Quarterly Financial Report—Quarter Ended September 30, 2016


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 document should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2016–17.

1.1 Our organization

Innovation, Science and Economic Development Canada works with Canadians in all areas of the economy and in all parts of the country to improve conditions for investment, enhance Canada's innovation performance, increase Canada's share of global trade and build a fair, efficient and competitive marketplace.

This includes managing Canada's airwaves and overseeing its bankruptcy, incorporation, intellectual property and measurement systems; providing financing and industry research tools to help businesses develop, import and export; encouraging scientific research; and protecting and promoting the interests of Canadian consumers.

A summary description of Innovation, Science and Economic Development (ISED) Canada's program activities can be found in Part II of the Estimates.

1.2 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 for specific purposes. This 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 departmental performance reporting process, ISED 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. The spending authorities are voted by Parliament on an expenditure basis; this report has therefore been prepared by management using an expenditure basis of accounting.

The accompanying Statement of Authorities includes ISED's spending authorities granted by Parliament and found in the Main Estimates and Supplementary Estimates for the 2016–17 fiscal year.

This report has not been subject to an external audit or review. However, it has been reviewed by ISED's Departmental Audit Committee (DAC) in accordance with Treasury Board guidance. No material misstatements or omissions have been identified.

1.3. General Descriptions

The following descriptions are referred to throughout the report:

  • Authority: Approvals from Parliament to spend up to a specific amount.
  • Operating (Vote 1): Amount approved for the fiscal year for the Department to spend on salary and operating expenditures.
  • Capital (Vote 5): Amount approved for the fiscal year for the Department to spend on capital purchases or for the construction of assets.
  • Grants and Contributions (Vote 10 and Statutory):
    • Vote 10: Amount approved for the fiscal year for the Department to provide Grants and Contribution (G&C) funding to prospective recipients.
    • Statutory: Amount approved through an existing Act of Parliament where additional annual approvals are not required by the Department to access G&C funding for recipients.
  • Operating and Capital Carryforward: Eligible funds lapsed in the previous fiscal year brought forward to the following year.
  • Employee Benefit Plan (EBP): The department's contribution to public service employee benefit plans.
  • Vote Netted Revenue (VNR): Authority to apply revenues earned by the organization to cover costs incurred for specific activities by that organization.
  • Standard Object (SO): Classification or coding of transactions to permit the reporting of information about the nature of transactions in the Estimates and Public Accounts (i.e. personnel, professional and special services, and transfer payments).

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

The variances in authorities available for use and actual expenditures in 2016–17 are largely related to significant funding increases in the department's Grants and Contributions Vote and Operating Vote, as described below.

2.1 Authorities available for use and planned expenditures

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2016 and September 30, 2015

Bar chart of comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2016 and September 30, 2015 (the long description is located below the image)
Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2016 and September 30, 2015
2016-17 2015-16
G&CFootnote * 1,457 875
Operating 370 330
OtherFootnote ** 78 62
Capital 17 21
Total Budget 1,922 1,288

ISED's total authorities available for use of $1.92 billion in 2016–17 reflect a $634 million increase in comparison with the same quarter in 2015–16, as illustrated in the Statement of Authorities and in the Table 1: Departmental Budgetary Expenditures by Standard Object. This increase is made up of:

  • Grants and Contributions (Vote 10 and Statutory) – $582 million
  • Net Operating Expenditures (Vote 1) – $39.5 million
  • Other – $16.3 million
    • CIPO Revolving Fund – $10.3 million
    • Employee Benefit Plan (EBP) – $6 million
  • Capital Expenditures (Vote 5) $4.2 million

Authorities available for use this quarter have increased by approximately $20 million from the first quarter 2016–17 due to the receipt of operating and capital carry forward funding for the current fiscal year. This was consistent with the quarter over quarter increase observed last year.

2.1.1 Highlights of Changes by Authority (2016–17 compared to 2015–16)

The following table highlights the significant changes by authority as indicated in the previous section. Some smaller variances have been excluded from the table based on materiality and to simplify the report.

