Quarterly Financial Report
Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs
For the Quarter Ended September 30, 2018

From: Innovation, Science and Economic Development Canada

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 2018–19.

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 which includes the 2018–19 Main and Supplementary Estimates as well as any adjustments, warrants and transfers.

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:

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

The variances in authorities available for use in 2018–19, versus 2017–18, are largely related to funding increases in the department's Grants and Contributions and Operating votes, as described below. The spending to date is currently lower when compared to last year mainly due to contribution agreement project delays as well as new contribution programs that have experienced a high volume of application intake which must be processed before contribution agreements can be put in place and payments processed. ISED is currently tracking its expenditures closely and the appropriate financial management strategies will be put in place as required in the following quarters.

2.1 Authorities available for use and planned expenditures

ISED's total authorities available for use of $2.9 billion at the end of the second quarter in 2018–19, amounts to a $303.5 million increase over the same period in 2017–18. This is illustrated in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2018 and September 30, 2017

Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2018 and September 30, 2017
2018–19
($ millions)
2017–18
($ millions)
G&CNote * 2,443 2,160
Operating 413 379
OtherNote ** 81 83
Capital 6 17
Total Budget 2,943 2,639

The overall increase includes:

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

2.1.1    Highlights of Changes by Authority (2018–19 compared to 2017–18)

The following tables highlight the larger 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 2018
Strategic Innovation Fund $10.0
Computers for Schools 4.7
Funding from Budget 2017
Innovation Superclusters Initiative 243.9
Strategic Innovation Fund 93.6
Sustainable Development Technology Fund 70.0
CanCode 29.0
Mitacs 26.5
Other 21.0
Funding increases based on cash flow requirements of existing programs:
Strategic Innovation Fund 199.9
Connect to Innovate 183.2
Canada Foundation for Innovation 79.8
Bombardier C-Series 15.5
Genome 13.0
Digital Skills for Youth 9.5
Other 0.7
Funding decreases based on cash flow requirements of existing programs:
Post-Secondary Institution Strategic Investment Fund (485.4)
Sustainable Development Technology Fund (83.9)
Connecting Canadians Program (60.9)
Automotive Innovation Fund (51.7)
Automotive Suppliers Innovation Program (17.3)
Strategic Aerospace Defence Initiative (9.3)
Technology Demonstration Program (7.8)
Computers for Schools (5.0)
Other (3.2)
Programs for which funding has ended:
Canada 150 Infrastructure Program (5.2)
Other minor items, net 0.1
Total change in Vote 10 270.7
Statutory
Funding from Budget 2017:
Canadian Institute for Advanced Research (CIFAR) - Pan Canadian Artificial Intelligence 25.0
Programs for which funding has decreased:
Genome - Contributions (6.7)
Canada Small Business Financing Act (4.1)
Other minor items, net (2.5)
Total change in Statutory 11.7
Total change in Grants and Contributions (Vote 10 and Statutory) $282.4
Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/(Decrease)
in millions of dollars
Funding from Budget 2018 $0.6
Funding from Budget 2017 23.6
Operating expenditure decreases for existing programs and programs that have ended (6.3)
Funds received from Treasury Board Vote 15 for compensation adjustments related to changes in the terms and conditions of employment 8.9
Funding reprofiled from previous years which was not required for retroactive collective agreement payments 5.9
Other minor items, net 0.9
Total change in Net Operating Expenditures (Vote 1) $33.6
Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/(Decrease)
in millions of dollars
Ending of funding for the 2014 and 2016 Federal Infrastructure Program at the Communications Research Centre $(10.1)
Other minor items, net (0.9)
Total change in Capital Expenditures (Vote 5) $(11.0)
Other
Other Increase/(Decrease)
in millions of dollars
Increase in planned Employee Benefit costs is due to an increase to the prescribed EBP rate used to estimate plan costs as well as funding received for various Budget 2017 initiatives. $1.7
Increase in forecasted revenues offset by an increase in planned expenditures for investments to modernize CIPO's IT infrastructure and to develop a suite of business services to meet client needs. (3.3)
Other minor items, net 0.1
Total change in Other $(1.5)

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
(2018–19 compared to 2017–18)
Increase/(Decrease)
in millions of dollars
Standard Object
Personnel The increase is primarily related to new funding received for Compensation Adjustments, Collective Agreements, and new programs. $24.8
Professional Services The increase is primarily related to development costs for IT which is taking place within CIPO. 8.6
Transfer Payments Significant changes have been explained in Section 2.1.1. 282.4
Changes in Revenues netted against Program Expenditures
Sales of service and other revenues Higher planned revenues for internal services are related to developing IT projects for CIPO. (10.0)
Revolving fund revenues Higher forecasted revenues are primarily related to CIPO services. (5.3)
Other minor items, net 3.0
Total change in Planned Expenditures $303.5

2.2 Authorities used and actual expenditures

Expenditures for the second quarter of 2018–19 have decreased by $116.1 million for the quarter and by $192.3 million for the year-to-date spending when compared to the same period last year. The differences occurred primarily in Grants and Contributions (Vote 10 and Statutory) and is largely attributable to timing variances for payments to recipients as well as within programs which are winding down. Overall spending for the year is expected to be higher than last, as described above in section 2.1 – Authorities available for use and planned expenditures.

