Quarterly Financial Report—Quarter ended September 30, 2014

  1. Introduction
  2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results
  3. Significant changes in relation to operations, personnel and programs
  4. Risks and uncertainties
  5. Budget 2012 Implementation

Statement Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs

1. Introduction

This Quarterly Financial Report (QFR) 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 QFR should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2014–15.

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

Basis of presentation

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. This QFR 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 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. This QFR has therefore 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 2014-15 fiscal year.

This QFR has not been subject to an external audit. However, it has been reviewed by the Departmental Audit Committee.

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

The variances in authorities available for use and actual expenditures in 2014-15, when compared with last fiscal year, relate to significant funding decreases in the department's Grants and Contributions, to reductions announced in Budget 2012, to budgets transferred to other government departments, and to operating budget carry-forwards. In contrast to the overall reductions reflected in the planned figures, actual expenditures have seen an overall increase as at September 30, 2014 over the same period for 2013-14. This increase is described in detail in section 2.2.1 and is generally attributable to timing differences of cash flow requirements in Grant and Contribution programs.

2.1 Authorities available for use and planned expenditures

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2014 and September 30, 2013 (in millions $)

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2014 and September 30, 2013 (in millions $) (the long description is located below the image)

* Includes planned Vote 10 and Statutory Grants and Contribution expenditures.

** Includes Canadian Intellectual Property Office (CIPO) Revolving Fund.

Description of Graph 1
Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2014 and September 30, 2013 (in millions $)
Budgetary Authorities 2014-15 2013-14
G&CFootnote * 703,975,000 794,577,000
Operating 316,577,000 302,590,000
OtherFootnote ** 60,377,000 72,275,000
Capital 20,940,000 19,403,000
Total Budget 1,101,869,000 1,188,845,000

Authorities have increased by $23.0 million since the last quarter, as a result of funding received for the Operating Budget Carry Forward and the Capital Budget Carry Forward during the second quarter. There were no changes in Grants & Contributions funding or in the CIPO Revolving fund.

When compared to last fiscal year, Industry Canada's total authorities available for use of $1.1 billion in 2014-15 decreased by $87.0 million, as shown in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. This decrease is primarily reflected in the following:

As already reported in the first quarter:

  • Grants and Contributions (Vote 10 and Statutory) — $90.6 million 
  • CIPO Revolving Fund — $8.8 million 

Compensated by increases in:

  • Vote 1 — Operating Expenditures — $14.0 million 
  • Vote 5 — Capital Expenditures — $1.5 million 

Variances for each appropriation are explained in greater detail throughout this document.

2.1.1 Grants and Contributions (Vote 10 and Statutory) — $90.6 million 

As previously mentioned in last quarter, the authority for Vote 10 — Grants and Contributions decreased by a total of $93.4 million compared to the same quarter end of last fiscal year, mainly due to the following factors:

  • The completion of the Bombardier CSeries program in 2013-14, resulting in a decrease of $55.4 million in 2014-15.
  • The reduction of contributions funding under the Strategic Aerospace and Defence Initiative ($41.6 million) and Technology Partnerships Canada ($4.5 million), mainly due to the end of temporary resources approved as part of Budget 2009 for the aerospace industry, and to a timing difference for the collection of Technology Partnerships Canada repayable contributions. An amount of $22.1 million was accessed via Supplementary Estimates A last year while this year's amount will be accessed through Supplementary Estimates B.
  • The reduction in funding of approximately $8.6 million for programs that are winding down such as the Structured Financing Facility program and contributions to the Ivey Centre for Health Innovation and Leadership.
  • The Automotive Innovation Fund received an additional $48.6 million through Budget 2012, bringing its total funding for 2014-15 to $64.6 million. This represents an increase of $19.4 million over the previous year.
  • New funding has also been received in 2014-15 ($18.2 million) for the Industrial Research and Development Internship Program (MITACS), the Technology Demonstration Program and the Economic Development Initiative.
  • The Canada Foundation for Innovation's budget increased by $1.2 million over the previous year to align with the funding profile approved following Budget 2012.

