Quarterly Financial Report—For the quarter ended December 31, 2011

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

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and 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 and previous quarterly reports for fiscal year 2011–12.

A summary description of the Industry Canada 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 2011–12 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.

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 or review.

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

2.1 Authorities available for use and planned expenditures

In 2011–12, Industry Canada's total authorities available for use decreased by approximately $939.4 million when compared to the same quarter of 2010–11, as illustrated in the Statement of Authorities and Table 1: Departmental Budgetary Expenditures by Standard Object. The primary reason for the decrease is related to the winding down of Economic Action Plan (EAP) initiatives in Vote 10 – Grants and Contributions and Statutory Grants and Contributions. In Budget 2009, the federal government allocated $2.9 billion to Industry Canada to deliver EAP initiatives, the majority of which concluded on

2.1.1 Vote 10 – Grants and Contributions ($669.5 million decrease) and Statutory Grants and Contributions ($284.5 million decrease)

The authority for Vote 10 – Grants and Contributions decreased by $669.5 million, marking the end of such initiatives as the Marquee Tourism and Events Program (MTEP) and the Community Adjustment Fund (CAF). One of Industry Canada's EAP programs, the Knowledge Infrastructure Program (KIP), was extended into 2011–12. However, funding requirements to complete the program are significantly less when compared to last fiscal year. There were also changes in funding requirements for several programs, including the Broadband Canada: Connecting Rural Canadians program, the Canada Foundation for Innovation, the Institute for Quantum Computing, and the Automotive Innovation Fund.

Similarly, statutory authorities available for use for Grants and Contributions decreased by $284.5 million, primarily as a result of the winding down of KIP ($256.2 million), and the completion of the CANARIE agreement ($25 million). Approved funding for other significant statutory items have also changed with respect to their funding profile, such as an increase to Genome for $9.5 million; a decrease to Perimeter for $9.0 million; and a decrease to the CAF of $5.0 million.

It is important to explain 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.

2.1.2 Vote 1 – Net Operating Expenditures ($8.2 million increase) and Canadian Intellectual Property Office Revolving Fund ($2.9 million increase)

Authorities available for use in Vote 1 – Net Operating Expenditures increased by a total of $8.2 million. The major causes of this are:

  1. Personnel funding for paylist shortfall (such as severance pay, parental benefit etc.) of $23.7 million was received in the third quarter of 2011–12 while funding was not received until the fourth quarter in the previous year.
  2. Decrease in funding of $9.5 million due to sunsetting of programs such as the Structured Financing Facility (planned program end date is March 2013), MTEP, and the Security and Prosperity Partnership of North America – Canadian Secretariat.
  3. $6.2 million decrease in funding from receipts from repayable contributions net of increase in the Operating Budget Carryforward as compared to last fiscal year.

In addition to the main causes mentioned above, the variances in Table 1: Departmental Budgetary Expenditures by Standard Object continue to relate to the explanations provided in the previous Quarterly Financial Report. Also the allocation among standard objects of the amount of "Reinvestment of receipts from repayable contributions to support operating requirements" received in the Supplementary Estimates was different from the 2010–11 allocation. A large portion of the amount received will be used for personnel expenditures, however since the funding received is non-salary and cannot be assigned to the Personnel standard object, Industry Canada has, in 2011–12, temporarily allocated the funding to the Other subsidies and payments standard object to not overestimate the other non-salary standard objects (e.g. Professional and special services).

2.2 Authorities used and actual expenditures

To respect the lower authorities available, their use during the third quarter of 2011–12 decreased by $161.8 million compared to the same quarter last year, primarily in Vote 10 – Grants and Contributions and Statutory Grants and Contributions. Similarly, authorities used to date in 2011–12 decreased by $331.3 million compared to the same period last fiscal year, primarily in Vote 10 – Grants and Contributions and Statutory Grants and Contributions.

Graph 1: Comparison of Total Net Budgetary Authorities available for use and Net Year-to-date Expenditures as of and

Bar Chart: Comparison of Total Net Budgetary Authorities available for use and Year-to-date Expenditures as of December 31, 2011 and December 31, 2010 (the long description is located below the image)
Description of Graph 1
Graph 1: Comparison of Total Net Budgetary Authorities available for use and Year-to-date Expenditures as of and
  2011–12 2010–11
Net Budgetary Authorities 1,704,729,000 2,644,917,000
Net year-to-date expenditures ending December 31 846,578,877 1,177,882,025
2.2.1 Vote 10 – Grants and Contributions and Statutory Grants and Contributions (Third quarter: $153.2 million decrease; Year to date: $327.4 million decrease)
2.2.1.1 Vote 10 – Grants and Contributions

