Quarterly Financial Report—Quarter Ended June 30, 2017


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 2017–18.

1.1 Our organization

Innovation, Science and Economic Development Canada (ISED) 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 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 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, therefore, management has prepared this report 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 2017–18 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.

In the event that Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

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 2017–18, versus 2016–17, are largely related to significant funding increases in the department's Grants and Contributions 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 June 30, 2017 and June 30, 2016

Bar chart illustrating the comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2017 and June 30, 2016 (the long description is located below the image)
Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2017 and June 30, 2016
2017–18
($ millions)
2016–17
($ millions)
G&CFootnote * 2,160 1,457
Operating 358 351
OtherFootnote ** 83 78
Capital 16 16
Total Budget 2,617 1,902

ISED's total authorities available for use of $2.6 billion, as of the first quarter of 2017–18, amount to a $714.8 million increase in comparison with the same quarter in 2016–17, as illustrated in the attached in Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. This increase includes:

  • Grants and Contributions (Vote 10 and Statutory) – $703.2 million
  • Net Operating Expenditures (Vote 1) – $7 million
  • Capital Expenditures (Vote 5) – $0.3 million
  • Other – $5 million

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

2.1.1 Highlights of Changes by Authority (2017–18 compared to 2016–17)

The following tables highlight the significant changes:

Highlights of Changes by Authority (2017–18 compared to 2016–17) - Grants and Contributions (Vote 10 and Statutory)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Funding from Budget 2016:
Post-Secondary Institutions Strategic Investment Fund 500.0
Connect to Innovate Program 65.9
Sustainable Development Technology Fund and the Next Generation Bio Fuels Fund (Statutory)
43.8
Center for Drug Research and Development 16.0
Genome Canada (Voted) 30.4
Funding increases based on cash flow requirements of recipients: 
Canada Foundation for Innovation 52.4
Automotive Innovation Fund 33.9
Automotive Supplier Innovation Program 7.9
Mitacs 2.7
Technology Demonstration Program 2.1
Programs for which funding has decreased or ended:
Genome Canada (Statutory) ($41 million decrease in funding offset by a $6.1 million reprofile from 2016–17)
(34.9)
Strategic Aerospace and Defence Initiative (11.0)
Canada Small Business Financing Program (8.9)
Other minor items, net 2.9
Total Change in Grants and Contributions 703.2
Highlights of Changes by Authority (2017–18 compared to 2016–17) - Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/ (Decrease)
in millions of dollars
New Funding from Budget 2016: 
Connect to Innovate Program 3.3
Improving Support for Entrepreneurs initiative 2.4
Automotive Innovation Fund & Automotive Innovation Office 1.5
Other minor items, net (0.2)
Total Change in Net Operating Expenditures 7.0
Highlights of Changes by Authority (2017–18 compared to 2016–17) - Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
Minor variances, net (0.3)
Total Change in Capital Expenditures (0.3)
Highlights of Changes by Authority (2017–18 compared to 2016–17) - Other
Other Increase/ (Decrease)
in millions of dollars
Increase for investments to modernize the Canadian Intellectual Property Office's IT infrastructure and to develop a suite of business services to meet client needs 9.1

Reduction in Employee Benefit costs is due to a decrease to the prescribed EBP rate used to estimate the employee benefit plan costs, from 17.2% in 2016–17 to 15.7% in 2017–18.

(4.1)
Total Change in Other 5.0

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
Spending Category Explanation of significant changes
(2017–18 compared to 2016–17)
Increase/ (Decrease)
in millions of dollars
Standard Object
Personnel The increase is primarily related to new funding received for the Connect to Innovate program ($2.2 million), the Defence Procurement Strategy ($2.1 million), and the Improving Support for Entrepreneurs Initiative ($0.5 million). 5.0
Repair and maintenance The increase is related to new funding received for the maintenance and upgrade of federal infrastructure assets at the Communications Research Centre. 5.2
Acquisition of machinery and equipment The increase is mostly related to planned investments in IT infrastructure at CIPO. 3.4
Transfer Payments Significant changes have been explained in Section 2.1.1. 703.2
Changes in Revenues netted against Program Expenditures
Revolving fund revenues Higher planned revenues this fiscal year will be utilized to fund both planned investments of CIPO's IT infrastructure and the organization's salary increases. (5.0)
Other minor items, net 3.0
Total change in Planned Expenditures 714.8