Highlights of Changes by Authority (2016–17 compared to 2015–16)
Explanation of significant changes Change
(in millions of dollars)
Grants and Contributions (Vote 10 and Statutory)
Budget 2016 Funding:
Post-Secondary Institutions Strategic Investment Fund (PSIF) 494.9
Transfer of the Sustainable Development Technology Fund from Environment and
Climate Change Canada and Natural Resources Canada
57.8
Renewal of Mitacs – Globalink Program 7.0
Stem Cell Network 6.0
Budget 2015 Funding:
Mitacs – Accelerate Program 17.9
Canada 150 Infrastructure Program 5.2
Approved increases to cash flow requirements:
Canada Foundation for Innovation 21.5
Technology Demonstration Program 14.8
Automotive Supplier Innovation Program 8.9
Lower program spending requirements:
Automotive Innovation Fund (30.0)
Broadband (12.3)
Youth Internship (9.5)
Net Operating Expenditures (Vote 1)
Funding usually accessed later in the fiscal year has now been included in the Main Estimates for 2016–17 due to a change in the department's funding model, which previously relied on the repayment of contributions.Footnote 1 18.2
Operating funding previously used to fund Capital projects (Vote 5) – Spectrum Applications Modernization (SAM) and National Accommodation Strategy (NAS) – which have been completed. 13.9
Budget 2016 Funding:
PSIF 4.3
Defence Procurement Strategy 2.5
Federal Infrastructure Projects 1.1
Other
Increase for planned investments to modernize the Canadian Intellectual Property Office's IT infrastructure and to develop a suite of business services to meet client needs. 10.3
Increase in Employee Benefit Plans (EBP) associated with the operating funding received with the change in the Department's funding model, the increase in Vote netted revenue authority (VNR) for internal support services and funding for the Post-Secondary Investment fund (PSI-SIF). 6.0
Capital Expenditures (Vote 5)
Completion of SAM and NAS capital projects in previous year (refer to change in Net Operating Expenditures) (13.9)
New funding for the Federal Infrastructure Projects 9.4

2.1.2 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. The variances are primarily due to the following:

Table 1: Departmental Budgetary Expenditures by Standard Object
Standard Object Spending Category Explanation of significant changes
(2016–17 compared to 2015–16)
Change
(in millions of dollars)
Budgetary expenditures
Personnel

The increase is primarily related to a change in the Department's funding model and the increase to the Vote Netted Revenue Authority for Internal Services provided to CIPO.Footnote 1

The availability of funds accessed through the Main Estimates contributed to the year over year increases reflected by standard object.

39.7
Professional Services 14.4
Acquisition of machinery and equipment 13.3
Transfer Payments Major changes have been explained in Section 2.1.1. Grants & Contributions 581.9
Revenues netted against Program Expenditures
Sales of Services and Other Revenue The increase of $19.2 million in the Vote Netted Revenue Authority for Internal Services resulted in additional planned spending against Sales of Services and Other Revenue. 19.2

2.2 Authorities used and actual expenditures

Expenditures in the second quarter of 2016–17 have increased by $67.7 million compared with the same quarter last year. Year-to-date expenditures compared to last year have increased by $59.5 million. The differences occurred primarily in Grants and Contributions (Vote 10 and Statutory) and are mainly due to higher payments requested by recipients for CFI, new funding for the Sustainable Development Fund announced in Budget 2016, and payments related to a new contribution agreement for CANARIE which was only signed in the later part of last year.

