Quarterly Financial Report—Quarter Ended June 30, 2019

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 2019–20.

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.

ISED helps Canadian businesses grow, innovate and expand so they can create good-quality jobs and wealth for Canadians. It also supports science research and the integration of scientific considerations into investment and policy choices. The Department helps small businesses grow through trade and innovation and promotes increased tourism in Canada. The Department also works to position Canada as a global centre for innovation where investments support clean and inclusive growth, the middle class prospers through more job opportunities and companies become global leaders.

ISED's efforts focus on improving conditions for investment, supporting science, helping small and medium-sized businesses grow, building capacity for clean and sustainable technologies and processes, increasing Canada's share of global trade, promoting tourism, and building an efficient and competitive marketplace.

A summary description of Innovation, Science and Economic Development Canada's core responsibilities 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 2019–20 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 2019–20, versus 2018–19, result from a combination of increases in the department's Operating and Grants and Contributions votes, as well as higher planned net expenditures in the Canadian Intellectual Property Office's (CIPO) Revolving Fund as described below. Variances in authorities used are largely due to the winding down of Post-Secondary Institutions Strategic Investment Fund (PSI-SIF), partially offset by higher cash flow requirements of some transfer payment programs.

2.1 Authorities available for use and planned expenditures

ISED's total authorities available for use of $3.0 billion at the end of the first quarter in 2019–20, amounts to a $61.3 million increase over the same period in 2018–19. 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 June 30, 2019 and June 30, 2018

Bar chart illustrating the comparison of total net budgetary authorities available for use as of June 30, 2019 and June 30, 2018
* Includes Vote 10 and Statutory Grants and Contributions expenditures
** Includes CIPO Revolving Fund
Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2019 and June 30, 2018
2019–20
($ millions)
2018–19
($ millions)
G&CNote * 2,412 2,432
Operating 451 391
OtherNote ** 101 81
Capital 7 6
Total Budget 2,971 2,910

The overall increase includes:

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

2.1.1 Highlights of Changes by Authority (2019–20 compared to 2018–19)

The following tables highlight the larger changes:

Highlights of Changes by Authority (2019–20 compared to 2018–19)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Vote 10
New Funding from Budget 2019
CanCode 2.0 $ 28.9
Connect to Innovate 21.0
Funding increases based on cash flow requirements of existing programs
Strategic Innovation Fund 342.0
Canada Foundation for Innovation 58.6
Digital Research Infrastructure 48.7
Intellectual Property Strategy 30.3
Sustainable Technology Development Fund 17.3
Genome 12.0
Funding decreases based on cash flow requirements of existing programs
Post-Secondary Institutions Strategic Investment Fund (386.4)
Strategic Aerospace Defence Initiative (117.3)
Innovation Superclusters Initiative (60.4)
CanCode (29.0)
Other minor items, net 22.7
TOTAL CHANGE IN Vote 10 $ (11.6)
Statutory
Programs for which funding has increased
Canadian Institute for Advanced Research (CIFAR) - Pan Canadian Artificial Intelligence $ 7.5
Programs for which funding has decreased

Genome - Contributions

(13.3)
Canada Small Business Financing Act (2.8)
TOTAL CHANGE IN Statutory $ (8.6)
TOTAL CHANGE IN Grants & Contributions (Vote 10 and Statutory) $ (20.2)
Net Operating Expenditures (Vote 1)
Net Operating Expenditures (Vote 1) Increase/ (Decrease)
in millions of dollars
New Funding from Budget 2019
Various programs including Preparing for a New Generation of Wireless Tech (5G), CanCode 2.0, Connect to Innovate, etc. $ 8.4
New Funding from Budget 2018
Various programs including Cyber Certification, New Intellectual Property Strategy, Increasing Diversity in Science, etc. 17.4
Transfers from/to OGDs
PSPC - Build in Canada Innovation Program (BCIP) 39.4
Other minor items, net (5.2)
TOTAL CHANGE IN Net Operating Expenditures (Vote 1) $ 60.0
Capital Expenditures (Vote 5)
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
New Intellectual Property Strategy $ 0.7
Preparing for a New Generation of Wireless Tech (5G) 0.7
TOTAL CHANGE IN Capital Expenditures (Vote 5) $ 1.4
Other costs
Other Increase/ (Decrease)
in millions of dollars
Increase in planned Employee Benefit Costs is due to an increase to the prescribed EBP rate (starting from 2019–20, the comprehensive rate has changed from 20% to 27%) used to estimate the employee benefit plan costs as well as funding received for various Budget 2018 and Budget 2019 initiatives. $ 3.9
Increase in planned expenditures due to investments to modernize CIPO's IT infrastructure and to develop a suite of business services to meet client needs. 15.8
Other minor items, net 0.4
TOTAL CHANGE IN Other $ 20.1