2.2 Authorities used and actual expenditures

Expenditures in the first quarter of 2017–18 have increased by $336.1 million compared with the same quarter last year.  The differences occurred primarily in Grants and Contributions (Vote 10 and Statutory) spending. 

Graph 2: Comparison of Net Expenditures in the First Quarter Expenditures as at June 30, 2017 and June 30, 2016

Bar chart of Comparison of Net Expenditures in the First Quarter Expenditures as of June 30, 2017 and June 30, 2016 (the long description is located below the image)
Description of Graph 2
Comparison of Net Expenditures in the First Quarter Expenditures as of June 30, 2017 and June 30, 2016
First quarter
2017–18
($ millions)
2016–17
($ millions)
G&CFootnote * 464 140
Operating 89 80
OtherFootnote ** 18 16
Capital 2 1
Total 573 237

Expenditures increased by a total of $336 million for the first quarter of 2017-18 compared to same time last year.  The changes by type of expenditure are as follows:

  • Grants and Contributions (Vote 10 and Statutory) : $324.2 million
  • Net Operating Expenditures (Vote 1) : $9.6 million
  • Capital Expenditures (Vote 5) : $0.8 million
  • Other : $1.5 million

Section 2.2.1 provides a detailed breakdown of the changes from 2016–17 to 2017–18 for the First Quarter.

2.2.1 Highlights of Spending Changes for the First Quarter

The following tables highlight, by authority, the larger changes in net expenditures:

Highlights of Spending Changes for the First Quarter - Grants and Contributions (Vote 10 and Statutory)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Q1
New 2017–18 Program spending:
Centre for Drug Research and Development 4.0
Higher approved spending requirements submitted by recipients:
Post-secondary Strategic Investment Fund 188.4
Canadian Foundation for Innovation 42.0
Sustainable Development Technology Fund and the Next Generation Bio Fuels Fund (Statutory and non-statutory)
30.7
Timing variances between periods (payments are made in different quarters between fiscal years):
Genome Canada 42.4
Strategic Aerospace and Defence Initiative 16.0
Mitacs 6.9
Canadian Institute for Advanced Research

(5.0)

Lower program spending requirements:
Connecting Canadians (3.0)
Other minor items, net 1.8
Total change in Grants and Contributions 324.2
Highlights of Spending Changes for the First Quarter - Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/ (Decrease)
in millions of dollars
Q1
Increase in Q1 is primarily due to retroactive payments following the signature of various Collective Agreements ($4.8 million), higher regular pay expenditures due to the revised pay rates and salary spending related to the Connect to Innovate program and the Defence Procurement Strategy ($2.2 million), and higher student pay ($1.5 million). 9.0
Other minor items, net 0.6
Total change in Net Operating Expenditures 9.6
Highlights of Spending Changes for the First Quarter - Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
Q1
Higher spending due to the upgrade of federal infrastructure assets at the Communications Research Centre 0.6
Other minor items, net 0.2
Total change in Capital Expenditures 0.8
Highlights of Spending Changes for the First Quarter - Other
Other Increase/ (Decrease)
in millions of dollars
Q1
CIPO Revolving Fund expenditures (Increases are due to higher salary and professional services costs related to the modernization of IT infrastructure and salary expenses) 1.2
CIPO Cash receipts (which offset expenditures) are lower due to smaller than expected cash receipts. 1.2
Decrease in Employee Benefit Plan expenditures due to the lower prescribed rate as described in Section 2.1.1 (0.9)
Total change in Other 1.5

