Quarterly Financial Report—Quarter Ended September 30, 2015


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 2015–16.

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 2015-16 fiscal year.

This QFR has not been subject to an external audit or review. However, it has been reviewed by the Departmental Audit Committee (DAC) in accordance with Treasury Board guidance concerning the roles and responsibilities for DAC Members. No material misstatements or omissions have been identified.

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

The variances in authorities available for use and actual expenditures in 2015-16 are largely related to significant funding increases in the department's Grants and Contributions Vote.

2.1 Authorities available for use and planned expenditures

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2015 and September 30, 2014

Bar chart of Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2015 and September 30, 2014 (in millions $) (the long description is located below the image)

* Includes planned Vote 10 and Statutory Grants and Contributions expenditures

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

Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2015 and September 30, 2014 (in millions $)
Budgetary Authorities 2015-16 2014-15
G&CFootnote * 875 704
Operating 330 317
OtherFootnote ** 62 60
Capital 21 21
Total Budget 1,288 1,102

Industry Canada's total authorities available for use of $1.3 billion in 2015-16 reflect a $186.5 million increase in comparison with the same quarter ended in 2014-15, as illustrated in the Statement of Authorities and in the Table 1: Departmental Budgetary Expenditures by Standard Object. This increase is primarily related to:

  • Grants and Contributions (Vote 10 and Statutory) – $171.2 million 
  • Vote 1 – Operating Expenditures – $13.5 million 
  • Vote 5 – Capital Expenditures – $0.5 million 

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

2.1.1 Grants and Contributions (Vote 10 and Statutory) – $171.2 million 

Authorities available for use in Vote 10 – Grants and Contributions increased by a total of $173.2 million compared to the same quarter of last fiscal year. The primary causes of the increase are explained below:

  • $149.6 million of new funding for 2015-16, as per Budgets 2014 and 2015:
    • $76 million for the new Connecting Canadians program, to extend high-speed Internet service to households in rural and remote regions of the country;
    • $30 million for the Automotive Innovation Fund to support research and development projects in the automotive sector;
    • $21.9 million for the Technology Demonstration Program, of which $10 million was funded internally from the Strategic Aerospace and Defence Initiative (SADI);
    • $9.5 million for Youth Internships at Community Access Sites;
    • $7.6 million for the new Automotive Supplier Innovation Program; and,
    • $4.6 million of additional funding following the renewal of three programs (Futurpreneur Canada, Council of Canadian Academies and CANARIE Inc.).
  • $27.9 million increase due to timing differences of program funding between this year and last:
    • $12.2 million of funding for the Institute of Quantum Computing and the Computers for School program, accessed in the Main Estimates compared to funding received in Supplementary Estimates B (Supps B) in the third quarter last year.
    • $10.7 million net increase under SADI primarily due to the following:
      • The access of $18.4 million in repayable contributions in the Main Estimates compared to funding received in Supps B in the third quarter last year;
      • A $2 million reprofile of funds from the previous year;
      • A $10 million transfer to the Technology Demonstration Program (TDP), which partially offset the previous two noted increases.
    • $5 million for Mitacs received in the Main Estimates compared to $3 million received in Supps B in the third quarter last year.
  • $6.1 million decrease in cash flow requirements as a result of changes in the following programs:
    • $15 million decrease for Genome Canada; and
    • $8.9 million increase for the Canada Foundation for Innovation.

In addition, statutory grants and contributions decreased overall by $2 million when compared to the same quarter of last year.

2.1.2 Vote 1 – Net Operating Expenditures – $13.5 million 

Authorities available for use in Vote 1 – Net Operating Expenditures increased by a total of $13.5 million compared to the same quarter of last fiscal year primarily due to:

  • An $11.8 million increase in funding as the Department accessed this amount from the total eligible $33 million repayable contributions in the first quarter of 2015-16 whereas the full amount was accessed in the third quarter of 2014-15 via Supps B.
  • An additional $3.8 million accessed through the Main Estimates (including $2.9 million of program delivery funding for Connecting Canadians and a transfer of $0.9 million from PWGSC for the reimbursement of accommodation requirements) while in 2014-15 the funding was received in Supps B.
  • New funding of $1.4 million received for projects related to Internal Trade, the Automotive Supplier Innovation Program, and Youth Internships at Community Access Sites.
  • A $3.5 million decrease in the operating vote as funds were transferred from the operating vote to the capital vote to meet the requirements of capital projects.

2.1.3 Vote 5 – Capital Expenditures – $0.5 million 

There was a small increase of $0.5 million in authorities available for use in Vote 5 – Capital Expenditures compared to the second quarter last year. The increase is comprised of $4.1 million in additional capital investment in the second quarter this year off-set by a smaller Capital Budget Carry Forward that is $3.6 million less than what was received in the second quarter in 2014-15.

2.1.4 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 the deferred funding is accessed.

Major variances in standard objects between the two years are mainly explained by the changes in Grants and Contributions programs as mentioned in section 2.1.1.

