Departmental Results Report for the period ending March 31, 2017

Department of Innovation, Science and Economic Development

Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2017, and all information contained in these statements rests with the management of Innovation, Science and Economic Development Canada. These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of Innovation, Science and Economic Development Canada's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Innovation, Science and Economic Development Canada's Departmental Results Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that the financial information is reliable; that assets are safeguarded; and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout Innovation, Science and Economic Development Canada; and through an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess the effectiveness of associated key controls and to make necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2017, was completed in accordance with the Policy on Financial Management, and the results and action plans are summarized in Innovation, Science and Economic Development Canada's Management Report on Internal Control over Financial Reporting for the fiscal year ending March 31, 2017.

The effectiveness and adequacy of Innovation, Science and Economic Development Canada's system of internal control is reviewed through the work of internal audit staff, who conduct periodic audits of different areas of Innovation, Science and Economic Development Canada operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the financial statements to the deputy head.

The financial statements of Innovation, Science and Economic Development Canada have not been audited.

Space to insert signature
Kelly Gillis, Acting Deputy Minister
Ottawa, Canada

August 16, 2017
Space to insert date

Space to insert signature
Simon Brault, Acting Chief Financial Officer
Ottawa, Canada

August 16, 2017
Space to insert date


Innovation, Science and Economic Development Canada
Consolidated Statement of Financial Position (Unaudited)
As at March 31
(in thousands of dollars)
2017 2016
Liabilities
Accounts payable and accrued liabilities (note 4) $ 546,343 $ 380,919
Vacation pay and compensatory leave 25,120 23,029
Deferred revenue (note 5) 8,214,300 9,003,990
Allowance for loan guarantees (note 12) 242,069 266,768
Employee future benefits (note 6) 21,088 27,553
Other liabilities (note 7) 46,276 43,403
Total gross liabilities 9,095,196 9,745,662
Liabilities held on behalf of Government
Deferred revenue (note 5) (8,148,676) (8,934,050)
Total liabilities held on behalf of Government (8,148,676) (8,934,050)
Total net liabilities 946,520 811,612
Financial Assets
Due from Consolidated Revenue Fund 399,135 303,109
Accounts receivable and advances (note 8) 60,395 50,337
Loans receivable (note 9) 1,571,577 1,942,888
Total gross financial assets 2,031,107 2,296,334
Financial assets held on behalf of Government
Accounts receivable and advances (note 8) (39,309) (36,385)
Loans receivable (note 9) (1,571,577) (1,942,888)
Total financial assets held on behalf of Government (1,610,886) (1,979,273)
Total net financial assets 420,221 317,061
Departmental net debt 526,299 494,551
Non-financial assets
Prepaid expenses 457 340
Tangible capital assets (note 10) 128,489 123,571
Total non-financial assets 128,946 123,911
Departmental net financial position $ (397,353) $ (370,640)

The accompanying notes form an integral part of these financial statements.

Space to insert signature
Kelly Gillis, Acting Deputy Minister
Ottawa, Canada

August 16, 2017
Space to insert date

Space to insert signature
Simon Brault, Acting Chief Financial Officer
Ottawa, Canada

August 16, 2017
Space to insert date


Innovation, Science and Economic Development
Consolidated Statement of Operations and Departmental Net Financial Position (Unaudited)
For the Year Ended March 31
(in thousands of dollars)
2017
Planned Results
2017 2016
Expenses
The Canadian marketplace is efficient and competitive $ 499,514 $ 398,696 $ 423,197
Advancements in science and technology, knowledge, and innovation strengthen the Canadian economyFootnote * 454,590 1,451,386 (937,121)
Canadian businesses and communities are competitive 281,361 236,061 271,826
Internal Services 193,149 227,419 201,448
Expenses incurred on behalf of government (1,719) (76,740) 1,162,698
Total expenses 1,426,895 2,236,822 1,122,048
Revenues
Radio spectrum licences 1,127,543 1,130,480 1,127,046
Sales of services 301,618 313,625 314,366
Revenue from fines 27,451 22,074 16,398
Amortization of discounts 8,536 8,536 8,535
Other revenue 1,821 894 812
Revenues earned on behalf of Government (1,213,162) (1,246,078) (1,233,458)
Total revenues 253,807 229,531 233,699
Net cost of operations before government funding and transfers 1,173,088 2,007,291 888,349
Government funding and transfers
Net cash provided by Government 1,806,464 831,396
Change in due from the Consolidated Revenue Fund 96,026
51,824
Services provided without charge by other government departments (note 13) 78,096 81,484
Transfer of the transition payments for implementing salary payments in arrears (8) (102)
Net cost (revenue) of operations after government funding and transfers 26,713 (76,253)
Departmental net financial position – Beginning of year (370,640) (446,893)
Departmental net financial position – End of year $ (397,353) $ (370,640)

