Quarterly Financial Report—Quarter Ended December 31, 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 timing differences related to cash flow requirements of transfer payment recipients as well as delays in current contribution agreement projects and implementation of new contribution programs.

2.1 Authorities available for use and planned expenditures

ISED's total authorities available for use of $2.8 billion at the end of the third quarter in 2018–19, amounts to a $313.1 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 December 31, 2018 and December 31, 2017

Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of December 31, 2018 and December 31, 2017
2018–19
($ millions)
2017–18
($ millions)
G&CNote * 2,293 1,978
Operating 426 415
OtherNote ** 83 85
Capital 6 17
Total Budget 2,808 2,495

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) Increase/(Decrease)
in millions of dollars
Vote 10
Funding from Budget 2018:
Strategic Innovation Fund $135.0
Canada Foundation for Innovation 32.0
Growth through Regional Innovation 4.1
Computers for School 4.7
Funding from Budget 2017:
Strategic Innovation Fund 259.5
Sustainable Development Technology Fund 70.0
Innovation Superclusters Initiative 18.2
Mitacs 15.0
CanCode 11.1
Other 10.6
Funding increases based on cash flow requirements of existing programs:
Connect to Innovate 134.0
Canada Foundation for Innovation 79.8
Bombardier C-Series 15.5
Genome 13.0
Other 10.0
Funding decreases based on cash flow requirements of existing programs:
Post-Secondary Institution Strategic Infrastructure Fund (220.4)
Sustainable Development Technology Fund (117.5)
Connecting Canadians Program (53.4)
Automotive Innovation Fund (51.7)
Automotive Suppliers Innovation Program (17.3)
Strategic Aerospace Defence Initiative (11.8)
Other (16.4)
Programs for which funding has ended:
Canada 150 Infrastructure Program (5.2)
Other minor items, net (1.4)
Total Change in Vote 10 317.4
Statutory
Funding from Budget 2017:
Canadian Institute for Advanced Research (CIFAR — Pan Canadian Artificial Intelligence) 10.0
Programs for which funding has decreased:
Genome — Contributions (8.4)
Canada Small Business Financing Act (4.1)
Other minor items, net (0.8)
TOTAL CHANGE IN Statutory (3.3)
Total Change in Grants and Contributions (Vote 10 and Statutory) $314.1
Net Operating Expenditures (Vote 1) Increase/(Decrease)
in millions of dollars
Funding from Budget 2018 $6.2
Funding from Budget 2017 3.4
Operating Expenditure Decreases for Existing Programs and Programs that have ended (5.7)
Funds received from Treasury Board for Compensation Adjustments related to changes in the terms and conditions of employment (4.8)
Exceptional Funding Reprofiled From Previous Years Not Required to Cover Retroactive Collective Agreement Payments 5.9
Funds received from Treasury Board related to retroactive Pay 3.7
Other minor items 2.4
TOTAL CHANGE IN Net Operating Expenditures $11.1
Capital Expenditures (Vote 5) Increase/(Decrease)
in millions of dollars
Ending of funding for the 2014 and 2016 Federal Infrastructure Program $(10.1)
Other minor items, net (0.5)
TOTAL CHANGE IN Capital Expenditures $(10.6)
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 2018 initiatives. $1.3
Increase in forecasted revenue 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 0.5
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:

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, Vote-Netted Revenue and new programs. $12.7
Professional Services The increase is primarily related to development costs for IT which is taking place within CIPO. 4.3
Transfer Payments Significant changes have been explained in Section 2.1.1. 314.1
Changes in Revenues netted against Program Expenditures
Revolving fund revenues Higher planned revenues this fiscal year will be utilized to fund planned investments of CIPO's IT infrastructure. (5.3)
Other revenues Higher planned revenues at the Competition Bureau, the Communications Research Centre and within the Digital Transformation Service Sector. (17.2)
Other minor items, net 4.5
TOTAL CHANGE IN Planned Expenditures $313.1

2.2 Authorities used and actual expenditures

Expenditures for the third quarter of 2018–19 have decreased by $70.9 million for the quarter and by $263.1 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 year, as described above in section 2.1 — Authorities available for use and planned expenditures.

Graph 2: Comparison of Net Third Quarter and Year to date Expenditures as at December 31, 2018 and December 31, 2017

Description of Graph 2
Comparison of Net Expenditures in the First Quarter Expenditures as at December 31, 2018 and December 31, 2017
Third quarter
($ millions)
Year to date
($ millions)
2018–19 2017–18 2018–19 2017–18
G&CNote * 215 285 1,001 1255
Operating 100 95 287 288
OtherNote ** 17 19 55 55
Capital 1 5 2 10
Total 333 404 1,345 1608

By category, the spending in the third 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 Third Quarter.