Notable variances were also observed for Personnel expenditures. The $10.6 million increase over 2014-15 is due to additional funding for Connecting Canadians, collective agreements, and planned staffing at the Canadian Intellectual Property Office (CIPO) to strengthen its operational capacity and implement its Information Technology/Intellectual Property modernization strategies.

The $6.3 million decrease in Acquisition of Machinery and Equipment is due to revised capital project plans in conjunction with reduced Capital Budget Carry Forward funding.

The $6.2 million increase in Other Subsidies and Payments pertains to the timing of funding received in Supplementary Estimates for the reinvestment of receipts from the repayable contributions to support operational requirements.

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, 2015 and September 30, 2014

Bar chart of Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2015 and September 30, 2014 (in millions $) (the long description is located below the image)

* Includes Vote 10 and Statutory Grants and Contributions expenditures

** Includes CIPO Revolving Fund

Description of Graph 2
Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2015 and September 30, 2014 (in millions $)
Budgetary Authorities Second Quarter Year to Date
2015-16 2014-15 2015-16 2014-15
G&C Footnote * 238 243 386 365
Operating 81 82 157 169
Other Footnote ** 11 (2) 29 35
Capital 4 4 8 8
Total Budget 335 327 580 577

Expenditures in the second quarter of 2015–16 increased by $7.9 million compared with the same quarter last year. Year-to-date expenditures have increased by $3.2 million. The differences occurred primarily in Grants and Contributions (Vote 10 and Statutory) but also in Operating expenditures as well as the CIPO revolving fund.

Second quarter and year-to-date change summary:

  • Grants and Contributions (Vote 10 and Statutory)
    • Quarterly – $5.4 million 
    • Year-to-date – $21.9 million 
  • Vote 1 – Net Operating Expenditures
    • Quarterly – $0.6 million 
    • Year-to-date – $11.9 million 
  • Vote 5 – Capital Expenditures
    • Quarterly – $0.3 million 
    • Year-to-date – $0.3 million 
  • CIPO Revolving Fund
    • Quarterly – $12.6 million 
    • Year-to-date – $7.8 million 

2.2.1 Grants and Contributions (Vote 10 and Statutory) (Second quarter: $5.4 million ; Year-to-date: $21.9 million )

In the second quarter of 2015–16, there was a $5.4 million net decrease in Grants and Contributions expenditures compared with the same quarter last year. Year-to-date expenditures increased by $21.9 million compared to last year. The variances were a result of:

Second quarter decrease of $5.4 million is primarily due to the following:

  • A $28.4 million decrease related to timing differences (where payments are made at different times during the fiscal year) in program cash flow requirements.
    • $37.6 million decrease for the Canada Foundation for Innovation (CFI) program.
    • $5 million increase for the Institute of Quantum Computing and
    • $4.2 million increase due to earlier payments for Mitacs and AIF.
  • A $2 million net decrease in spending as the Canadian Youth Business Foundation (previously $9 million in statutory disbursements) was renewed as Futurpreneur ($7 million).
  • A $10 million net increase in cash flow requirements for Genome.
  • A $9.6 million increase in SADI disbursements due to timing and recipient cash flow requirements.
  • A $3.5 million increase in expenditures for new G&C programs (Let's Talk Science and the Council of Canadian Academies).
  • A $2.1 million increase in expenditures related to liabilities under the Canada Small Business Financing Act and the Small Business Loans Act.

Year-to-date increase of $21.9 million is primarily due to the following:

  • A $30.8 million year-to-date increase in G&C disbursements due to timing differences.
    • $14.4 million increase in SADI.
    • $1.4 million for AIF with payments having been requested and paid in the third quarter last year.
    • $6 million in TDP, which was paid in the fourth quarter last year.
    • $5 million for Quantum, which was paid in the fourth quarter last year.
    • $4 million for Mitacs, which was signed and paid in the fourth quarter last year.
  • An $8.5 million increase in cash flow requirements, specifically CFI ($8.9 million) with increased expenditures related to liabilities under the Canada Small Business Financing Act and Small Business Act offset by decreased spending for Genome.
  • A $3.5 million increase in expenditures for new G&C programs (Let's Talk Science and the Council of Canadian Academies).
  • An increase of $3.5 million in spending for the transfer payment programs under FedNor due to the implementation of a new project risk model, which accelerated funding to projects based on their risk assessment, provision for advances, and detailed spending plans/forecasts.
  • A $26.4 million decrease in the previous CANARIE program which was completed in 2014-15. No payments have yet been made on the new CANARIE project, renewed as part of Budget 2015.

2.2.2 Vote 1 – Net Operating Expenditures (Second quarter: $0.6 million ; Year-to-date: $11.9 million )

Year-to-date net operating expenditures have decreased by $11.9 million compared to the same period as last year. As shown in the Table 1: Departmental budgetary expenditures by Standard Object, the variance is primarily due to the following:

  • A $12 million decrease in expenditures in the "other subsidies and payments" standard object due to a one-time charge against the department's operating vote in 2014-15 for a transition payment to existing employees as a result of the Government's change to a "pay in arrears" industry standard pay system.