Segmented information (note 14)

The accompanying notes form an integral part of these financial statements.


Innovation, Science and Economic Development
Consolidated Statement of Change in Departmental Net Debt (Unaudited)
For the Year Ended March 31
(in thousands of dollars)
2017 2016
Net cost (revenue) of operations after government funding and transfers $ 26,713 $ (76,253)
Change due to tangible capital assets
Acquisition of tangible capital assets 20,722 25,321
Amortization of tangible capital assets (16,652) (13,075)
Proceeds from disposition of tangible capital assets (159) (238)
Net (loss) gain on disposal of tangible capital assets including adjustments 1,007 (1,099)
Total change due to tangible capital assets 4,918 10,909
Change due to prepaid expenses 117 (37)
Net increase (decrease) in departmental net debt 31,748 (65,381)
Departmental net debt – Beginning of year 494,551 559,932
Departmental net debt – End of year $ 526,299 $ 494,551

The accompanying notes form an integral part of these financial statements.


Innovation, Science and Economic Development
Consolidated Statement of Cash Flows (Unaudited)
For the Year Ended March 31
(in thousands of dollars)
2017 2016
Operating activities
Net cost of operations before government funding and transfers $ 2,007,291 $ 888,349
Non-cash items:
Amortization of tangible capital assets (16,652) (13,075)
Net (loss) gain on disposal of tangible capital assets (234) (295)
Loss on write-offs of tangible capital assets - (5)
Adjustment to tangible capital assets 1,241 (799)
Services provided without charge by other government departments (note 13) (78,096) (81,484)
Transition payments for implementing salary payments arrears 8 102
Variations in Statement of Financial Position:
Increase (decrease) in accounts receivable 7,134 (6,594)
Increase (decrease) in prepaid expenses 117 (37)
Increase in accounts payable and accrued liabilities (165,424) (13,853)
Increase in vacation pay and compensatory leave (2,091) (774)
Decrease in deferred revenue 4,316 8,113
Decrease in allowance for loan guarantees 24,699 3,643
Decrease in employee future benefits 6,465 1,296
Decrease (increase) in other liabilities (2,873) 21,726
Cash used in operating activities 1,785,901 806,313
Capital investing activities:
Acquisitions of tangible capital assets 20,722 25,321
Proceeds from disposal of tangible capital assets (159) (238)
Cash used in capital investing activities 20,563 25,083
Net cash provided by Government of Canada $ 1,806,464 $ 831,396

The accompanying notes form an integral part of these financial statements.

Innovation, Science and Economic Development Canada
Notes to the Financial Statements (Unaudited)
For the Year Ended March 31

1. Authority and Objectives

The authorities for the programs for which Innovation, Science and Economic Development Canada (ISED) is responsible are derived from the Department of Industry Act. Many other acts are under the responsibility of the Minister of Innovation, Science and Economic Development, and Treasury Board also defines other specific ISED authorities.

Innovation, Science and Economic Development Canada aims to help make Canadian industry more productive and competitive in the global economy, thus improving the economic and social well-being of Canadians through its three strategic outcomes, which are mutually reinforcing. Fostering competitiveness helps advance the marketplace by developing and administering economic framework policies that promote competition and innovation; support investment and entrepreneurial activity; and instill consumer, investor and business confidence. Investing in science and technology to generate knowledge and equip Canadians with the skills and training they need to compete and prosper in the global, knowledge-based economy helps ensure that discoveries and breakthroughs happen here in Canada, and that Canadians can realize the social and economic benefits. Promoting economic development in communities helps support business by encouraging the development of skills, ideas and opportunities across the country. Taken together, ISED's strategic outcomes support growth in employment, income, productivity and sustainable development in Canada.