2.2.1 Highlights of Spending Changes for the Third Quarter

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

Grants and Contributions (Vote 10 and Statutory) Increase/(Decrease)
in millions of dollars
Q3 Q3 YTD
Higher approved spending requirements submitted by recipients:
Canadian Institute for Advanced Research $20.5 $20.5
Cancode 5.6 13.4
Connect to Innovate 23.4 27.7
Strategic Innovation Fund 28.5 29.1
Canada Foundation Innovation (YTD variance) 79.8
Timing variances between periods (payments are made in different quarters between fiscal years):
Automotive Innovation Fund 6.0 5.7
Canada Foundation Innovation (Q3 variance) (30.9)
Contribution to Mitacs Inc. 25.5
Sustainable Development Technology Fund (Q3 variance) 44.1
Changes due to reprofiling funding to future fiscal years:
Sustainable Development Technology Fund (YTD variance) (46.1)
Lower spending due to decreased funding; programs winding down:
Strategic Aerospace Defence Initiative (36.3) (66.2)
Post-Secondary Institution Strategic Investment Fund (130.8) (342.5)
Other minor items, net (0.5) (0.7)
Total Change in Grants and Contributions (Vote 10 and Statutory) $(70.4) $(253.8)
Net Operating Expenditures (Vote 1) Increase/(Decrease)
in millions of dollars
Q3 Q3 YTD
Operating expenditures:
The increase between Q3 of the current fiscal year and Q3 of the previous fiscal year is mostly related to increased expenditures in professional services due to timing variances and salary increases for new programs in the quarter.  The year-to-date variances in operating expenditures are also a result of higher professional services.
$9.0 $6.0
Revenue credited to vote:
The increase in respendable revenue recorded for the Competition Bureau was related to increased filing fees for merger review.  Additionally, the YTD increase of respendable revenues was due to timing difference as clients were billed faster and earlier.
(5.0) (10.0)
Other minor items, net 0.5 2.9
Total Change in Net Operating Expenditures (Vote 1) $4.5 $(1.1)
Capital Expenditures (Vote 5) Increase/(Decrease)
in millions of dollars
Q3 Q3 YTD
Reduced spending for the completion of Federal Infrastructure projects $(3.9) $(8.9)
Other minor items, net - 0.4
Total Change in Capital Expenditures (Vote 5) $(3.9) $(8.5)
Other Increase/(Decrease)
in millions of dollars
Q3 Q3 YTD
In Q3 CIPO's expenditures remained consistent with Q3 of last year, but more revenues were recorded that were related to cash receipts being higher than expected. $(1.6) $(1.2)
Other minor items, net 0.5 1.5
Total Change in Other $(1.1) $0.3

2.2.2 Table 1: Departmental Budgetary Expenditures by Standard Object

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

Spending Category Explanation of significant changes (2018–19 compared to 2017–18) Increase/(Decrease)
in millions of dollars
Q3 Q3 YTD
Standard Object
Personnel The increase in Q3 spending is primarily related to salary expenditures for new programs as explained in Section 2.2.1. $3.9 $0.9
Professional Services The increase in spending is mainly due to timing variances in paying legal service fees and IT consultant fees. 5.1 5.2
Repair and maintenance The decrease in spending is related to the completion of Federal Infrastructure projects at the CRC as explained in Section 2.2.1. (3.2) (6.9)
Transfer Payments Significant changes have been explained in Section 2.2.1. (70.4) (253.8)
Changes in Revenues netted against Program Expenditures
Sales of service and other revenues The increase is mostly related to higher revenues collected by the Vote Net Revenue organizations as explained in Section 2.2.1. (5.7) (10.6)
Other minor items, net (0.6) 2.1
Total Change in Budgetary expenditures $(70.9) $(263.1)

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. Financial risks and uncertainties

ISED recognizes that its success in fulfilling its expansive mandate includes effective and integrated risk management (IRM). IRM enables the Department to identify and respond to uncertainty by using risk-based information to support decision-making and resource allocation, which support the achievement of departmental results.
In particular, effective IRM mitigates the following financial risks:

Therefore, the Department seeks to ensure that decisions taken by the Resource Management Committee for the allocation and reallocation of resources are informed by accurate and timely information on risk and performance.
Additionally, ISED strengthens risk management practices by enabling its employees to recognize, understand and take proactive action to mitigate risks and capitalize on opportunities. This includes the creation of the Centre of Expertise on Performance and Risk Management which offers professional support on IRM, as well as the development of an Integrated Risk Management Framework that will provide access to training and tools. Moreover, the Department is strengthening its integrated business planning process to ensure that risk is embedded throughout the entire process and informs priority setting, resource allocation and program performance management.
The IRM process ultimately supports ISED in meeting its departmental results within its financial objectives.