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 Increase/ (Decrease)
in millions of dollars
(2019–20 compared to 2018–19)
Standard Object
Personnel The increase is primarily related to new funding received from Budget 2018 and Budget 2019 and transfers from OGDs. $ 28.9
Professional Services The increase is primarily related to development costs for IT that is taking place within CIPO and the transfer of the Build in Canada Innovation Program (BCIP) from PSPC. 36.4
Transfer Payments Significant changes have been explained in Section 2.1.1. (20.2)
Changes in Revenues netted against Program Expenditures
Revenues netted against
expenditures:
Higher planned revenues align with the anticipated costs of delivering services by Revenue Generating Organizations (RGOs) of the department. (5.9)
Other minor items, net 22.1
TOTAL CHANGE IN Planned Expenditures $ 61.3

2.2 Authorities used and actual expenditures

Expenditures for the first quarter of 2019–20 have decreased by $78.9 million 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 the winding down of Post-Secondary Institutions Strategic Investment Fund (PSI-SIF), which was partially offset by higher spending requirements from various programs (such as Sustainable Development Technology Canada and Canadian Foundation for Innovation). Overall spending for the year is expected to be slightly higher than last year, as described above in section 2.1 – Authorities available for use and planned expenditures.

Graph 2: Comparison of Net First Quarter Expenditures as at June 30, 2019 and June 30, 2018

Bar chart illustrating the comparison of net first quarter expenditures as at June 30, 2019 and June 30, 2018
* Includes Vote 10 and Statutory Grants and Contributions expenditures
** Includes CIPO Revolving Fund
Description of Graph 2
Comparison of Net First Quarter Expenditures as at June 30, 2019 and June 30, 2018
2019–20
($ millions)
2018–19
($ millions)
G&CNote * 294.8 382.4
Operating 101.5 93.1
OtherNote ** 21.9 20.6
Capital 0.1 0.9
Total Budget 418.2 497.1

By category, the spending in the first quarter compared to the same time last year has changed as follows:

Section 2.2.1 provides a detailed breakdown of the changes from 2019–20 to 2018–19 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) Increase/ (Decrease)
in millions of dollars
Q1
Higher approved spending requirements submitted by recipients
Sustainable Development Technology Fund $ 34.0
Canadian Foundation for Innovation 8.8
Innovation Superclusters Initiative 4.9
Mitacs 2.3
Timing variances between periods (payments are made in different quarters between fiscal years)
Affordable Access Program 2.8
Canada Small Business Financing Act (3.1)
Northern Ontario Development Program (2.7)
Lower program spending requirements; programs winding down
Post-Secondary Institutions Strategic Investment Fund (131.8)
CanCode (4.4)
Other minor items, net 2.0
TOTAL CHANGE IN Grants and Contributions (Vote 10 and Statutory) $ (87.2)
Net Operating Expenditures (Vote 1) Increase/ (Decrease)
in millions of dollars
Q1
Operating expenditures:
The increase is primarily due to higher professional services related to the Build in Canada Innovation Program (BCIP) transfer and an increase in IT consultant fees. It is also partially attributed to higher personnel expenditures for new programs as well as more FTEs to deal with pay issues.
$ 12.8
Revenue credited to vote:
The increase is mainly due to both the MOUs with Other Government Organizations (OGD) being signed and Internal Services revenues collected earlier this fiscal year.
(5.0)
Other minor items, net 0.1
TOTAL CHANGE IN Net Operating Expenditures (Vote 1) $ 7.9
Capital Expenditures (Vote 5) Increase/ (Decrease)
in millions of dollars
Q1
Minor items, net $ (0.8)
TOTAL CHANGE IN Capital Expenditures (Vote 5) $ (0.8)
Other Increase/ (Decrease)
in millions of dollars
Q1
Increase in Employee Benefit Costs is due to an increase to the prescribed EBP rate used to estimate the employee benefit plan costs and the funding received for various Budget 2018 and Budget 2019 initiatives. $ 0.6
Increase in Revolving Fund Net expenditures is attributed to higher salary and benefits due to the increases in FTEs, which were offset by higher revenues related to early renewals of trademarks. 0.6
TOTAL CHANGE IN Other $ 1.2

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 Increase/ (Decrease)
in millions of dollars
(2019–20 compared to 2018–19) Q1
Standard Object
Personnel Primarily due to increased FTEs related to staffing for new programs as well as to address pay issues. $ 6.0
Professional Services Primarily due to spending for BCIP and higher consultant fees for IT projects. 8.5
Transfer payments Significant changes have been explained in Section 2.2.1. (87.2)
Revolving Fund Revenues Increase due to early renewals for trademarks. (2.4)
Sales of Services Primarily due to earlier signing of MOUs with OGDs, resulting in higher internal services revenue collections this year compared to last year. (5.0)
Other minor items, net 1.2
TOTAL CHANGE IN Budgetary expenditures $ (78.9)

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

On June 28, 2019, Deputy Minister John Knubley retired from the public service. Associate Deputy Minister Paul Thompson was appointed A/Deputy Minister from June 29, 2019 to July 12, 2019.  After July 12, Associate Deputy Minister David McGovern will serve as the A/Deputy Minister until the appointment of the permanent Deputy Minister is announced.