In the third quarter of 2011–12 there was a $145.9 million net decrease in Vote 10 transfer payment spending compared to the same quarter in the last fiscal year. Decreases in funding received for programs, including sunsetting programs, were offset by timing differences for transfer payment expenditures and increases in expenditures in several programs. Details of the significant variances are as follows:

  • $194.8 million decrease in expenditures for programs which are sunsetting, such as KIP, MTEP and CAF, compared to the same quarter last year.
  • $44.6 million increase in expenditures in programs such as the Strategic Aerospace and Defense Initiative, Broadband Canada: Connecting Rural Canadians, Bombardier C-Series and the Automotive Innovation Fund.
  • $6.5 million increase in expenditures due to timing differences in the 2011–12 payment to the International Telecommunication Union – Geneva; this payment was made in the third quarter of 2011–12, but in the second quarter of 2010–11.

In 2011–12, Vote 10 Transfer payment authorities used to date decreased by $309 million compared to the same period of the last fiscal year. This decrease is mostly attributable to the following significant variances:

  • $325.4 million in cumulative decreases in expenditures in the above mentioned sunsetting programs.
  • $47.5 million decrease in funding requirements and related expenditures for the Institute for Quantum Computing, Canada Foundation for Innovation and Technology Partnerships Canada.
  • $65.7 million cumulative increase in expenditures in the Strategic Aerospace and Defence Initiative, Broadband Canada: Connecting Rural Canadians and Bombardier C-Series.
2.2.1.2 Statutory Grants and Contributions

Statutory Grants and Contributions include the following items: Genome; Perimeter Institute for Theoretical Physics; CANARIE; Liabilities under the Canada Small Business Financing Act and the Small Business Loans Act; KIP; CAF; Canada Youth Business Foundation as well as some actual expenditures included in Other Statutory authorities.

In the third quarter of 2011–12 there was a $7.2 million net decrease in Statutory Grants and Contributions spending compared to the same quarter in the last fiscal year. Details of the significant variances are as follows:

  • In 2010–11, $25 million was paid to CANARIE; no funding was approved for 2011–12, resulting in a decrease.
  • The final payment for the Perimeter Institute was paid in 2011–12, resulting in a $9 million decrease compared to the same quarter of last fiscal year.
  • $17.4 million increase in statutory expenditures for KIP compared to the same quarter of last fiscal year. In 2010–11, KIP expenditures were paid from Vote 10.
  • $10 million increase in expenditures due to timing differences in 2011–12 for Canada Youth Business Foundation; this payment was made in the third quarter of 2011–12, but in the second quarter of 2010–11.

In 2011–12, Statutory Grants and Contributions authorities used to date decreased by $18.5 million compared to the same period of the last fiscal year. As with the results for the third quarterly, this decrease is mostly attributable to the end of funding to CANARIE ($25 million decrease), the final payment made to the Perimeter Institute ($9 million decrease) and the increase in statutory expenditures for KIP ($17.4 million increase).

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 and

Bar Chart: Comparison of Net Budgetary Authorities available for use and Year-to-date Expenditures for Vote 10 and Statutory Grants and Contributions as of December 31, 2011 and December 31, 2010 (the long description is located below the image)
Description of Graph 2
Graph 2: Comparison of Net Budgetary Authorities available for use and Year-to-date Expenditures for Vote 10 and Statutory Grants and Contributions as of and
  2011–12 2010–11
Net Budgetary Authorities: Vote 10 & Statutory Authorities - Grants and Contributions 1,171,683,000 2,125,688,000
Net year-to-date expenditures ending December 31 509,409,461 836,852,196
2.2.2 Vote 1 – Net Operating Expenditures and Canadian Intellectual Property Office Revolving Fund (Third quarter: $10.4 million decrease; Year to date: $7.9 million decrease)

In the third quarter of 2011–12, there was a $10.4 million decrease in authorities used for Vote 1 – Net Operating Expenditures and the Canadian Intellectual Property Office (CIPO) Revolving Fund. These decreases are mostly attributable to the following factors:

  • A $4.6 million decrease in expenditures for Professional and Special Services primarily due to a $1.2 million decrease in expenditures for temporary help services compared to the same period last year and a $3 million decrease resulting from an adjustment of a monthly accrual in fiscal year 2010–11 at CIPO.
  • A $2.8 million increase in the collection of CIPO's respendable revenue, due to timing differences.
  • The remaining $3 million decrease is related to minor variances in the remaining standard objects.