2.2.3 Vote 5 – Capital Expenditures (Second quarter: $0.3 million ; Year-to-date: $0.3 million )

The change in spending under the capital vote is not material. The majority of capital spending relates to the Spectrum Applications Modernization project and the Communications Research Centre capital projects for campus health and safety.

2.2.4 Canadian Intellectual Property Office (CIPO) Revolving Fund (Second quarter: $12.6 million ; Year-to-date: $7.8 million )

The variance of $12.6 million in CIPO's net expenditures for the second quarter is due to an $11 million decrease in revenues. This resulted from an adjustment in the second quarter of 2014-15 to address a system issue in which revenue was understated in the first quarter of that year. This was identified only while preparing the 2014-15 first quarter QFR and as a result, most of the first quarter revenues were reflected in the second quarter of 2014-15. Internal controls have been put in place to ensure revenues are recorded in the appropriate quarter. Furthermore, these controls will be integrated into IC's annual testing plans.

CIPO also had a $1.5 million increase in its expenses in the second quarter as compared to last fiscal year, which is attributed to higher material and supplies expenditures for office moves as well as salary increases and increases in other professional services.

Net expenditures were $7.8 million lower in the first half of this year when compared to the previous year, attributable to higher revenues collected ($5 million) in addition to a $2.8 million decrease in expenditures as a result of the "pay in arrears" transition payment incurred in May 2014.

2.2.5 Table 1: Departmental Budgetary Expenditures by Standard Object: Other subsidies and payments (Second quarter: $0.4 million ; Year-to-date: $15.1 million )

While the quarterly variance for the "other subsidies and payments" standard object is negligible, there was a $15.1 million year-to-date decrease in this standard object mainly due to the Government's change to "pay in arrears" system last fiscal year.

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 continues to monitor the implementation of the operating budget freeze announced in the October 2013 Speech from the Throne, through a regular financial forecasting exercise. The Department is addressing 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 QFR.

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John Knubley
Deputy Minister
Ottawa, Canada

November 16, 2015
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Date

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David Enns
Chief Financial Officer
Ottawa, Canada

November 16, 2015
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Industry Canada
For the quarter ended September 30, 2015

Statement of Authorities (unaudited)

Fiscal Year 2015-16
(in thousands of dollars) Total available for use for the year ending March 31, 2016Footnote 1 Used during the quarter ended September 30, 2015 Year to date used at quarter-end
Vote 1 – Operating expenditures 409,874 102,625 197,454
Vote 1 – Revenue Credited to the Vote (79,794) (21,139) (40,295)
Vote 1 – Net Operating Expenditures 330,080 81,486 157,159
Vote 5 – Capital expenditures 21,480 4,154 7,854
Vote 10 – Grants and contributions 730,888 177,267 302,126
Total voted authorities 1,082,448 262,907 467,139
Budgetary statutory authorities:
Revolving Fund Gross expenditures
159,948 37,957 74,410
Revolving Fund Revenues
(151,317) (40,465) (72,738)
Revolving Fund Net expenditures 8,631 (2,508) 1,672
Grants and Contributions
Genome Canada
70,800 44,925 59,900
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act
73,454 15,587 24,347
Canadian Youth Business FoundationFootnote 2
-    -    -   
Other statutory grants and contributions
-    24 24
Total Statutory Grants and Contributions 144,254 60,536 84,271
Employee Benefit Plans 51,929 12,970 25,939
Refunds of Previous Years Revenue -    726 878
Proceeds for Crown Asset Disposals 239 -    -   
Minister's Car Allowance 86 21 43
Total budgetary statutory authorities 205,139 71,745 112,803
Total Budgetary authorities 1,287,587 334,652 579,942
Non-budgetary authorities 800 -   -  
Total authorities 1,288,387 334,652 579,942
Fiscal Year 2014-15
(in thousands of dollars) Total available for use for the year ending March 31, 2015Footnote 3 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 FoundationFootnote 4
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

Industry Canada
For the quarter ended September 30, 2015

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

Fiscal Year 2015-16
(in thousands of dollars) Planned expenditures for the year ending March 31, 2016Footnote 5 Expended during the quarter ended September 30, 2015 Year to date used at quarter-end
Expenditures:
Personnel
462,062 121,264 240,701
Transportation and communications
12,567 2,587 4,628
Information
7,842 1,618 2,873
Professional and special services
97,370 22,597 39,053
Rentals
16,058 3,977 8,909
Repair and maintenance
9,677 1,371 2,267
Utilities, materials and supplies
6,566 1,849 2,525
Acquisition of machinery and equipment
23,881 1,684 3,422
Transfer payments
875,142 237,802 386,397
Other subsidies and payments
7,533 1,507 2,200
Total gross budgetary expenditures 1,518,698 396,256 692,975
Less Revenues netted against expenditures:
Revolving Fund Revenues
151,317 40,465 72,738
Sales of Services and Other Revenue
79,794 21,139 40,295
Total Revenues netted against expenditures:
231,111 61,604 113,033
Total net budgetary expenditures 1,287,587 334,652 579,942
Fiscal Year 2014-15
(in thousands of dollars) Planned expenditures for the year ending March 31, 2015Footnote 6 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 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
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