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
Spending Category Explanation of significant changes
(2017–18 compared to 2016–17)
Increase/ (Decrease)
in millions of dollars
Q1
Standard Object
Personnel Increase in Q1 is primarily due to retroactive payments following the signature of various Collective Agreements ($4.8 million), higher regular pay expenditures due to the revised pay rates and salary spending related to the Connect to Innovate program and the Defence Procurement Strategy ($2.9 million), and higher student pay ($2.1 million).Footnote 1 10.6
Transfer Payments Significant changes have been explained in Section 2.2.1. 324.2
Other minor items, net 1.3
Total change in Budgetary expenditures 336.1

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

As announced in Budget 2017, Innovation Canada, led by ISED, will coordinate and streamline the support available for Canada's innovators.  Innovation Canada is the centre of expertise within ISED for program delivery, with responsibility for delivering business innovation supports and coordinating the Accelerated Growth Service and the Clean Growth Hub. Accelerated Growth Service will be delivered in collaboration with Small Business, Tourism and Marketplace Services Sector (SBTMS), which leads on entrepreneurship and growth policy. The Clean Growth Hub will be delivered in collaboration with the Science and Research Sector, which leads on clean technology and clean growth panel policy. To facilitate the new Sectors objectives, ISED reviewed its structure and reorganized its operations to the appropriate new/existing business lines; is conducting ongoing-executive competitions; and is undergoing a governance review to ensure that the existing governance functions with the new structure.

Of additional note, in the interests of advancing ISED's Innovation plan, David McGovern was appointed to the position of Associate Deputy Minister, effective May 2017.  His key responsibility will be to support ISED's three ministers in implementing the Innovation and Skills Plan.

4. Financial risks and uncertainties

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

In the first quarter of 2017–18, ISED began implementation of Budget 2017 commitments. This has included launching wide-ranging organizational changes designed to better align the department's financial and human resources to deliver on significant initiatives and new funding under the new Innovation and Skills Plan. The Department will continue to utilize proven monitoring practices so that its financial objectives remain on track to be met.

ISED has also been participating in two major review processes — the Fundamental Science Review (completed in April 2017), and the review of innovation programming announced in Budget 2017. Both processes could result in additional changes for the Department, which will be reported by future releases of the Department's Quarterly Financial Report, as required.

ISED also continues to monitor the operating budget freeze announced in the October 2013 Speech from the Throne. Strategies have been put in place to allow the Department to manage increases in operational costs as the collective bargaining agreements are finalized and retroactive payments are issued.

Approved by:

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John Knubley
Deputy Minister

August 16, 2017
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Date

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Colette Downie
Assistant DM/Chief Financial Officer

August 16, 2017
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Date

Innovation, Science and Economic Development Canada
For the quarter ended

Statement of Authorities (unaudited)

