Quarterly Financial Report—Quarter ended December 31, 2019

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 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 considered 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

At the end of Q3, the variances in authorities available for use in 2019–20 versus 2018–19, result from a combination of increases in the department's Operating votes to accommodate new programming and from decreases in Grants and Contribution votes related to the winding down of the Post-Secondary Institutions Strategic Investment Fund (PSI-SIF). Higher planned net expenditures in the Canadian Intellectual Property Office's (CIPO) Revolving Fund also contributed to the differences.

Variances in authorities used are largely due to increased activities of new programs' and timing differences with regard to payments between periods.

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 third quarter in 2019–20, amounts to a $149.4 million decrease over the same period in 2018–19. This is illustrated in Graph 1 below, 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, 2019 and December 31, 2018

Long description below.

Note: as part of a review of the reporting process, it was determined that frozen allotments should have been included in the Authorities Available For Use in previous years' reports. This will ensure consistency with the presentation of the Summary Table on Source and Disposition of Authorities included in the Public Accounts. The vast majority of these frozen allotments are Grants and Contributions reprofiled to future years. Details are provided in notes to the tables at the end of the report.
*Includes planned Vote 10 and Statutory Grants and Contributions expenditures
**Includes Canadian Intellectual Property Office (CIPO) Revolving Fund
***Amounts adjusted from prior year publication to include frozen funding
Description of Graph 1
Comparison of Total Net Budgetary Authorities Available for Use as of December 31, 2019 and December 31, 2018
2019–20
($ millions)
2018–19Footnote ***
($ millions)
G&CFootnote * 2,412 2,634
Operating 479 427
OtherFootnote ** 101 823
Capital 8 6
Total Budget 3,000 3,150

Note: as part of a review of the reporting process, it was determined that frozen allotments should have been included in the Authorities Available For Use in previous years' reports. This will ensure consistency with the presentation of the Summary Table on Source and Disposition of Authorities included in the Public Accounts. The vast majority of these frozen allotments are Grants and Contributions reprofiled to future years. Details are provided in notes to the tables at the end of the report.

The overall change in authorities includes:

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

2.1.1 Highlights of Changes in Authorities Available for Use (2019–20 compared to 2018–19)

The following tables highlight the larger changes in authorities available for use, as reported in the Statement of Authorities:

Highlights of Changes in Authorities Available for Use (2019–20 compared to 2018–19)
Grants and Contributions (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Vote 10 Authority
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 208.3
Digital Research Infrastructure 48.7
Intellectual Property Strategy 30.3
Canada Foundation for Innovation 26.6
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 and Defence Initiative (117.3)
Innovation Superclusters Initiative (60.4)
CanCode (30.2)
Connecting Canadians Program (23.9)
Other minor items, net 11.9
TOTAL CHANGE IN Vote 10 Authority $ (213.2)
Statutory Authorities
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 Authorities $ (8.6)
TOTAL CHANGE IN Grants & Contributions Authorities (Vote 10 and Statutory) $ (221.8)
Net Operating Expenditures Authority (Vote 1)
Net Operating Expenditures Authority (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. $ 8.3
New Funding from Budget 2018
Various programs including Cyber Certification, New Intellectual Property Strategy, Increasing Diversity in Science, etc. 8.3
New Funding from the Fall Economic Statement
Strategic Innovation Fund 3.4
Transfers from/to Other Government Departments (OGD)
PSPC — Build in Canada Innovation Program (BCIP) 39.4
Treasury Board transfer for compensation adjustments (collective agreements) 9.0
Operating budget carry-forward authority (7.3)
Planned operating requirement changes for various programs (9.1)
TOTAL CHANGE IN Net Operating Expenditures Authority (Vote 1) $ 52.0
Capital Expenditures Authority (Vote 5)
Capital Expenditures Authority (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
Capital Budget Carry-Forward Authority 0.9
Other minor items, net (0.4)
TOTAL CHANGE IN Capital Expenditures Authority (Vote 5) $ 1.9
Other Authorities
Other Authorities 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. $ 2.8
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. 15.9
Other minor items, net (0.1)
TOTAL CHANGE IN Other Authorities $ 18.6