Graph 2: Comparison of Net Expenditures in the First Quarter Expenditures as at September 30, 2018 and September 30, 2017

Description of Graph 2
Comparison of Net Expenditures in the First Quarter Expenditures as at September 30, 2018 and September 30, 2017
Second quarter
($ millions)
Year to date
($ millions)
2018–19 2017–18 2018–19 2017–18
G&CNote * 404 506 786 970
Operating 94 103 187 193
OtherNote ** 17 18 38 36
Capital 0 4 1 6
Total 515 631 1,012 1205

By category, the spending in the second quarter and year-to-date compared to the same time last year has changed as follows:

Section 2.2.1 provides a detailed breakdown of the changes from 2018–19 to 2017–18 for the Second Quarter.

2.2.1    Highlights of Spending Changes for the Second Quarter

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

Grants and Contributions (Vote 10 and Statutory)
Grants and Contributions (Vote 10 and Statutory) Increase/(Decrease)
in millions of dollars
Q2 Q2 YTD
Higher approved spending requirements submitted by recipients:
Canadian Foundation for Innovation $58.0 $110.7
Timing variances between periods (payments are made in different quarters between fiscal years):
Genome Canada 51.5 9.6
Mitacs 19.1 25.5
Changes due to reprofiling funding to future fiscal years:
Sustainable Development Technology Canada (59.6) (90.3)
Lower spending due to decreased funding; programs winding down
Strategic Aerospace Defence Initiative (12.8) (29.9)
Post-Secondary Institution Strategic Investment Fund (155.0) (211.7)
Other minor items, net (2.7) 2.7
Total change in Grants and Contributions $(101.5) $(183.4)
Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/(Decrease)
in millions of dollars
Q2 Q2 YTD
Operating expenditures: The decrease between Q2 of the current fiscal year and the same quarter of the previous fiscal year is mostly related to retroactive salary distributions for new collective agreements (those signed after existing agreements had expired). This is offset in the year-to-date figures by planned increases to salaries for new programs. $(7.8) $(1.0)
Revenue credited to vote: Increase in revenue for Internal Services provided to CIPO and the departmental revolving fund. Additionally, an increase in respendable revenue recorded for the Competition Bureau was related to a higher volume of merger review services. In May, the charge for Competition Bureau's merger review service also increased. (3.7) (5.9)
Other minor items, net 1.5 1.3
Total change in Net Operating Expenditures (Vote 1) $(10.0) $(5.6)
Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/(Decrease)
in millions of dollars
Q2 Q2 YTD
Reduced spending for the completion of Federal Infrastructure projects $(3.7) $(5.0)
Other minor items, net 0.2 0.4
Total change in Capital Expenditures (Vote 5) $(3.5) $(4.6)
Other
Other Increase/(Decrease)
in millions of dollars
Q2 Q2 YTD
Increase in expenditures for investments to modernize CIPO's IT infrastructure and to develop a suite of business services to meet client needs. This has been offset in Q2 by an increase in CIPO recorded revenues. $(1.6) $0.4
Other minor items, net 0.5 1.0
Total change in Other $(1.1) $1.4

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
Q2 Q2 YTD
Standard Object
Personnel Significant changes have been explained in Section 2.2.1 – Net Operating Expenditures. $(6.4) $(3.0)
Transfer Payments Significant changes have been explained in Section 2.2.1. (101.5) (183.4)
Other minor items, net (8.2) (5.9)
Total change in Budgetary expenditures $(116.1) $(192.3)

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

Effective August 13, 2018, Guylaine Roy became the Deputy Minister, Tourism, Official Languages and La Francophonie to support Minister Joly in her ministerial functions.

4. Financial risks and uncertainties

In the second quarter of 2018–19, the Department continued to refine and strengthen its existing stewardship and oversight practices to monitor program funding and expenditures. The Department will continue to ensure that it is monitoring and addressing the following risks that were identified during the first quarter:

The Department will continue to focus its efforts towards better overall integration which includes ensuring the development and implementation of an integrated business planning process, and the further integration of financial and performance information. This will facilitate having the right information and data available for decision-making at the departmental Resource Management Committee (RMC).