The printed version was signed by:

Space to insert signature
John Knubley
Deputy Minister

February 19, 2019
Date

Space to insert signature
Philippe Thompson,
Assistant Deputy Minister/Chief Financial Officer

February 18, 2019
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 December 31, 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 December 31, 2017 Year to date used at quarter-end
Vote 1 — Operating expenditures 542,172 132,057 365,772 513,778 122,613 356,813
Vote 1 — Revenue Credited to the Vote (116,249) (32,218) (78,728) (98,994) (27,257) (68,662)
Vote 1 — Net Operating Expenditures 425,923 99,839 287,044 414,784 95,356 288,151
Vote 5 — Capital expenditures 6,371 795 2,155 16,946 4,662 10,628
Vote 10 — Grants and contributions 2,177,908 184,928 931,227 1,860,508 264,576 1,189,708
Total voted authorities 2,610,202 285,562 1,220,426 2,292,238 364,594 1,488,487
Revolving Fund Gross expenditures 188,796 42,356 126,430 186,722 42,474 123,813
Revolving Fund Revenues (164,033) (39,050) (113,536) (158,693) (37,530) (109,675)
Revolving Fund Net expenditures 24,763 3,306 12,894 28,029 4,944 14,138
Grants and Contributions
Genome Canada 24,700 - 20,300 33,100 - 23,700
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 64,947 8,875 28,285 69,030 13,160 33,749
Next Gen BioFuels Fund - - - 800 - -
CIFAR — Pan-Canadian Artificial Intelligence 25,000 21,000 21,000 15,000 7,500 7,500
Other statutory grants and contributions - 1 9 - - 1
Total Statutory Grants and Contributions 114,647 29,876 69,594 117,930 20,660 64,950
Employee Benefit Plans 56,631 13,859 41,577 55,313 13,452 40,356
Refunds of Previous Years Revenue - 89 420 - 63 269
Proceeds for Crown Asset Disposals 313 24 24 216 2 11
Ministers' Car Allowance 344 97 162 88 22 66
Total budgetary statutory authorities 196,698 47,251 124,671 201,576 39,143 119,790
Total Budgetary authorities 2,806,900 332,813 1,345,097 2,493,814 403,737 1,608,277
Non-budgetary authorities 800 - - 800 - -
Total authorities 2,807,700 332,813 1,345,097 2,494,614 403,737 1,608,277
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, 2019Note 1 Expended during the quarter ended December 31, 2018 Year to date used at quarter-end Planned expenditures for the year ending March 31, 2018Note 1 Expended during the quarter ended December 31, 2017 Year to date used at quarter-end
Expenditures:
Personnel 542,291 137,525 401,654 529,576 133,657 400,803
Transportation and communications 15,566 4,126 9,329 16,601 3,629 8,457
Information 14,975 2,689 6,291 11,894 1,835 4,833
Professional and special services 132,668 37,055 87,847 128,326 31,908 82,697
Rentals 20,159 3,655 10,838 18,114 3,919 12,062
Repair and maintenance 13,720 1,178 2,872 15,061 4,401 9,785
Utilities, materials and supplies 9,077 1,486 3,473 8,796 1,442 3,727
Acquisition of machinery and equipment 45,377 2,710 7,290 44,267 2,544 5,354
Transfer payments 2,292,554 214,805 1,000,820 1,978,437 285,237 1,254,658
Other subsidies and payments 795 (1,148) 6,946 429 (761) 3,732
Total gross budgetary expenditures 3,087,182 404,081 1,537,360 2,751,501 467,811 1,786,108
Less Revenues netted against expenditures:
Revolving Fund Revenues 164,033 39,050 113,535 158,693 37,530 109,675
Sales of Services and Other Revenue 116,249 32,218 78,728 98,994 26,544 68,156
Total Revenues netted against expenditures: 280,282 71,268 192,263 257,687 64,074 177,831
Total net budgetary expenditures 2,806,900 332,813 1,345,097 2,493,814 403,737 1,608,277
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