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.

The identification of risks is key to effective IRM. Two finance-related risks were identified among the 2019-20 enterprise risks:

To respond to these risks, ISED is implementing strong control frameworks, including clear governance channels, which support establishing expectations, monitoring progress, and timely signal-checking. ISED is also developing the data, processes and tools to support decision-making, including for resource allocation. These initiatives will put the organization in a position to adapt and align to shifting priorities and risks.

The printed version was signed by:

Space to insert signature
David McGovern
Acting Deputy Minister

August 22, 2019
Date

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

August 20, 2019
Date


STATEMENT OF AUTHORITIES (unaudited)
(in thousands of dollars) Fiscal Year 2019–20   Fiscal Year 2018–19
Total available for use for the year ending
March 31, 2020Footnote 1
Used during the quarter ended June 30, 2019 Year to date used at quarter-end Total available for use for the year ending
March 31, 2019Footnote 1
Used during the quarter ended June 30, 2018 Year to date used at quarter-end
Vote 1 — Operating expenditures 567,732 127,834 127,834 499,334 115,015 115,015
Vote 1 — Revenue Credited to the Vote (117,364) (26,347) (26,347)   (108,994) (21,397) (21,397)
Vote 1 — Net Operating Expenditures 450,368 101,487 101,487 390,340 93,618 93,618
Vote 5 — Capital expenditures 7,383 138 138 5,983 912 912
Vote 10 — Grants and contributions 2,306,427 285,471 285,471 2,318,002 367,379 367,379
Total voted authorities 2,764,178 387,096 387,096 2,714,325 461,909 461,909
Revolving Fund Gross expenditures 202,186 45,513 45,513 188,797 42,484 42,484
Revolving Fund Revenues (161,566) (38,404) (38,404) (164,033) (35,966) (35,966)
Revolving Fund Net expenditures 40,620 7,109 7,109 24,764 6,518 6,518
Grants and Contributions
Genome Canada 11,400 2,850 2,850 24,700 5,075 5,075
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 62,173 6,429 6,429 64,946 9,486 9,486
CIFAR — Pan-Canadian Artificial Intelligence 32,500 - - 25,000 - -
Total Statutory Grants and Contributions 106,073 9,279 9,279 114,646 14,561 14,561
Employee Benefit Plans 59,434 14,482 14,482 55,503 13,859 13,859
Refunds of Previous Years Revenue - 169 169 - 209 209
Proceeds for Crown Asset Disposals 216 - - 183 - -
Ministers' Salary and Motor Car Allowance 351 87 87 90 23 23
Total budgetary statutory authorities 206,694 31,126 31,126 195,186 35,170 35,170
Total Budgetary authorities 2,970,872 418,222 418,222 2,909,511 497,079 497,079
Non-budgetary authorities 800 - - 800 - -
Total authorities 2,971,672 418,222 418,222 2,910,311 497,079 497,079
Table 1: Departmental budgetary expenditures by Standard Object (unaudited)
(in thousands of dollars) Fiscal Year 2019–20   Fiscal Year 2018–19
Planned expenditures for the year ending
March 31, 2020Footnote 1
Expended during the quarter ended
June 30, 2019
Year to date used at quarter-end Planned expenditures for the year ending
March 31, 2019Footnote 1
Expended during the quarter ended
June 30, 2018
Year to date used at
quarter-end
Expenditures:
Personnel 560,499 139,680 139,680 531,588 133,645 133,645
Transportation and communications 16,726 2,898 2,898 13,476 2,508 2,508
Information 12,556 2,496 2,496 10,153 1,452 1,452
Professional and special services 153,979 33,438 33,438 117,548 24,932 24,932
Rentals 20,231 4,612 4,612 17,657 3,728 3,728
Repair and maintenance 16,751 596 596 11,954 660 660
Utilities, materials and supplies 9,400 792 792 8,142 853 853
Acquisition of machinery and equipment 46,652 1,543 1,543 39,188 2,169 2,169
Transfer payments 2,412,500 294,750 294,750 2,432,649 381,940 381,940
Other subsidies and payments 508 2,168 2,168 183 2,555 2,555
Total gross budgetary expenditures 3,249,802 482,973 482,973 3,182,538 554,442 554,442
Less revenues netted against expenditures:
Revolving Fund Revenues 161,566 38,404 38,404 164,033 35,966 35,966
Sales of Services and Other Revenue 117,364 26,347 26,347 108,994 21,397 21,397
Total Revenues netted against expenditures: 278,930 64,751 64,751 273,027 57,363 57,363
Total net budgetary expenditures 2,970,872 418,222 418,222 2,909,511 497,079 497,079
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