Statutory grants and contributions increased by $2.8 million when compared to the second quarter of last year, mainly due to:

  • The Canadian Youth Business Foundation, approved in the 2013 Budget Implementation Act, received $9.0 million in both 2013-14 and 2014-15. However, in 2013-14, the funding was only received in the third quarter.
  • The Genome program increased by $6.6 million in line with its approved funding profile.
  • A $12.8 million reduction under the Canada Small Business Financing Act based on a decreased forecasted use of the program by lenders.
2.1.2 Vote 1 — Net Operating Expenditures — $14.0 million 

Authorities available for use in Vote 1 — Net Operating Expenditures increased by a total of $14.0 million when compared to the same period last year. This increase is mostly due to the receipt of the Operating Budget Carry Forward of $19.3 million, which has been received in the second quarter this year compared to the third quarter of last year.

Receipt of the Operating Budget Carry Forward is offset by funding reductions as reported in the first quarter. This includes $8.4 million for the final implementation of the Budget 2012 Deficit Reduction Action Plan, $0.5 million for the public service travel reduction from Budget 2013 and $1.5 million transferred to Shared Services Canada for the management of end user devices for the Department. These reductions were partially offset by an increase of $3.8 million received for collective agreement and by lower vote transfers for capital requirements ($2.6 million).

2.1.3 Vote 5 — Capital Expenditures — $1.5 million 

Authorities available for use in Vote 5 — Capital Expenditures increased by a total of $1.5 million compared with the second quarter of last year. This increase can be explained by the receipt of the Capital Budget Carry Forward of $4.1 million in this quarter compared to the third of last year, and by lower requirements in capital vote transfers for the National Accommodation Strategy initiative ($1.9 million) and the Spectrum Application Modernization project ($0.9 million).

2.1.4 CIPO Revolving Fund — $8.8 million 

As reported in the previous quarter, CIPO is planning to draw down $8.8 million less on its 2014-15 authority than in the previous year due primarily to an increase of $5.1 million in its revenue forecasts as well as a decrease of $3.7 million in employee termination liability for those employees who elected for an early cash-out of their accumulated severance pay.

2.1.5 Table 1: Departmental Budgetary Expenditures by Standard Object

Table 1: Departmental Budgetary Expenditures by Standard Object displays initial expenditure plans. These plans are subject to change during the fiscal year, particularly when deferred funding will be accessed and included later in the fall.

Major variances in standard objects between the two years are mainly attributable to the changes in Grants and Contributions programs as described in section 2.1.1.

2.2 Authorities used and actual expenditures

Graph 2: Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2014 and September 30, 2013 (in millions $)

Graph 2: Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2014 and September 30, 2013 (in millions $) (the long description is located below the image)

* Includes Vote 10 and Statutory Grants and Contribution expenditures.

** Includes Canadian Intellectual Property Office (CIPO) Revolving Fund.

Description of Graph 2
Graph 2: Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2014 and September 30, 2013 (in millions $)
Budgetary Authorities Second quarter Year to date
2014-15 2013-14 2014-15 2013-14
G&C Footnote * 243,154,000 194,802,000 364,519,000 321,158,000
Operating 82,122,000 83,675,000 169,066,000 176,281,000
Other Footnote ** (2,401,000) 15,910,000 34,962,000 34,576,000
Capital 3,854,000 2,355,000 8,145,000 7,300,000
Total Budget 326,729,000 296,742,000 576,692,000 539,315,000

Net expenditures in the second quarter of 2014-15 increased by $30.0 million, compared with the same quarter last year and also increased by $37.4 million when comparing year-to-date figures. These differences occurred primarily in Grants and Contributions category (Vote 10 and Statutory).