Internal Services are groups of activities and resources that are administered to support the needs of programs and other corporate obligations of Innovation, Science and Economic Development Canada. Internal Services include only those activities and resources that apply across Innovation, Science and Economic Development Canada, not those provided specifically to a program.

Innovation, Science and Economic Development Canada's activities are delivered at its headquarters in Ottawa as well as in the regions. There are five regional offices with service points located across Canada and an office for FedNor.

Innovation, Science and Economic Development Canada has a number of transfer payment programs through which it provides grants and contributions to recipients in targeted groups and sectors. Each transfer payment program has specific objectives and expected results that support the achievement of ISED's strategic objectives.

2. Summary of Significant Accounting Policies

These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from the Canadian public sector accounting standards.

Significant accounting policies are as follows:

  1. Parliamentary authorities — Innovation, Science and Economic Development Canada is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Innovation, Science and Economic Development Canada do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and the Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenues" sections of the Statement of Operations and Departmental Net Financial Position are consistent with the amounts reported in the Future-Oriented Statements of Operations included in the 2016–17 Report on Plans and Priorities. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2016–17 Report on Plans and Priorities.
  2. Consolidation — The consolidated financial statements include the accounts of Innovation, Science and Economic Development Canada and the Canadian Intellectual Property Office (CIPO) Revolving Fund. The accounts of this sub‑entity have been consolidated with those of Innovation, Science and Economic Development Canada and, as a result, all inter‑organizational balances and transactions have been eliminated.
  3. Net cash provided by Government — Innovation, Science and Economic Development Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by ISED is deposited to the CRF and all cash disbursements made by ISED are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.
  4. Amounts due from/to the CRF — These are the result of timing differences at year‑end between when a transaction affects Innovation, Science and Economic Development Canada's authorities and when it is processed through the CRF. Amounts due from the CRF represents the net amount of cash that Innovation, Science and Economic Development Canada is entitled to draw from the CRF without further authorities to discharge its liabilities.
  5. Revenues
    • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
    • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenues. These revenues are recognized in the period in which the related expenses are incurred.
    • Funds that have been received are recorded as deferred revenues, provided that Innovation, Science and Economic Development Canada has an obligation to other parties for the provision of goods, services or the use of assets in the future.
    • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
    • Revenues that are non-respendable are not available to discharge Innovation, Science and Economic Development Canada's liabilities. While the Deputy Head is expected to maintain accounting control, he or she has no authority regarding the disposition of non‑respendable revenues. As a result, these are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction to the entity's gross revenues.
  6. Expenses
    • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to the transfer payment expense.
    • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
    • Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans, workers' compensation costs, and legal services are recorded as operating expenses at their estimated cost. These exclude the CIPO Revolving Fund, which make payments for these services in their normal course of business.
  7. Employee future benefits
    1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. Innovation, Science and Economic Development Canada's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Innovation, Science and Economic Development Canada's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
    2. Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
  8. Accounts and loans receivable — These are stated at the lower of cost and net recoverable value. However, when the terms of the loans are concessionary, such as those provided with a low or no interest clause, they are recorded at their estimated present value. An unamortized discount is used to reduce the carrying value of the loans to amounts that approximate their net realizable value. A portion of the discount is recorded as revenue each year to reflect the change in the present value of the loans outstanding. Transfer payments that are unconditionally repayable are recognized as loans receivable. A valuation allowance is recorded for accounts and loans receivable where recovery is considered uncertain.
  9. Allowances for loan guarantees — An allowance for loan guarantees is recorded for potential losses on loan guarantees when it is likely that a payment will be made in the future to honour a guarantee and when the amount of the loss can be reasonably estimated.

    The allowance for losses on outstanding loan guarantees is based on forecasting models developed by program areas.