The $7.9 million variance in year to date Vote 1 expenditures and CIPO expenditures compared to fiscal year 2010–11 is mostly attributable to the cumulative variance in Personnel resulting from the PSAC severance payout reported in the second quarter, the cumulative variance in Professional and Special Services and the cumulative timing differences in the collection of CIPO's respendable revenues.

Furthermore, the Statement of Authorities illustrates that trends in the third quarter of fiscal year 2011–12 under authorities available for use in Vote 1 – Net Operating Expenditures are proportionate to those of the same quarter of fiscal year 2010–11, with approximately 20 percent of authorities available for use expended during the quarter.

It is important to explain 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 Canadian Intellectual Property Office Revolving Fund as of and

Bar Chart: Comparison of Net Budgetary Authorities available for use and Year-to-date Expenditures for Vote 1 and Canadian Intellectual Property Office Revolving Fund as of December 31, 2011 and December 31, 2010 (the long description is located below the image)
Description of Graph 3
Graph 3: Comparison of Net Budgetary Authorities available for use and Year-to-date Expenditures for Vote 1 and Canadian Intellectual Property Office Revolving Fund as of and
  2011–12 2010–11
Net Budgetary Authorities – Vote 1 and Canadian Intellectual Property Office Revolving Fund 459,546,000 448,472,000
Net year-to-date expenditures ending December 31 289,001,792 296,904,185

3. Risks and Uncertainties

In the third quarter of 2011–12, Industry Canada continued to manage a number of budgetary restraint measures, largely related to two key items included in Budget 2010. First, the operating budgets of departments were to be frozen at their 2010–11 levels for the fiscal years 2011–12 and 2012–13. Second, various federal departments and agencies were to undergo a strategic review to identify cost reductions of five percent.

For Industry Canada, the impact of these measures in 2011–12 includes:

  • wage reduction measures, requiring the reallocation of an estimated $8.4 million to cover the cumulative increase related to new collective bargaining agreements
  • reductions totalling $6.1 million stemming from the strategic review exercise conducted in 2010.

Industry Canada continues to build on its existing stewardship and oversight practices to monitor program funding and expenditures. This includes conducting comprehensive monthly analysis of trends and forecasting in employee headcount, salary expenditures and non-salary expenditures at both the departmental and sector level to ensure affordability and sustainability. Industry Canada also conducts rigorous oversight of major IT projects to ensure benefits to Industry Canada and sound project management.

These analyses are key elements in the decision-making process to ensure Industry Canada works within its allocated resource levels, and they have resulted in the following spending reductions for 2011–12:

  • $12.4 million in non-salary spending, including $1.7 million in travel, conferences, and hospitality spending
  • $11 million in salary spendingFootnote 1, including a 8% reduction to Industry Canada's headcount (306 positions)

Long-term financial affordability has been a key focus of all financial decisions. Industry Canada's prudent financial management, including the additional savings already realized in 2011–12, is central to Industry Canada's approach given the uncertainties looking ahead to 2012–13 and beyond that will come with the implementation of reductions resulting from the government's deficit reduction action plan. The exact nature of these reductions will be announced in the upcoming Budget 2012.

Budgetary Restraint

As a result of the Strategic Review announced in Budget 2010, Industry Canada has achieved savings of $6.1 million and a reduction of 12 full-time equivalent (FTE) positions through measures such as:

  • Realigning the resources dedicated to developing industrial and related policy analyses to focus on the delivery of strategic advice to government on business issues and emerging economic situations.
  • Streamlining communications functions and resources.
  • Consolidating regional spectrum management teams to ensure more targeted delivery of spectrum management activities.

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

Industry Canada is in the final year of delivering KIP which was one of the EAP initiatives announced in Budget 2009. KIP will be completed by the end of fiscal year 2011–12 while most other programs under the EAP initiative ended The impact of the completion of KIP is a decrease in authorities available for use of approximately $1 billion compared to last fiscal year.

Effective the control and supervision of certain portions of the Federal Public Administration known as the Email, Data Centre and Network Services Unit was transferred to Shared Services Canada in accordance with Order-in-Council P.S. 2011–1297. Effective $11.5 million is deemed to have been appropriated to Shared Services Canada; $10.4 million from Vote 1 – Net Operating Expenditures and $1.1 million from Vote 5 – Capital Expenditures.