Second quarter and year-to-date change summary:

  • Grants and Contributions (Vote 10 and Statutory)
    • Quarterly — $48.3 million 
    • Year-to-date — $43.4 million 
  • Vote 1 — Net Operating Expenditures
    • Quarterly — $1.6 million 
    • Year-to-date — $7.2 million 
  • Vote 5 — Capital Expenditures
    • Quarterly — $1.5 million 
    • Year-to-date — 0.9 million 
  • CIPO Revolving Fund
    • Quarterly — $17.5 million 
    • Year-to-date — $2.0 million 
2.2.1 Grants and Contributions (Vote 10 and Statutory) (Second quarter: $48.3 million ; Year-to-date: $43.4 million )

In the second quarter of 2014-15, there was a $48.3 million net increase in Grants and Contributions expenditures (Vote 10 and Statutory), compared with the same quarter in 2013-14. As well, year-to-date comparatives yield a $43.4 million increase for the same category. Details of the significant variances that occurred are as follows:

  • $40.9 million quarter increase and $82.9 million year-to-date increase in the Canada Foundation for Innovation program which represents timing differences in program cash flow requirements.
  • $14.3 million quarter decrease and $45.4 million year-to-date decrease attributable to the Bombardier CSeries program having been completed in 2013–14.
  • Approximately $28.0 million quarter and year-to-date decrease in spending for the Strategic Aerospace and Defence Initiative in line with reductions to the programs funding levels for the fiscal-year.
  • $40.5 million quarter increase in payments to Genome. To reduce the risk of overpayment, the department introduced payments to several programs in two installments rather than one-time payments per fiscal year. In this case, a single payment normally made later in the fiscal year has now had a portion paid in the first quarter and the second quarter of this fiscal year. There is an $11.9 million year-to-date increase in spending for Genome related in part to funding increases and cash-flow timing differences.
  • Minor timing differences and cash flow requirements of existing contribution agreements amount to another $7.5 million in quarter spending and $16.5 million in year-to-date spending.
  • $5.1 million increase in year-to-date activity (minimal quarterly variance) for the transfer payment programs under FedNor, a return to normal average levels after reduced activity in the 2013-14 fiscal year. This was due to some delays in the anticipated launch of two FedNor initiatives: the Targeted Manufacturing Initiative for Northern Ontario and FedNor's deployment of broadband support.
2.2.2 Vote 1 — Net Operating Expenditures (Second quarter: $1.6 million ; Year-to-date: $7.2 million )

In the second quarter of 2014-15, there was a $1.6 million net decrease in authorities used for Vote 1 — Net Operating Expenditures. The variance is generally attributable to an increase in respendable revenues for collected bankruptcy levies which are netted against spending for this vote. Spending for this quarter was at a consistent level with the same quarter of the previous fiscal-year.

Overall year-to-date spending for Vote 1 — Net Operating Expenditures was $7.2 million less than the previous fiscal-year and this variance is primarily the result of normal variations in respendable revenue generation by the Superintendent of Bankruptcy ($2.6 million) and by the Competition Bureau ($1.6 million). Actual spending variances were minimal ($2.9 million less) and are explained by activities described in the first quarter report as well as an increase in professional service costs incurred for various planned IT projects.

2.2.3 Vote 5 — Capital Expenditures (Second quarter: $1.5 million ; Year-to-date: $0.8 million )

The increase in spending under the capital vote is largely related to increases for the Spectrum Applications Modernization project ($0.8 million for the quarter and $0.4 million in year-to-date expenditures) and Communications Research Centre Canada capital projects for campus health and safety (0.3 million for the quarter and $0.4 million in year-to-date expenditures).

2.2.4 Canadian Intellectual Property Office (CIPO) Revolving Fund (Second quarter: $17.5 million ; Year-to-date: $2.0 million )

The variance of $17.5 million in CIPO's net expenditures for the second quarter relates primarily to cash receipts being overstated as a direct result of a system issue in the first quarter of this fiscal year. This systems issue resulted in an understatement of CIPO's recorded revenue for approximately $11.7 million in the first quarter and CIPO's recorded revenue in the second quarter is now overstated by that same amount. The remaining variance relates to receipts being greater than expected for the period, which were approximately $4.0 million higher than average.

