Quarterly Financial Report—Quarter Ended December 31, 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 and Operating votes, 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 December 31, 2017 and December 31, 2016

Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of December 31, 2017 and December 31, 2016
2017–18
($ millions)
2016–17
($ millions)
G&CNote * 1,978 1,712
Operating 415 370
OtherNote ** 85 78
Capital 17 21
Total Budget 2,495 2,181

ISED's total authorities available for use of $2.5 billion, as of the third quarter of 2017–18, amount to a $313.3 million increase in comparison with the same quarter in 2016–17, as illustrated in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. This increase includes:

  • Grants and Contributions (Vote 10 and Statutory): $265.8 million
  • Net Operating Expenditures (Vote 1): $45.0 million
  • Capital Expenditures (Vote 5): $3.7 million
  • Other: $6.2 million
    • CIPO Revolving Fund: $9.1  million
    • Employee Benefit Plan (EBP): $2.9 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:

Grants and Contributions (Vote 10 and Statutory)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Vote 10:
Funding from Budget 2017:
Strategic Innovation Fund
44.7
Innovation Superclusters Initiative
43.7
Sustainable Development Technology Fund
24.7
CanCode
19.1
Mitacs
11.5
Northern Ontario Development Program
4.6
Other minor Budget 2017 items
6.6
Programs for which funding has increased:
Post-Secondary Institutions Strategic Investment Fund
251.1
Automotive Innovation Fund
77.6
Connect to Innovate
65.9
Canada Foundation for Innovation
52.4
Sustainable Development Technology Fund
45.1
Genome Canada
30.4
Centre for Drug Research and Development
16.0
Automotive Suppliers Innovation Program
8.7
Other minor funding changes due to cash flow requirements
6.7
Funding deferred to future fiscal years:
Post-Secondary Institutions Strategic Investment Fund (from 2017–18 to 2018–19)
(265.0)
Connect to Innovate (from 2017–18 to 2019–20)
(70.9)
Sustainable Development Technology Fund (from 2017–18 to multiple fiscal years)
(23.3)
Other minor funding deferred to future fiscal years
(1.1)
Programs for which funding has decreased or ended:
Youth Internships Program
(9.7)
Strategic Aerospace and Defence Initiative
(8.3)
Connecting Canadians Program
(7.0)
Other minor funding decreases
(1.3)
Other minor items, net (0.9)
Total Change in in Vote 10 321.3
Statutory
Funding increases based on cash flow requirements of recipients:
Canadian Institute for Advanced Research 15.0
Programs for which funding has decreased or ended:
Genome (34.9)
Sustainable Development Technology Fund (26.7)
Canada Small Business Financing Act (8.9)
Total Change in Statutory  (55.5)
Total Change in Grants and Contributions (Vote 10 and Statutory) 265.8
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
Funding received from the operating budget carry-forward 2.7
Improving Support for Entrepreneurs initiative 2.4
Other minor new funding from Budget 2016 1.5
New Funding from Budget 2017:
Innovation Superclusters Initiative 5.6
Innovative Solutions Canada 5.6
Strategic Innovation Fund 4.7
Advancing Clean Technology 2.6
Other minor new funding from Budget 2017 2.6
Funds received from TBS for Collective Agreements 13.7
Other minor items, net 0.3
Total Change in Net Operating Expenditures 45.0
Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
Reduction of funds to support investments various capital projects (3.2)
Minor variances, net (0.5)
Total Change in Capital Expenditures (3.7)
Other
Other Increase/ (Decrease)
in millions of dollars
Increase for investments to modernize the Canadian Intellectual Property Office's (CIPO) 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. (2.9)
Total Change in Other 6.2

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 Collective Agreements ($13.7 million) and the following programs: Connect to Innovate program, the Innovation Superclusters Fund, the Defence Procurement Strategy, the Strategic Innovation Fund, Innovative Solutions Canada, and Advancing Clean Technology, for a total of $10.3 million. 24.0
Professional Services The increase in related to planned/ongoing legal cases and other litigation costs. 17.7
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 (CRC). 5.2
Acquisition of machinery and equipment The increase is mostly related to planned investments in IT infrastructure at CIPO and expenditures incurred for the National Accommodation Strategy and office relocations for the implementation of the innovation and skills plan. 6.0
Transfer Payments Significant changes have been explained in Section 2.1.1. 265.8
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 higher FTE utilization and Phoenix-related issues. (5.0)
Other minor items, net (0.4)
Total change in Planned Expenditures 313.3

2.2 Authorities used and actual expenditures

Expenditures for the third quarter of 2017–18 have decreased by $221.0 million for the quarter and increased by $344.1 million for the year-to-date spending compared to the same time last year. The differences occurred primarily in Grants and Contributions (Vote 10 and Statutory) and Operating expenditures. 