 Fiscal Year 2017–18
(in thousands of dollars) Total available for use for the year ending March 31, 2018Footnote 1 Used during the quarter ended June 30, 2017 Year to date used at quarter-end
Vote 1 – Operating expenditures 456,795 107,958 107,958
Vote 1 – Revenue Credited to the Vote (98,994) (18,699) (18,699)
Vote 1 – Net Operating Expenditures 357,801 89,259 89,259
Vote 5 – Capital expenditures 16,030 1,978 1,978
Vote 10 – Grants and contributions 2,057,305 434,261 434,261
Total voted authorities 2,431,136 525,498 525,498
Budgetary statutory authorities:
Revolving Fund Gross expenditures 186,722 39,794 39,794
Revolving Fund Revenues (158,693) (35,306) (35,306)
Revolving Fund Net expenditures 28,029 4,488 4,488
Grants and Contributions
Genome Canada 33,100 23,700 23,700
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act
69,030 5,909 5,909
Next Gen BioFuels Fund 800 - -
Other statutory grants and contributions - 1 1
Total Statutory Grants and Contributions 102,930 29,610 29,610
Employee Benefit Plans 53,807 13,452 13,452
Refunds of Previous Years Revenue -    149 149
Proceeds for Crown Asset Disposals 130 - -
Ministers' Car Allowance 88 22 22
Total budgetary statutory authorities 184,984 47,721 47,721
Total Budgetary authorities 2,616,120 573,219 573,219
Non-budgetary authorities 800 -   -  
Total authorities 2,616,920 573,219 573,219
 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 June 30, 2016 Year to date used at quarter-end
Vote 1 – Operating expenditures 449,796 99,670 99,670
Vote 1 – Revenue Credited to the Vote (98,994) (20,019) (20,019)
Vote 1 – Net Operating Expenditures 350,802 79,651 79,651
Vote 5 – Capital expenditures 16,352 1,213 1,213
Vote 10 – Grants and contributions 1,311,175 119,181 119,181
Total voted authorities 1,678,329 200,045 200,045
Budgetary statutory authorities:
Revolving Fund Gross expenditures 172,694 38,594 38,594
Revolving Fund Revenues (153,735) (36,531) (36,531)
Revolving Fund Net expenditures 18,959 2,063 2,063
Grants and Contributions
Genome Canada 68,000 15,475 15,475
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act
77,908 5,006 5,006
Next Gen BioFuels Fund -    -    -   
Other statutory grants and contributions -    - -
Total Statutory Grants and Contributions 145,908 20,481 20,481
Employee Benefit Plans 57,885 14,358 14,358
Refunds of Previous Years Revenue -    144 144
Proceeds for Crown Asset Disposals 199 - -
Ministers' Car Allowance 88 7 7
Total budgetary statutory authorities 223,039 37,053 37,053
Total Budgetary authorities 1,901,368 237,098 237,098
Non-budgetary authorities 800 -   -  
Total authorities 1,902,168 237,098 237,098

Innovation, Science and Economic Development Canada
For the quarter ended

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

 Fiscal Year 2017–18
(in thousands of dollars) Planned expenditures for the year ending March 31, 2018Footnote 1 Expended during the quarter ended June 30, 2017 Year to date used at quarter-end
Expenditures:
Personnel 506,798 129,425 129,425
Transportation and
communications
12,288 2,442 2,442
Information 8,612 1,430 1,430
Professional and special services 108,944 21,362 21,362
Rentals 14,086 3,110 3,110
Repair and maintenance 14,496 1,821 1,821
Utilities, materials and supplies 8,313 911 911
Acquisition of machinery and
equipment
39,906 774 774
Transfer payments 2,160,234 463,871 463,871
Other subsidies and payments 130 2,078 2,078
Total gross budgetary expenditures 2,873,807 627,224 627,224
Less Revenues netted against expenditures:
Revolving Fund Revenues 158,693 35,306 35,306
Sales of Services and Other
Revenue
98,994 18,699 18,699
Total Revenues netted against
expenditures:
257,687 54,005 54,005
Total net budgetary expenditures 2,616,120 573,219 573,219
 Fiscal Year 2016–17
(in thousands of dollars) Planned expenditures for the year ending March 31, 2017Footnote 1 Expended during the quarter ended June 30, 2016 Year to date used at quarter-end
Expenditures:
Personnel 501,785 118,769 118,769
Transportation and
communications
11,756 2,360 2,360
Information 8,452 1,137 1,137
Professional and special services 109,031 22,289 22,289
Rentals 12,863 4,531 4,531
Repair and maintenance 9,272 1,032 1,032
Utilities, materials and supplies 7,125 910 910
Acquisition of machinery and
equipment
36,531 1,669 1,669
Transfer payments 1,457,083 139,662 139,662
Other subsidies and payments 199 1,289 1,289
Total gross budgetary expenditures 2,154,097 293,648 293,648
Less Revenues netted against expenditures:
Revolving Fund Revenues 153,735 36,531 36,531
Sales of Services and Other
Revenue
98,994 20,019 20,019
Total Revenues netted against
expenditures:
252,729 56,550 56,550
Total net budgetary expenditures 1,901,368 237,098 237,098
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