  10. Prepaid expenses — These include prepaid expenses, deferred charges and payments where, pursuant to a contract or contribution agreement, a payment is made before the completion of the work, delivery of the goods or rendering of the service.
  11. Contingent liabilities — Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
  12. Foreign currency transactions — Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are included in the Statement of Operations and Departmental Net Financial Position.
  13. Tangible capital assets — All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Innovation, Science and Economic Development Canada does not capitalize intangibles; works of art and historical treasures that have cultural, aesthetic or historical value; assets located on Indian Reserves; and museum collections.

    Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

    Amortization of tangible capital assets
    Asset Class Amortization Period
    Buildings 15 to 30 years
    Works and infrastructure 30 years
    Machinery and equipment 3 to 10 years
    Vehicles 5 to 10 years
    Computer hardware 5 to 10 years
    Computer software 3 to 10 years
    Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement

    Assets under construction are recorded in the applicable capital asset class and are amortized in the year that they become available for use.

  14. Measurement uncertainty — The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee future benefits and the useful life of tangible capital assets. Actual results could differ significantly from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary Authorities

Innovation, Science and Economic Development Canada receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, Innovation, Science and Economic Development Canada has different net results of operations for the year on a government-funding basis rather than on an accrual-accounting basis. The differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year authorities used
2017 2016
(in thousands of dollars)
Net cost of operations before government funding and transfers $ 2,007,291 $ 888,349
Adjustments for items affecting net cost of operations but not affecting authorities:
Repayment of conditionally repayable contributions 55,196 61,204
Services provided without charge by other government departments (78,096) (81,484)
Provision for loan guarantees 24,699 3,643
Amortization of tangible capital assets (16,652) (13,075)
Decrease in employee future benefits 6,465 1,296
Adjustment of previous year's Accounts Payable 5,572 1,562
Refund of prior year's expenditures 18,786 11,834
Decrease in accrued liabilities - 200
Increase in vacation pay and compensatory leave (2,290) (1,061)
Net (loss) gain on tangible capital assets (234) (301)
Year-end accrual of transfer payments (63,100) 59,900
Revenue not available for spending 58,568 62,099
Other (6,043) (947)
Total items affecting net cost of operations but not affecting authorities 2,871 104,870
Adjustments for items not affecting net cost of operations but affecting authorities:
Increase in loans and advances 107,069 205,693
Revenue available for spending (54,228) (54,805)
Increase in allowance for vacation and compensatory leave 199 287
Transition payments for implementing salary payments in arrears 8 102
Acquisitions of tangible capital assets 20,722 25,321
Other 2,982 17
Total items not affecting net cost of operations but affecting authorities 76,752 176,615
Current year authorities used $ 2,086,914 $ 1,169,834
(b) Authorities provided and used
2017 2016
(in thousands of dollars)
Authorities Provided:
Vote 1 – Operating expenditures $ 374,590 $ 353,056
Vote 5 – Capital expenditures 20,611 23,413
Vote 10 – Grants and contributions 1,582,925 733,868
Statutory amounts 382,382 350,922
Total 2,360,508 1,461,259
Less:
Authorities available for future years 171,558 178,123
Lapsed authorities: Operating expenditures 27,814 12,909
Capital expenditures 6,051 881
Grants and contributions 67,371 98,712
Other 800 800
Current year authorities used $ 2,086,914 $ 1,169,834

top of page

4. Accounts Payable and Accrued Liabilities

The following table presents details of Innovation, Science and Economic Development Canada's accounts payable and accrued liabilities:

Accounts Payable and Accrued Liabilities
2017 2016
(in thousands of dollars)
Accounts payable to other government departments and agencies $ 7,008 $ 3,301
Accounts payable to external parties 317,631 227,626
Year-end accrual — pending Budget Implementation Act 180,400 117,300
Accrued salaries and wages 41,242 32,640
Other external payables 62 52
Total accounts payable and accrued liabilities 546,343 380,919

5. Deferred Revenue

The majority of Innovation, Science and Economic Development Canada's deferred revenues result from auctions of radio licence frequencies. These revenues are recognized over a 10‑year period for previous auctions and a 20‑year period for the new licenses arising from more recent spectrum auctions. Another main source of deferred revenues comes from examination requests of intellectual property. These fees are charged in advance and recognized as revenue once the examination is completed.

The Prime Minister's Awards account was established to record amounts deposited by external parties to be used in support of the Prime Minister's Awards for Teaching Excellence.