Graph 2: Comparison of Net Third Quarter Expenditures and Net Year to Date Expenditures as at December 31, 2017 and December 31, 2016

Description of Graph 2
Comparison of Net Third Quarter Expenditures and Net Year to Date Expenditures as at December 31, 2017 and December 31, 2016
Third quarter
($ millions)
Year to date
($ millions)
2017–18 2016–17 2017–18 2016–17
G&CNote * 285 518 1,255 956
Operating 95 85 288 249
OtherNote ** 19 19 55 53
Capital 5 3 10 6
Total 404 625 1,608 1,264

By category, the spending in the third quarter and year-to-date has changed as follows:

  • Grants and Contributions (Vote 10 and Statutory):
    • Quarterly – $232.7  million
    • Year-to-date – $298.8 million
  • Net Operating Expenditures (Vote 1):
    • Quarterly – $10.8 million
    • Year-to-date – $39.1 million
  • Capital Expenditures (Vote 5):
    • Quarterly – $1.8 million
    • Year-to-date – $4.4 million
  • Other:
    • CIPO Revolving Fund:
      • Quarterly – Nil
      • Year-to-date – $4.5 million
    • EBP:
      • Quarterly – $0.9 million
      • Year-to-date – $2.7 million

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

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

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

Highlights of Spending Changes for the Third Quarter - Grants and Contributions (Vote 10 and Statutory)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Q3 Q3 YTD
New 2017–18 Program spending:
Centre for Drug Research and Development - 16.0
Higher approved spending requirements submitted by recipients:
Post-secondary Strategic Investment Fund - Q3: in Q3 of 2016–17, spending was related to advance payments for two quarters, whereas spending this year was only related to Q3. Year-to-date (YTD): higher spending overall for the year.
(219.8) 131.8
Sustainable Development Technology Fund and the Next Generation Bio Fuels Fund (Statutory and non-statutory) - Q3: spending is lower due to the initial advance being requested earlier this year. YTD: higher spending based on program requirements.
(59.0) 16.3
Timing variances between periods (payments are made in different quarters between fiscal years):
Strategic Aerospace and Defence Initiative 31.0 76.3
Bombardier 5.1 18.1
Other minor timing variances 1.3 1.0
Changes in program spending requirements:
Genome Canada (Non-statutory) - Higher YTD spending due to larger budget attributed to non-statutory funding
- 30.4
Canadian Foundation for Innovation
30.9 52.4
Contribution to Mitacs
(17.9) 2.7
Genome Canada (Statutory)
- (38.2)
Other minor changes in program spending requirements
(3.9) (9.1)
Other minor items, net (0.4) 1.1
Total change in Grants and Contributions (232.7) 298.8
Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/ (Decrease)
in millions of dollars
Q3 Q3 YTD
Increase in Q3 and YTD is primarily due to retroactive payments following the signature of various Collective Agreements ($2.7 million - Q3, $21.3 million - YTD); 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 ($3.8 million - Q3, $7.9 million - YTD); and higher part-time, casual, and student pay ($1.4 million - Q3, $4.2 million - YTD). 7.9 33.5
Other minor items, net 2.9 5.6
Total change in Net Operating Expenditures 10.8 39.1
Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
Q3 Q3 YTD
Higher expenditures due to CRC Infrastructure projects. 1.8 4.4
Total change in Capital Expenditures 1.8 4.4
Other
Other Increase/ (Decrease)
in millions of dollars
Q3 Q3 YTD

CIPO Revolving Fund expenditures:

  • $2.7 million YTD increase due to higher capital spending in professional services related to the modernization of the organization's IT and to the increase in salaries due to higher FTE utilization and Phoenix-related issues.
- 2.7
CIPO Cash receipts (which offset expenditures) are lower due to smaller than expected cash receipts for the quarter and YTD. - 1.9
Decrease in Employee Benefit Plan expenditures due to the lower prescribed rate as described in Section 2.1.1 (0.9) (2.7)
Other minor items, net - (0.1)
Total change in Other (0.9) 1.8

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
Q3 Q3 YTD
Standard Object
Personnel Increase in Q3 spending is due to retroactive payments following the signature of various Collective Agreements ($2.0 million - Q3, $19.6 million - YTD); 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 ($5.1 million - Q3, $10.1 million - YTD); and higher part-time, casual, and student pay ($1.0 million - Q3, $3.0 million - YTD) offset by a few smaller adjustments in other spending.Note 1 10.3 35.7
Professional and special services Increase in spending mainly due to research work for Improving support for Entrepreneurs, new activities related to Economic Strategy Tables and Skills (ESTS), Automotive Transportation and Digital Technology (ATDT), Spectrum Monitoring Evolution, as well as higher contracting expenditures under PSIF and various initiatives.Note 1 3.0 4.9
Repair and Maintenance The increase in spending related to new funding received for the maintenance and upgrade of federal infrastructure assets at the Communications Research Centre. 2.6 4.8
Transfer Payments Significant changes have been explained in Section 2.2.1. (232.7) 298.8
Changes in Revenues netted against Program Expenditures:
Sales of Services and Other Revenue Higher Revenue collected by the Vote Net Revenue organizations. (4.0) (2.3)
Other minor items, net (0.2) 2.2
Total change in Budgetary expenditures (221.0) 344.1

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

Effective November 20, 2017, Paul Thompson became the new Associate Deputy Minister at Innovation, Science and Economic Development Canada.

In December 2017, the Deputy Ministers announced that, as of January 2, 2018, Philippe Thompson would assume the role of Chief Financial Officer and Assistant Deputy Minister of the Corporate Management Sector.

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 third quarter of 2017–18, ISED continued 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 target to be met.

Since the introduction of the new pay system in February 2016, there have been issues with both Phoenix and the Pay Centre's capacity to deliver pay services on time, with a resulting backlog of transactions. A dedicated group of employees in the Human Resources Branch has been created in an attempt to support employees and managers, and to minimize the impacts of any pay issues faced by employees. In addition, a salary team was formally established in the Financial Operations Directorate. This team has also been designated as the Departmental claims Authorities Office to assist employees that have incurred financial expenses as a result of Phoenix. To better understand the impact of overpayments and underpayments, the Department is performing routine analysis. On a quarterly basis, this departmental analysis is reported to TBS.

Approved by:

Space to insert signature
John Knubley
Deputy Minister

February 23, 2018
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Date

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Philippe Thompson
Assistant DM/Chief Financial Officer