2.1.2 Highlights of Changes in Planned Expenditures (2019–20 compared to 2018–19)

Table 1: Departmental Budgetary Expenditures by Standard Object displays initial planned expenditures. These plans are subject to change during the fiscal year. The annual variances in planned expenditures are primarily due to the following:

Highlights of Changes in Planned Expenditures (2019–20 compared to 2018–19)
Spending Category Explanation of significant changes
(2019–20 compared to 2018–19)
Planned Increase/ (Decrease)
in millions of dollars
Standard Object
Personnel The increase is primarily related to new funding received for collective agreements; funding from Budget 2018 and Budget 2019 to support new programs; transfers from OGDs; and the operating budget carry forward that is now allocated to the individual standard objects including Personnel. $ 40.5
Professional Services The increase is primarily related to development costs for IT taking place within CIPO as well as OGD transfers from PSPC for the Build in Canada Innovation Program (BCIP). 27.0
Transfer Payments Significant changes have been explained in Section 2.1.1. (221.8)
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. (1.4)
Other minor items, net 6.3
TOTAL CHANGE IN Planned Expenditures $(149.4)

2.2 Authorities used and actual expenditures

Authorities used and actual expenditures for the third quarter of 2019–20 have increased by $36.9 million ($198.4 million in year-to-date spending) when compared to the same period last year (see Graph 2 below, the Statement of Authorities and Table 1: Departmental budgetary expenditures by Standard Object). The differences occur primarily in Grants and Contributions (Vote 10 and Statutory) and are largely attributable to increased program activity (such as the Strategic Innovation Fund), timing differences and increased cash flow requirements.

Graph 2: Comparison of Net Third Quarter and Year to date Authorities used and expended as at December 31, 2019 and December 31, 2018

Long description below.

* Includes Vote 10 and Statutory Grants and Contributions expenditures
** Includes CIPO Revolving Fund

Description of Graph 2
Comparison of Net Third Quarter and Year to date Authorities used and expended as at December 31, 2019 and December 31, 2018Footnote ***
Third quarter
($ millions)
Year to date
($ millions)
2019–20 2018–19 2019–20 2018–19
G&CFootnote * 232 215 1,161 1,001
Operating 114 100 322 287
OtherFootnote ** 22 17 57 55
Capital 2 1 3 2
Total 370 333 1,543 1,345

By category, the authorities used and expended in the third quarter and year-to-date compared to the same periods last year have changed as follows:

Section 2.2.1 provides a detailed breakdown of the changes in authorities used for year-to-date and the third quarter.

2.2.1 Highlights of Changes in Authorities used for the Year-to-date and Third Quarter

The following tables highlight, by authority, the larger changes in authorities used, as reported in the Statement of Authorities:

Highlights of Changes in Authorities used for the Year-to-date and Third Quarter
Grants and Contributions Authorities Used (Vote 10 and Statutory) Increase/ (Decrease)
in millions of dollars
Q3 YTD
Higher approved spending requirements submitted by recipients / new agreements
Strategic Innovation Fund $ 66.6 $ 84.6
Canada Foundation for Innovation 0.0 28.6
Innovation Superclusters Initiative 7.1 19.2
Digital Research Infrastructure 2.3 16.4
CANARIE 0.0 15.6
Mitacs 0.0 9.5
Timing variances between periods (payments are made in different quarters between fiscal years) / increased cash flow requirements, overall
Sustainable Development Technology Fund $ (15.4) $ 78.4
Timing variances between periods (payments are made in different quarters between fiscal years)
Canadian Institute for Advanced Research (CIFAR) (26.5) (1.9)
Lower spending due to decreased funding; programs winding down
Strategic Aerospace and Defence Initiative (12.3) (48.8)
Post-Secondary Institutions Strategic Investment Fund (7.8) (45.6)
Other minor items, net 2.9 4.2
Total Change in Grants and Contributions Authorities Used (Vote 10 and Statutory) $ 16.9 $ 160.2
Net Operating Expenditures Authorities Used (Vote 1)
Net Operating Expenditures Authorities Used (Vote 1) Increase/ (Decrease)
in millions of dollars
Q3 YTD
Operating expenditures:
The increase is primarily due to higher professional services related to the Build in Canada Innovation Program (BCIP) and an increase in IT consultant fees. The increase is also attributed to higher personnel expenditures for new programs, collective agreement retroactive adjustments, and an increase in personnel to address pay administration issues.
$ 17.5 $ 49.0
Revenue credited to vote:
The increase is mainly due to revenues for internal services related to developing IT projects for CIPO.
(3.5) (14.2)
Total Change in Net Operating Expenditures Authorities Used (Vote 1) $ 14.0 $ 34.8
Capital Expenditures Authorities Used (Vote 5)
Capital Expenditures Authorities Used (Vote 5) Increase/ (Decrease)
in millions of dollars
Q3 YTD
Minor items, net $ 1.2 $ 1.1
Total Change in Capital Expenditures Authorities Used (Vote 5) $ 1.2 $ 1.1
Other Authorities Used
Other Authorities Used Increase/ (Decrease)
in millions of dollars
Q3 YTD
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 $ 1.9
Increases to expenditures for CIPO are attributable to salary costs and IT infrastructure costs. These are partially offset by an increase in CIPO revenues from new international trademark treaties. 4.1 0.3
Other minor items, net 0.1 0.1
Total Change in Other Authorities Used $ 4.8 $ 2.3

2.2.2 Highlights of Changes in Actual Expenditures (2019–20 compared to 2018–19)

Variances in actual expenditures by standard object (Table 1: Departmental Budgetary Expenditures by Standard Object) are primarily due to the following:

Highlights of Changes in Actual Expenditures (2019–20 compared to 2018–19)
Spending Category Explanation of significant changes in actual expenditures
(2019-20 compared to 2018-19)
Increase/ (Decrease)
in millions of dollars
Q3 YTD
Standard Object
Personnel Significant changes have been explained in Section 2.2.1 — Net Operating Expenditures. $ 19.2 $ 37.2
Professional Services Significant changes have been explained in Section 2.2.1 — Net Operating Expenditures. 4.8 26.2
Transfer Payments Significant changes have been explained in Section 2.2.1 — Grants and Contributions. 16.9 160.2
Revolving Fund Revenues Increase due to new international trademark treaties. (2.3) (14.0)
Sales of Services Significant changes have been explained in Section 2.2.1 — Net Operating Expenditures. (3.6) (14.3)
Other minor items, net 1.9 3.1
Total Change in Net Budgetary actual expenditures $ 36.9 $ 198.4

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

On October 7, 2019, Douglas McConnachie was appointed Assistant Deputy Minister of the Corporate Management Sector and Chief Financial Officer of ISED.

4. Financial risks and uncertainties

ISED recognizes that its success in fulfilling its extensive 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. Among the 2019–20 enterprise risks, two finance-related risks were identified:

To respond to these risks, ISED implements strong control frameworks, such as the Integrated Risk Management Framework (IRMF), which defines clear governance and policy objectives. These objectives support establishing expectations, monitoring progress and the timely checking of signals. ISED is also developing the data, processes and tools to support decision-making, including decision-making for resource allocation. These initiatives will place the organization in a position to adapt and align to shifting priorities and risks.

