892 16,892
Total Revenues netted against expenditures: 224,200 36,027 36,027
Total net budgetary expenditures 1,470,385 479,502 479,502
Fiscal Year 2011-2012 (continued)
(in thousands of dollars) Planned expenditures for the year ending March 31, 2012 Expended during the quarter ended June 30, 2011 Year to date used at quarter-end
Expenditures:
Personnel 473,663 129,056 129,056
Transportation and communications 29,084 3,704 3,704
Information 4,209 241 241
Professional and special services 108,178 12,035 12,035
Rentals 11,751 2,539 2,539
Repair and maintenance 12,517 2,850 2,850
Utilities, materials and supplies 7,522 979 979
Acquisition of land, buildings and works - 3 3
Acquisition of machinery and equipment 18,276 948 948
Transfer payments 881,576 251,201 251,201
Other subsidies and payments - 872 872
Total gross budgetary expenditures 1,546,776 404,428 404,428
Less Revenues netted against expenditures:
Revolving Fund Revenues 144,958 33,786 33,786
Sales of Services and Other Revenue 67,813 15,769 15,769
Total Revenues netted against expenditures: 212,771 49,555 49,555
Total net budgetary expenditures 1,334,005 354,873 354,873
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