February 21, 2018
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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, 2018Note 1 Used during the quarter ended December 31, 2017 Year to date used at quarter-end
Vote 1 – Operating expenditures 513,778 122,613 356,813
Vote 1 – Revenue Credited to the Vote (98,994) (27,257) (68,662)
Vote 1 – Net Operating Expenditures 414,784 95,356 288,151
Vote 5 – Capital expenditures 16,946 4,662 10,628
Vote 10 – Grants and contributions 1,860,508 264,576 1,189,708
Total voted authorities 2,292,238 364,594 1,488,487
Budgetary statutory authorities:
Revolving Fund Gross expenditures 186,722 42,474 123,813
Revolving Fund Revenues (158,693) (37,530) (109,675)
Revolving Fund Net expenditures 28,029 4,944 14,138
Grants and Contributions
Genome Canada 33,100 - 23,700
Liabilities under the Canada Small Business Financing Act and the Small Business Loans Act
69,030 13,160 33,749
Sustainable Development Technology Fund 800 - -
Canadian Institute for Advanced Research 15,000 7,500 7,500
Technology Partnerships Canada - - 1
Total Statutory Grants and Contributions 117,930 20,660 64,950
Employee Benefit Plans 55,313 13,452 40,356
Refunds of Previous Years Revenue - 63 269
Proceeds for Crown Asset Disposals 216 2 11
Ministers' Car Allowance 88 22 66
Total budgetary statutory authorities 201,576 39,143 119,790
Total Budgetary authorities 2,493,814 403,737 1,608,277
Non-budgetary authorities 800 - -
Total authorities 2,494,614 403,737 1,608,277
Fiscal Year 2016–17
(in thousands of dollars) Total available for use for the year ending March 31, 2017Note 1 Used during the quarter ended December 31, 2016 Year to date used at quarter-end
Vote 1 – Operating expenditures 468,792 107,146 314,923
Vote 1 – Revenue Credited to the Vote (98,994) (22,617) (65,886)
Vote 1 – Net Operating Expenditures 369,798 84,529 249,037
Vote 5 – Capital expenditures 20,611 2,885 6,213
Vote 10 – Grants and contributions 1,539,225 470,269 828,452
Total voted authorities 1,929,634 557,683 1,083,702
Budgetary statutory authorities:
Revolving Fund Gross expenditures 172,694 42,779 121,146
Revolving Fund Revenues (153,735) (37,860) (111,526)
Revolving Fund Net expenditures 18,959 4,919 9,620
Grants and Contributions
Genome Canada 68,000 - 61,900
Liabilities under the Canada Small Business Financing Act and the Small Business Loans Act
77,908 20,171 37,723
Sustainable Development Technology Fund 27,476 27,476 27,476
Canadian Institute for Advanced Research - - -
Technology Partnerships Canada - - 334
Total Statutory Grants and Contributions 173,384 47,647 127,433
Employee Benefit Plans 58,174 14,359 43,076
Refunds of Previous Years Revenue - 81 306
Proceeds for Crown Asset Disposals

238

8 8
Ministers' Car Allowance 88 36 58
Total budgetary statutory authorities 250,843 67,050 180,501
Total Budgetary authorities 2,180,477 624,733 1,264,203
Non-budgetary authorities 800 - -
Total authorities 2,181,277 624,733 1,264,203

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, 2018Note 1 Expended during the quarter ended Decebmer 31, 2017 Year to date used at quarter-end
Expenditures:
Personnel 529,576 133,657 400,803
Transportation and communications
16,601 3,629 8,457
Information 11,894 1,835 4,833
Professional and special services 128,326 31,908 82,697
Rentals 18,114 3,919 12,062
Repair and maintenance 15,061 4,401 9,785
Utilities, materials and supplies 8,796 1,442 3,727
Acquisition of machinery and equipment
44,267 2,544 5,354
Transfer payments 1,978,437 285,237 1,254,658
Other subsidies and payments 429 (761) 3,732
Total gross budgetary expenditures 2,751,501 467,811 1,786,108
Less Revenues netted against expenditures:
Revolving Fund Revenues 158,693 37,530 109,675
Sales of Services and Other Revenue
98,994 26,544 68,156
Total Revenues netted against expenditures:
257,687 64,074 177,831
Total net budgetary expenditures 2,493,814 403,737 1,608,277
Fiscal Year 2016–17
(in thousands of dollars) Planned expenditures for the year ending March 31, 2017Note 1 Expended during the quarter ended December 31, 2016 Year to date used at quarter-end
Expenditures:
Personnel 505,663 123,396 365,108
Transportation and communications
15,674 3,368 7,928
Information 10,619 1,790 4,765
Professional and special services 110,626 28,890 77,838
Rentals 17,292 3,463 11,643
Repair and maintenance 9,800 1,789 4,960
Utilities, materials and supplies 8,744 1,372 3,611
Acquisition of machinery and equipment
38,237 2,418 5,342
Transfer payments 1,712,610 517,916 955,885
Other subsidies and payments 3,941 706 4,547
Total gross budgetary expenditures 2,433,206 685,108 1,441,627
Less Revenues netted against expenditures:
Revolving Fund Revenues 153,735 37,860 111,526
Sales of Services and Other Revenue
98,994 22,515 65,898
Total Revenues netted against expenditures:
252,729 60,375 177,424
Total net budgetary expenditures 2,180,477 624,733 1,264,203
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