Net expenditures were $2.0 million higher in the first half of this year when compared to the previous year, attributable to the transition payment of $2.8 million made in the first quarter and a transfer of employees following a consolidation of IT services, to be recovered in future periods ($2.2 million). These increases in spending are offset by the greater than expected receipts as described above.

2.2.5 Table 1: Departmental Budgetary Expenditures by Standard Objects: Personnel (Second quarter: $5.3 million ; Year-to-date: $22.2 million )

The "personnel" standard object in Table 1: Departmental Budgetary Expenditures by Standard Object includes personnel expenditures from all of the votes included in the Statement of Authorities, primarily from Vote 1 — Net Operating Expenditures, Employee Benefit Plans and CIPO's Revolving Fund. While the quarterly variance for this object is not significant, there was a $22.2 million year-to-date decrease in this standard object mainly due to one-time severance payouts in 2013-14, partially offset by a reduction in head count.

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

There have been no significant changes in relation to operations, personnel and programs over the last quarter.

4. Risks and uncertainties

The Department continues to refine and strengthen its existing stewardship and oversight practices to monitor program funding and expenditures.

Ongoing controls and accurate monitoring are particularly important to Industry Canada because of the Department's funding model, whereby a portion of the operating budget comes from royalty repayments from legacy contribution programs. Because these royalties fluctuate with the sales of aging product lines of individual companies and the overall health of the economy, the Department must be prepared to mitigate the impact of unpredictable changes to its funding level.

Industry Canada has completed an assessment of the impact of the operating budget freeze announced in the October 2013 Speech from the Throne, and continues to monitor the financial situation through a monthly financial forecasting exercise. The Department will address the requirements for reductions to internal spending largely through attrition. It is expected this approach will fully mitigate the related risks. Any changes in this regard will be addressed in future editions of the Department's Quarterly Financial Report.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that have been implemented by Industry Canada in order to refocus government and programs, make it easier for Canadians and business to deal with their government, and modernize and reduce the back office.

Industry Canada has implemented all reduction measures stemming from Budget 2012, and no further measures will be undertaken in 2014-15. Details regarding Industry Canada's Budget 2012 reductions are available online.

Industry Canada's prudent financial management, focus on long-term financial affordability, and commitment to ensuring the continued delivery of the Department's mandate and core activities have been key to meeting the required targets.

There are no financial risks or uncertainties related to these savings.

The printed version is signed by:

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John Knubley
Deputy Minister
Ottawa, Canada

November 20, 2014
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Date

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David Enns
Chief Financial Officer
Ottawa, Canada

November 17, 2014
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Date

Industry Canada
For the quarter ended September 30, 2014

Statement of Authorities (unaudited)