The printed version is signed by:

Richard Dicerni
Deputy Minister
Ottawa, Canada

Kelly Gillis
Chief Financial Officer

Date
Date

Industry Canada
Quarterly Financial Report:
For the quarter ended

Statement of AuthoritiesFootnote a) (unaudited)

Fiscal Year 2011–2012 (in thousands of dollars)
  Total available for use for the year ending Footnote b) Used during the quarter ended Year to date used at quarter-end
Vote 1 — Net
Operating expenditures
443,027 88,151 283,211
Vote 5 — Capital expenditures 16,339 3,469 5,327
Vote 10 — Grants and contributions 750,346 117,651 383,923
  1,209,712 209,271 672,461
Budgetary statutory authorities
Revolving Fund Gross Expenditures 161,477 34,927 108,097
Revolving Fund Revenues (144,958) (35,821) (102,306)
Revolving Fund Net Expenditures 16,519 (894) 5,791
Genome Canada 56,400 52,000
Perimeter Institute for Theoretical Physics 1,010 1,010 1,010
CANARIE Inc.
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 110,050 16,722 44,957
Knowledge Infrastructure Program 243,848 17,392 17,491
Community Adjustment Fund
Canadian Youth Business Foundation 10,000 10,000 10,000
Employee benefit plans 56,642 14,160 42,481
Other Statutory 548 82 388
  495,017 58,472 174,118
Total Budgetary authorities 1,704,729 267,743 846,579
Non-budgetary authorities 800
Total authorities 1,705,529 267,743 846,579
Fiscal Year 2010–2011 (in thousands of dollars)
  Total available for use for the year ending March 31, 2011Footnote c Used during the quarter ended Year to date used at quarter-end
Vote 1 — Net
Operating expenditures
434,813 92,624 287,594
Vote 5 — Capital expenditures 15,516 2,306 3,196
Vote 10 — Grants and contributions 1,419,804 263,579 692,875
  1,870,133 358,509 983,665
Budgetary statutory authorities
Revolving Fund Gross Expenditures 153,165 37,986 107,367
Revolving Fund Revenues (139,506) (32,996) (98,057)
Revolving Fund Net Expenditures 13,659 4,990 9,310
Genome Canada 46,900 46,900
Perimeter Institute for Theoretical Physics 10,000 10,000 10,000
CANARIE Inc. 25,000 25,000 25,000
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 108,725 17,374 51,502
Knowledge Infrastructure Program 500,000
Community Adjustment Fund 5,000 318
Canadian Youth Business Foundation 10,000 10,000
Employee benefit plans 53,998 13,499 40,498
Other Statutory 702 164 689
  773,984 71,027 194,217
Total Budgetary authorities 2,644,117 429,536 1,177,882
Non-budgetary authorities 800
Total authorities 2,644,917 429,536 1,177,882

Industry Canada
Quarterly Financial Report:
For the quarter ended December 31, 2011

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

Fiscal Year 2011–12 (in thousands of dollars)
  Planned expenditures for the year ending March 31, 2012 Expended during the quarter ended December 31, 2011 Year to date used at quarter-end
Expenditures:
Personnel 501,501 127,400 403,164
Transportation and communications 29,822 5,370 13,671
Information 5,017 842 1,604
Professional and special services 106,451 17,416 49,481
Rentals 11,773 2,603 7,723
Repair and maintenance 16,562 2,941 7,344
Utilities, materials and supplies 10,350 1,462 3,871
Acquisition of land, buildings and works 13 17
Acquisition of machinery and equipment 29,176 3,304 6,414
Transfer payments 1,171,684 162,795 509,409
Other subsidies and payments 37,889 (216) 2,199
Total gross budgetary expenditures 1,920,225 323,930 1,004,897
Less Revenues netted against expenditures:
Revolving Fund Revenues 144,958 35,821 102,306
Sales of Services and Other Revenue 70,538 20,366 56,012
Total Revenues netted against expenditures: 215,496 56,187 158,318
Total net budgetary expenditures 1,704,729 267,743 846,579
Fiscal Year 2010–11 (in thousands of dollars)
  Planned expenditures for the year ending Expended during the quarter ended Year to date used at quarter-end
Expenditures:
Personnel 473,355 127,417 389,964
Transportation and communications 50,812 6,525 18,008
Information 6,243 861 1,913
Professional and special services 109,059 22,007 57,031
Rentals 11,985 2,645 8,061
Repair and maintenance 9,157 3,882 8,490
Utilities, materials and supplies 13,158 1,624 4,460
Acquisition of land, buildings and works 150 167
Acquisition of machinery and equipment 29,305 2,280 5,767
Transfer payments 2,125,688 315,953 836,852
Other subsidies and payments 19,074 (128) 1,109
Total gross budgetary expenditures 2,847,836 483,216 1,331,822
Less Revenues netted against expenditures:
Revolving Fund Revenues 139,506 32,996 98,057
Sales of Services and Other Revenue 64,213 20,684 55,883
Total Revenues netted against expenditures: 203,719 53,680 153,940
Total net budgetary expenditures 2,644,117 429,536 1,177,882
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