Graph 2: Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2016 and September 30, 2015

Bar chart of comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2016 and September 30, 2015 (the long description is located below the image)
Description of Graph 2
Comparison of Expenditures in the Second Quarter and Net Year-to-Date Expenditures as of September 30, 2016 and September 30, 2015
Second quarter Year to date
2016-17 2015-16 2016-17 2015-16
G&CFootnote * 298 238 438 386
Operating 85 81 165 157
OtherFootnote ** 17 11 34 29
Capital 2 4 3 8
Total 402 335 640 580

Spending in the second quarter and year-to-date has changed as follows:

  • Grants and Contributions (Vote 10 and Statutory)
    • Quarterly – $60.5 million
    • Year-to-date – $51.6 million
  • Net Operating Expenditures (Vote 1)
    • Quarterly – $3.4 million
    • Year-to-date – $7.4 million
  • Other
    • CIPO Revolving Fund
      • Quarterly – $5.1 million
      • Year-to-date – $3.0 million
    • EBP
      • Quarterly – $1.4 million
      • Year-to-date – $2.8 million
  • Capital Expenditures (Vote 5)
    • Quarterly – $2.0 million
    • Year-to-date – $4.5 million

Section 2.2.1 provides a detailed breakdown of the changes from 2015–16 to 2016–17 for the Second Quarter and Year-to-date spending.

2.2.1 Highlights of Changes for the Second Quarter and Year-to-date

The following table highlights the significant changes by authority as indicated in the previous section. Some smaller variances have been excluded from the table based on materiality and to simplify the report.

Highlights of Changes for the Second Quarter and Year-to-date
Explanation of significant changes Change
(in millions of dollars)
Q2 YTD
Grants and Contributions (Vote 10 and Statutory)
New Program spending:
Sustainable Development Technology Fund 26.3 26.3
CANARIE Contribution 14.1 20.0
Stem Cell Network 6.8 6.8
Connecting Canadians 2.7 6.3
Higher approved spending requirements submitted by recipients:
Canada Foundation for Innovation 33.0 21.5
Timing variances between periods (payments are made in different quarters between fiscal years):
Institute for Quantum computing (5.0) (3.7)
Northern Ontario Development Program (3.9) (7.8)
Canadian Institute for Advanced Research (3.8)
Lower program spending requirements:
Strategic Aerospace and Defense Initiative (Variance is due to the
completion of the payment phase of contribution agreements
in 2015–16)
(7.2) (11.0)
Canada Small Business Financing Act and the
Small Business Loans Act
(3.0) (6.8)
Net Operating Expenditures (Vote 1)
Increase for legal expenditures as invoices were received and paid earlier this year compared to last yearFootnote 1 1.4 3.4
Information technology and telecommunications consultants costs related to additional requirements in CIPO (Application and Information Technology Management), Business Intelligence and IT projects 2.5 3.7
Other
CIPO Revolving Fund (Increase in Professional service costs related to the modernization of IT infrastructure and salary expenses) 1.8 4.0
CIPO Cash receipts (which offset expenditures) were lower in Q2 compared to last year due to a change in regulation in the United States Patent and Trademark OfficeFootnote 2
Overall, higher YTD cash receipts compared to last year.
3.3 (0.9)
Increase in EBP (related to new funding and change to Vote netted revenue authority) 1.4 2.8
Capital Expenditures (Vote 5)
Completion of SAM in previous fiscal year (2.5) (4.5)

2.2.2 Table 1: Departmental Budgetary Expenditures by Standard Object

Variances in spending by standard object are primarily due to the following:

Table 1: Departmental Budgetary Expenditures by Standard Object
Standard Object Spending Category Explanation of significant changes
(2016–17 compared to 2015–16)
Change
(in millions of dollars)
Q2 YTD
Budgetary expenditures
Professional Services Invoices for legal expenses were received and paid earlier this year compared to last year 1.6 3.7
Information technology and telecommunications consultants costs related to additional Business Intelligence and Information Technology project spending to streamline information record keeping and retrieval and modernize CIPO's IT infrastructure 2.0 2.9
Professional services costs related to the modernization of CIPO's IT infrastructure 1.6 3.5
Later payment of invoices for management consultant fees (0.9) -
Transfer Payments Significant changes have been explained in Section 2.2.1. 60.5 51.6

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

On September 19, 2016, Colette Downie was appointed Assistant Deputy Minister of the Corporate Management Sector and Chief Financial Officer of Innovation, Science and Economic Development Canada.