Deferred Revenue
2017 2016
(in thousands of dollars)
Opening balance $ 9,003,990 $ 7,431,285
Licence fees received 257,713 2,663,417
Licence fees earned 1,043,101 1,082,598
Sub-total (785,388) 1,580,819
Fees for trademarks, patents and copyrights received 54,228 54,805
Fees for trademarks, patents and copyrights earned 58,568 62,099
Sub-total (4,340) (7,294)
Other services of a regulatory nature received 453 401
Other services of a regulatory nature earned 403 704
Sub-total 50 (303)
Prime Minister's awards received 100 -
Prime Minister's awards disbursed 80 75
Sub-total 20 (75)
Customer deposits received 46,338 45,324
Customer deposits disbursed 46,383 45,766
Sub-total (45) (442)
Loan Guarantee Fees received 13 -
Loan Guarantee Fees earned - -
Sub-total 13 -
Gross closing balance 8,214,300 9,003,990
Deferred revenues held on behalf of Government (8,148,676) (8,934,050)
Net closing balance $ 65,624 $ 69,940

6. Employee Future Benefits

top of page

7. Other Liabilities

Other liabilities represent amounts received from third parties to be disbursed for a specified purpose. Activity during the year in these accounts is as follows:

Other Liabilities
Opening Balance Receipts Payments Closing Balance
(in thousands of dollars)
Restitutions under the Competition Act 4 - - 4
Cost-sharing projects 1,582 571 304 1,849
Securities in Trust, Bankruptcy and Insolvency Act 52 - - 52
Unclaimed dividends and undistributed assets (BIA) 28,456 2,489 425 30,520
Petro Canada Enterprises unclaimed shares 687 - - 687
Canada Business Corporations Act (CBCA) 7,705 3,203 2,661 8,247
Winding-up and Restructuring Act 4,917 - - 4,917
Total other liabilities $ 43,403 $ 6,263 $ 3,390 $ 46,276

Restitutions under the Competition Act — This account was established to facilitate judgments rendered under Article 52 of the Competition Act, and to account for monies received in trust for restitution and for subsequent payment.

Cost-sharing Projects — Innovation, Science and Economic Development Canada partners with other governments and external organizations to deliver programs and services that contribute to an innovative economy. The account was established to record amounts deposited by these partners.

Securities in Trust and Income from Securities in Trust, Bankruptcy and Insolvency Act — This account was established to record dividends paid on shares held by a bankrupt stockbroker on behalf of clients. As the shares were not registered in clients' names, dividends are paid to the last registered owner, in this case, the stockbroker. These dividends are forwarded to the Superintendent of Bankruptcy until such time as rightful owners are identified.

Unclaimed Dividends and Undistributed Assets, Bankruptcy and Insolvency Act — This account represents amounts credited to the Receiver General in accordance with the provisions of the Act, pending distribution to creditors.

Petro-Canada Enterprises Inc. unclaimed shares — This account was established to record the liability to shareholders who have not presented their shares for payment in accordance with Section 227 of the Canada Business Corporations Act.

Unclaimed Dividends and Undistributed Assets, Canada Business Corporations Act —This account was established for the purpose of recording liabilities to creditors and shareholders who have not been located. The account is charged when funds are paid to them.

Winding-up and Restructuring Act — This account records deposits credited to the Receiver General as a result of the final winding-up of the operations of a company, in accordance with sections 138 and 139 of the Winding-up and Restructuring Act, pending distribution to the persons entitled thereto.

8. Accounts receivable and advances

The following table presents details of Innovation, Science and Economic Development Canada's accounts receivable and advances balances:

Accounts receivable and advances
2017 2016
(in thousands of dollars)
Receivables from other government departments and agencies $ 19,786 $ 12,366
Accounts receivable from external parties 36,413 33,052
Accrued receivables 29,585 27,343
Employee advances 181 30
Other receivables 5,945 41
Total external 91,910 72,832
Allowance for doubtful accounts on receivables from external parties (31,515) (22,495)
Gross accounts receivables and advances 60,395 50,337
Accounts receivable held on behalf of Government (39,309) (36,385)
Net accounts receivable $ 21,086 $ 13,952