Approved by:

Space to insert signature
Simon Kennedy
Deputy Minister

February 26, 2020
Date

Space to insert signature
Douglas McConnachie
Assistant Deputy Minister/Chief Financial Officer

February 21, 2020
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 December 31, 2019 Year to date used at quarter-end Total available for use for the year ending
March 31, 2019Footnote 1Footnote 2
Used during the quarter ended December 31, 2018 Year to date used at quarter-end
Vote 1 — Operating expenditures 596,545 149,606 414,809 543,458 132,057 365,772
Vote 1 — Revenue Credited to the Vote (117,364) (35,793) (93,002) (116,249) (32,218) (78,728)
Vote 1 — Net Operating Expenditures 479,181 113,813 321,807 427,209 99,839 287,044
Vote 5 — Capital expenditures 8,239 2,034 3,300 6,371 795 2,155
Vote 10 — Grants and contributions 2,306,427 216,931 1,098,602 2,519,684 184,928 931,227
Total voted authorities 2,793,847 332,778 1,423,709 2,953,264 285,562 1,220,426
Revolving Fund Gross expenditures 202,186 48,824 140,713 188,796 42,356 126,430
Revolving Fund Revenues (161,565) (41,376) (127,495) (164,033) (39,050) (113,536)
Revolving Fund Net expenditures 40,621 7,448 13,218 24,763 3,306 12,894
Grants and Contributions
Genome Canada 11,400 - 11,400 24,700 - 20,300
Liabilities under the Canada Small Business Financing Act & the Small Business Loans Act 62,173 14,808 33,375 64,947 8,875 28,285
CIFAR — Pan-Canadian Artificial Intelligence 32,500 - 17,619 25,000 21,000 21,000
Other statutory grants and contributions - - - - 1 9
Total Statutory Grants and Contributions 106,073 14,808 62,394 114,647 29,876 69,594
Employee Benefit Plans 59,434 14,482 43,445 56,631 13,859 41,577
Refunds of Previous Years Revenue - 102 433 - 89 420
Proceeds for Crown Asset Disposals 243 42 42 313 24 24
Ministers' Car Allowance 351 73 248 344 97 162
Total budgetary statutory authorities 206,722 36,955 119,780 196,698 47,251 124,671
Total Budgetary authorities 3,000,569 369,733 1,543,489 3,149,962 332,813 1,345,097
Non-budgetary authorities 800 - - 800 - -
Total authorities 3,001,369 369,733 1,543,489 3,150,762 332,813 1,345,097
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
December 31, 2019
Year to date used at quarter-end Planned expenditures for the year ending
March 31, 2019Footnote 1Footnote 2
Expended during the quarter ended
December 31, 2018
Year to date used at
quarter-end
Expenditures:
Personnel 582,839 156,708 438,834 542,291 137,525 401,654
Transportation and communications 16,726 3,434 9,516 15,566 4,126 9,329
Information 12,556 2,185 6,623 14,975 2,689 6,291
Professional and special services 159,717 41,855 114,028 132,744 37,055 87,847
Rentals 20,231 4,476 14,462 21,065 3,655 10,838
Repair and maintenance 16,751 1,464 3,085 13,720 1,178 2,872
Utilities, materials and supplies 9,400 1,512 3,387 9,380 1,486 3,473
Acquisition of machinery and equipment 48,199 2,340 5,647 45,377 2,710 7,290
Transfer payments 2,412,500 231,739 1,160,996 2,634,331 214,805 1,000,820
Other subsidies and payments 579 1,189 7,408 795 (1,148) 6,946
Total gross budgetary expenditures 3,279,498 446,902 1,763,986 3,430,244 404,081 1,537,360
Less revenues netted against expenditures:
Revolving Fund Revenues 161,565 41,376 127,495 164,033 39,050 113,535
Sales of Services and Other Revenue 117,364 35,793 93,002 116,249 32,218 78,728
Total Revenues netted against expenditures: 278,929 77,169 220,497 280,282 71,268 192,263
Total net budgetary expenditures 3,000,569 369,733 1,543,489 3,149,962 332,813 1,345,097
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