To ensure financial transparency, the Department will continue to promote the importance of the RMC to its members and its role in the reallocation and allocation of resources in the Department. The Department will also continue to develop tools that will further encourage transparency and accountability in financial decision-making.

The printed version was signed by:

Space to insert signature
John Knubley
Deputy Minister

November 23, 2018
Date

Space to insert signature
Simon Brault,
Acting Assistant Deputy Minister/Chief Financial Officer

November 15, 2018
Date

Statement of authorities (unaudited)
Fiscal Year 2018–19 Fiscal Year 2017–18
(in thousands of dollars) Total available for use for the year ending March 31, 2019Note 1 Used during the quarter ended September 30, 2018 Year to date used at quarter-end Total available for use for the year ending March 31, 2018Note 1 Used during the quarter ended September 30, 2017 Year to date used at quarter-end
Vote 1 - Operating expenditures 521,730 118,700 233,715 478,180 126,448 234,406
Vote 1 - Revenue Credited to the Vote (108,994) (25,114) (46,510) (98,994) (22,912) (41,611)
Vote 1 - Net Operating Expenditures 412,736 93,586 187,205 379,186 103,536 192,795
Vote 5 - Capital expenditures 5,983 448 1,360 16,946 3,989 5,966
Vote 10 - Grants and contributions 2,328,002 378,920 746,298 2,057,305 490,870 925,132
Total voted authorities 2,746,721 472,954 934,863 2,453,437 598,395 1,123,893
Revolving Fund Gross expenditures 188,797 41,589 84,074 186,722 41,545 81,339
Revolving Fund Revenues (164,033) (38,519) (74,486) (158,693) (36,838) (72,144)
Revolving Fund Net expenditures 24,764 3,070 9,588 28,029 4,707 9,195
Grants and Contributions
Genome Canada 24,700 15,225 20,300 33,100 - 23,700
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 64,946 9,923 19,410 69,030 14,680 20,588
Next Gen BioFuels Fund - - - 800 - -
CIFAR - Pan-Canadian Artificial Intelligence 25,000 - - - - -
Other statutory grants and contributions - 8 8 - - 1
Total Statutory Grants and Contributions 114,646 25,156 39,718 102,930 14,680 44,289
Employee Benefit Plans 55,503 13,859 27,718 53,808 13,452 26,904
Refunds of Previous Years Revenue - 122 331 - 56 206
Proceeds for Crown Asset Disposals 275 - - 184 9 9
Ministers' Car Allowance 90 44 66 88 22 44
Total budgetary statutory authorities 195,278 42,251 77,421 185,039 32,926 80,647
Total Budgetary authorities 2,941,999 515,205 1,012,284 2,638,476 631,321 1,204,540
Non-budgetary authorities 800 - - 800 - -
Total authorities 2,942,799 515,205 1,012,284 2,639,276 631,321 1,204,540
Table 1: Departmental budgetary expenditures by Standard Object (unaudited)
Fiscal Year 2018–19 Fiscal Year 2017–18
(in thousands of dollars) Planned expenditures for the year ending March 31, 2019 Note 1 Expended during the quarter ended September 30, 2018 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2018Note 1 Expended during the quarter ended September 30, 2017 Year to date used at quarter-end
Expenditures:
Personnel 531,588 131,330 264,129 506,798 137,720 267,146
Transportation and communications 15,327 2,695 5,203 15,853 2,386 4,827
Information 12,452 2,150 3,602 10,633 1,567 2,998
Professional and special services 124,709 25,860 50,792 116,086 29,426 50,789
Rentals 20,129 3,455 7,183 18,074 5,034 8,143
Repair and maintenance 13,597 1,034 1,694 15,024 3,563 5,385
Utilities, materials and supplies 8,958 1,134 1,987 8,796 1,373 2,284
Acquisition of machinery and equipment 45,342 2,411 4,580 44,267 2,036 2,809
Transfer payments 2,442,649 404,076 786,016 2,160,235 505,550 969,421
Other subsidies and payments 275 4,693 8,094 397 2,416 4,493
Total gross budgetary expenditures 3,215,026 578,838 1,133,280 2,896,163 691,071 1,318,295
Less Revenues netted against expenditures:
Revolving Fund Revenues 164,033 38,519 74,486 158,693 36,838 72,144
Sales of Services and Other Revenue 108,994 25,114 46,510 98,994 22,912 41,611
Total Revenues netted against expenditures: 273,027 63,633 120,996 257,687 59,750 113,755
Total net budgetary expenditures 2,941,999 515,205 1,012,284 2,638,476 631,321 1,204,540
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