4. Risks and uncertainties

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

In the second quarter of 2016–17, implementation of significant Budget 2016 commitments is underway, including delivery of the $2 billion Post-Secondary Institutions Strategic Investment Fund and work to enhance broadband services for rural Canadians. In addition, the Department is making significant investments, such as upgrading the Communications Research Centre campus at Shirley's Bay. ISED has positioned key resources and implemented controls to ensure the effective management of these initiatives (including the establishment of a departmental Grants and Contributions Centre of Excellence). The Department will continue to utilize proven monitoring practices so that its objectives are on track to be met.

In addition, ISED continues to monitor the operating budget freeze announced in the October 2013 Speech from the Throne, and has been managing the required reductions to internal spending largely through attrition and reallocation. Strategies have been put in place to allow the Department to manage increases in operational costs as the collective bargaining agreements currently being negotiated are finalized. Any changes in this regard will be addressed in future editions of the Department's Quarterly Financial Report.

Approved by:

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John Knubley
Deputy Minister
Ottawa, Canada


November 22, 2016
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Date

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Colette Downie
Chief Financial Officer
Ottawa, Canada


November 17, 2016
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Date

Innovation, Science and Economic Development Canada
For the quarter ended

Statement of Authorities (unaudited)

 Fiscal Year 2016–17
(in thousands of dollars) Total available for use for the year ending March 31, 2017Footnote 1 Used during the quarter ended September 30, 2016 Year to date used at quarter-end
Vote 1 – Operating expenditures 468,478 108,221 207,890
Vote 1 – Revenue Credited to the Vote (98,994) (23,365) (43,383)
Vote 1 – Net Operating Expenditures 369,484 84,856 164,507
Vote 5 – Capital expenditures 17,264 2,116 3,329
Vote 10 – Grants and contributions 1,311,175 239,002 358,183
Total voted authorities 1,697,923 325,974 526,019
Budgetary statutory authorities:
Revolving Fund Gross expenditures 172,694 39,773 78,367
Revolving Fund Revenues (153,735) (37,135) (73,667)
Revolving Fund Net expenditures 18,959 2,638 4,700
Grants and Contributions
Genome Canada 68,000 46,425 61,900
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 77,908 12,546 17,552
Other statutory grants and contributions -    334 334
Total Statutory Grants and Contributions 145, 908 59,305 79,786
Employee Benefit Plans 57,885 14,358 28,717
Refunds of Previous Years Revenue -    82 226
Proceeds for Crown Asset Disposals 213 -    -   
Minister's Car Allowance 87 15 22
Total budgetary statutory authorities 223,052 76,398 113,451
Total Budgetary authorities 1,920,975 402,372 639,470
Non-budgetary authorities 800 -   -  
Total authorities 1,921,775 402,372 639,470
 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
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

Innovation, Science and Economic Development Canada
For the quarter ended

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

 Fiscal Year 2016-17
(in thousands of dollars) Planned expenditures for the year ending March 31, 2017Footnote 1 Expended during the quarter ended September 30, 2016 Year to date used at quarter-end
Expenditures:
Personnel 501,785 122,943 241,712
Transportation and communications 15,667 2,200 4,559
Information 10,557 1,838 2,975
Professional and special services 111,720 26,658 48,948
Rentals 17,285 3,649 8,180
Repair and maintenance 9,800 2,139 3,170
Utilities, materials and supplies 8,736 1,330 2,240
Acquisition of machinery and equipment 37,154 1,254 2,924
Transfer payments 1,457,083 298,307 437,969
Other subsidies and payments 3,916 2,554 3,843
Total gross budgetary expenditures 2,173,703 462,872 756,520
Less Revenues netted against expenditures:
Revolving Fund Revenues 153,734 37,135 73,667
Sales of Services and Other Revenue 98,994 23,365 43,383
Total Revenues netted against expenditures: 252,728 60,500 117,050
Total net budgetary expenditures 1,920,975 402,372 639,470
 Fiscal Year 2015-16
(in thousands of dollars) Planned expenditures for the year ending March 31, 2016Footnote 1 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
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