9. Loans receivable

The following table presents details of the Innovation, Science and Economic Development Canada's loans and unconditionally repayable contributions:

Loans receivable
2017 2016
(in thousands of dollars)
Enterprise development loans $ - $ 110,000
Less: Unamortized discount loans - 3,458
Net Enterprise development loans - 106,542
Unconditionally repayable contributions 1,691,393 1,944,640
Less: Unamortized discount 119,816 107,877
Less: Allowance for doubtful loans and advances - 417
Net unconditionally repayable contributions 1,571,577 1,836,346
Loans on expired loan guarantees 72,284 72,425
Less: Allowance for doubtful loans 72,284 72,425
Net loans on expired loan guarantees - -
Gross loans receivable 1,571,577 1,942,888
Loans held on behalf of Government (1,571,577 ) (1,942,888)
Net loans receivable $ - $ -

Enterprise development loans — These loans are made to manufacturing, processing or service industries in Canada in order to promote the establishment, improvement, growth, efficiency or international competitiveness of such industries, or to assist them in their financial restructuring. The interest-free loan outstanding was repaid in 2016–17.

Unconditionally repayable contributions — Loans have been made to various recipients under several programs managed by Innovation, Science and Economic Development Canada, including the Strategic Aerospace Defence Initiative (SADI), Technology Partnerships Canada (TPC), the Defence Industries Productivity Program (DIPP) and the Automotive Innovation Fund (AIF). All have different repayment terms and maturity dates that are included in the individual agreement. The unamortized discount on unconditionally repayable contributions is calculated by applying the 25% rule on an individual loan basis.

Loans may also be established as a result of contribution agreement changes. Under some circumstances, when repayment terms are changed, previously recorded conditionally repayable contributions become unconditionally repayable. Under these circumstances, prior year expenses for the agreements are reversed in-year, and a loan receivable is established. In 2015–16, $1.2 billion in repayment term agreement changes under the programs SADI, TPC, and DIPP, resulted in the establishment of new loans receivables.

Loans on expired loan guarantees —These are payments made to lending institutions for loss claims on defaulted loans which have been guaranteed by ISED. These loan guarantees to small business enterprises under the Canada Small Business Financing Act and other loan guarantee programs are made net of recoveries.

top of page

10. Tangible Capital Assets

Tangible Capital Assets
(in thousands of dollars) Cost Accumulated Amortization Net Book Value
Capital asset class Opening balance Acquisitions Adjustments and TransfersFootnote * Disposals and write-offs Closing balance Opening balance Amortization Adjustments and Transfers Disposals and write-offs Closing balance 2017 2016
Land $ 1,442 $ - $ - $ - $ 1,442 $ - $ - $ - $ - $ - $ 1,442 $ 1,442
Buildings 52,148 - 1,239 217 53,170 35,103 1,539 - 155 36,487 16,683 17,045
Works and infrastructure 12,792 - - - 12,792 9,850 1,594 - - 11,444 1,348 2,942
Machinery and equipment 58,322 1,675 1,501 2,670 58,828 44,689 3,012 (431) 2,607 44,663 14,165 13,633
Vehicles 9,489 666 233 366 10,022 8,009 511 24 361 8,183 1,839 1,480
Computer hardware 16,732 438 (47) 2,133 14,990 15,253 425 - 2,113 13,565 1,425 1,479
Computer software 97,498 418 6,605 407 104,114 47,876 7,726 (1,690) 403 53,509 50,605 49,622
Assets under construction 28,361 17,525 (10,853) 217 34,816 - - - - - 34,816 28,361
Leasehold Improvements 43,970 - 464 3,494 40,940 36,403 1,845 (2) 3,472 34,774 6,166 7,567
Total $ 320,754 $ 20,722 $(858) $ 9,504 $ 331,114 $ 197,183 $ 16,652 $ (2,099) $ 9,111 $ 202,625 $ 128,489 $ 123,571

11. Contractual Obligations

The nature of Innovation, Science and Economic Development Canada's activities results in some large multi-year contracts and obligations whereby Innovation, Science and Economic Development Canada is committed to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