Fiscal Year 2014-2015
(in thousands of dollars) Total available for use for the year ending March 31, 2015Footnote 1 Used during the quarter ended September 30, 2014 Year to date used at quarter-end
Vote 1 — Operating expenditures 395,731 102,778 208,919
Vote 1 — Revenue Credited to the Vote (79,154) (20,656) (39,853)
Vote 1 — Net Operating Expenditures 316,577 82,122 169,066
Vote 5 — Capital expenditures 20,940 3,854 8,145
Vote 10 — Grants and contributions 557,723 196,266 285,951
Total voted authorities 895,240 282,242 463,162
Budgetary statutory authorities:
Revolving Fund Gross expenditures 160,840 36,406 77,147
Revolving Fund Revenues (152,022) (51,510) (67,629)
Revolving Fund Net expenditures 8,818 (15,104) 9,518
Grants and Contributions
Genome Canada 63,700 23,650 47,300
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 73,552 14,236 22,266
Canadian Youth Business Foundation 9,000 9,000 9,000
Other statutory grants and contributions -    2 2
Total Statutory Grants and Contributions 146,252 46,888 78,568
Employee Benefit Plans 50,342 12,586 25,171
Refunds of Previous Years Revenue -    96 231
Proceeds for Crown Asset Disposals 333 -    -   
Minister's Car Allowance 84 21 42
Total budgetary statutory authorities 205,829 44,487 113,530
Total Budgetary authorities 1,101,069 326,729 576,692
Non-budgetary authorities 800 -   -  
Total authorities 1,101,869 326,729 576,692
Fiscal Year 2013-2014
(in thousands of dollars) Total available for use for the year ending March 31, 2014Footnote 2 Used during the quarter ended September 30, 2013 Year to date used at quarter-end
Vote 1 — Operating expenditures 381,224 101,783 211,788
Vote 1 — Revenue Credited to the Vote (78,634) (18,108) (35,507)
Vote 1 — Net Operating Expenditures 302,590 83,675 176,281
Vote 5 — Capital expenditures 19,403 2,355 7,300
Vote 10 — Grants and contributions 651,091 182,080 264,413
Total voted authorities 973,084 268,110 447,994
Budgetary statutory authorities:
Revolving Fund Gross expenditures 164,545 35,853 71,603
Revolving Fund Revenues (146,941) (33,449) (64,108)
Revolving Fund Net expenditures 17,604 2,404 7,495
Grants and Contributions
Genome Canada 57,100 -    35,400
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 86,386 12,715 21,337
Canadian Youth Business Foundation -    -    -   
Other statutory grants and contributions -    7 8
Total Statutory Grants and Contributions 143,486 12,722 56,745
Employee Benefit Plans 53,446 13,405 26,810
Refunds of Previous Years Revenue -   80 230
Proceeds for Crown Asset Disposals 342 -    -   
Minister's Car Allowance 83 21 41
Total budgetary statutory authorities 214,961 28,632 91,321
Total Budgetary authorities 1,188,045 296,742 539,315
Non-budgetary authorities 800 -    -   
Total authorities 1,188,845 296,742 539,315

Industry Canada
For the quarter ended September 30, 2014

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

Fiscal Year 2014-2015
(in thousands of dollars) Planned expenditures for the year ending March 31, 2015Footnote 3 Expended during the quarter ended September 30, 2014 Year to date used at quarter-end
Expenditures:
Personnel 451,466 120,046 240,185
Transportation and communications 11,607 2,794 4,265
Information 4,327 1,405 2,765
Professional and special services 100,374 21,300 37,916
Rentals 13,844 2,400 8,710
Repair and maintenance 9,219 1,429 2,220
Utilities, materials and supplies 5,910 1,365 2,027
Acquisition of land, buildings and works -    -    -   
Acquisition of machinery and equipment 30,225 3,080 4,297
Transfer payments 703,975 243,153 364,518
Other subsidies and payments 1,298 1,922 17,271
Total gross budgetary expenditures 1,332,245 398,894 684,174
Less Revenues netted against expenditures:
Revolving Fund Revenues 152,022 51,510 67,629
Sales of Services and Other Revenue 79,154 20,655 39,853
Total Revenues netted against expenditures: 231,176 72,165 107,482
Total net budgetary expenditures 1,101,069 326,729 576,692
Fiscal Year 2013-2014
(in thousands of dollars) Planned expenditures for the year ending March 31, 2014Footnote 4 Expended during the quarter ended September 30, 2013 Year to date used at quarter-end
Expenditures:
Personnel 472,460 125,347 262,398
Transportation and communications 14,653 2,080 3,973
Information 3,253 902 1,470
Professional and special services 78,945 18,944 34,647
Rentals 10,690 2,463 6,215
Repair and maintenance 8,435 936 1,384
Utilities, materials and supplies 6,353 1,028 1,771
Acquisition of land, buildings and works -    1 5
Acquisition of machinery and equipment 23,912 889 4,693
Transfer payments 794,577 194,802 321,158
Other subsidies and payments 342 907 1,216
Total gross budgetary expenditures 1,413,620 348,299 638,930
Less Revenues netted against expenditures:
Revolving Fund Revenues 146,941 33,449 64,107
Sales of Services and Other Revenue 78,634 18,108 35,508
Total Revenues netted against expenditures: 225,575 51,557 99,615
Total net budgetary expenditures 1,188,045 296,742 539,315
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