Contractual Obligations
2018 2019 2020 2021 2022
and
thereafter
Total
(in thousands of dollars)
Transfer payments $ 1,453,839 $ 571,947 $ 216,168 $ 70,304 $ - $ 2,312,258
Other goods and services 63,092 10,964 8,597 7,306 6,224 96,183
Total $ 1,516,931 $ 582,911 $ 224,765 $ 77,610 $ 6,224 $ 2,408,441

12. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

Loan guarantees
Authorized
Limit
Loan Guarantee Outstanding Balance
(in thousands of dollars)
Small Business Loans Act (SBLA) $ 1,838,292 $ -
Canada Small Business Financing Act (CSBFA) 2,343,426 806,366
Capital Leasing Pilot Project 15,661 -
Regional Aircraft Credit Facility 1,500,000 44,235
Total $ 5,697,379 $ 850,601

An allowance of $242,068,983 has been recorded for estimated losses on outstanding loan guarantees ($266,768,186 in 2015–16). The expenses related to loan guarantees are reported under "Other transfers" in note 14 for segmented Statement of Operations information.

Small Business Loans Act (SBLA) Program and Canada Small Business Financing Act (CSBFA) Program — Loans are made directly by approved lenders to small business enterprises, providing for sharing of each individual loan loss, if any, on the basis of 85% government, 15% lender, to an aggregate, per lending institution not exceeding the Minister's contingent liability, as stated in Section 5 of the SBLA and Section 6(2) of the CSBFA.

The authorized limit represents the Crown's maximum liability incurred on the aggregate amount of loans made by the lender starting in April 1993 (SBLA) and April 1999 (CSBFA).

The outstanding guarantee for loans made starting in April 1993 (SBLA) and April 1999 (CSBFA) is the lesser of the Crown's net liability (authorized limit less claims paid by the Crown) or 85% of the outstanding loan amounts of the lenders.

Capital Leasing Pilot Project (CLPP) — Capital leases were made directly by approved lessors to small business enterprises, providing for sharing of each individual lease loss, if any, on the basis of 85% government, 15% lessor to an aggregate, per leasing institution, not exceeding the Minister's contingent liability based upon the aggregate amount of leases registered per leasing institution, as stated in Section 7 of the CLPP.

The authorized limit represents the Crown's maximum liability incurred on the aggregate amount of the capital leases having been entered into or transferred since the period starting in April 2002.

The outstanding guarantee for capital leases entered into since April 2002 is the lesser of the Crown's net liability or 85% of the outstanding capital lease amounts of the lessors.

Regional Aircraft Credit Facility — Innovation, Science and Economic Development Canada has extended loan guarantees on several Air Canada regional jets. Provisioning from the Canada Account Loss Provisioning Pool has been set aside by Finance Canada, manager of the funds. The loan guarantees began in the summer of 2005.

13. Related Party Transactions

ISED is related as a result of common ownership to all government departments, agencies and Crown Corporations. ISED enters into transactions with these entities in the normal course of business and on normal trade terms (see 13c). In addition, ISED received services that were obtained without charge from other Government departments as disclosed below (see 13a).

  1. Common services provided without charge by other government departments

    During the year, Innovation, Science and Economic Development Canada (excluding CIPO Revolving Fund) received services without charge from certain common service organizations, related to accommodations, legal services, the employer's contribution to the health and dental insurance plans, and workers' compensation coverage. These services provided without charge have been recorded in Innovation, Science and Economic Development Canada's Statement of Operations and Departmental Net Financial Position as follows:

    Common services provided without charge by other government departments
    2017 2016
    (in thousands of dollars)
    Accommodation $ 46,275 $ 51,767
    Employer's contribution to the health and dental insurance plans 29,169 26,937
    Workers' compensation coverage 354 356
    Legal services 2,298 2,424
    Total $ 78,096 $ 81,484

    The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Services and Procurement Canada, audit services provided by the Office of the Auditor General, and information technology (IT) infrastructure services provided by Shared Services Canada are not included in Innovation, Science and Economic Development Canada's Statement of Operations and Departmental Net Financial Position.

  2. Administration of programs on behalf of other government departments

    Under a memorandum of understanding signed with the Department of National Defence (DND) on December 11, 1997, Innovation, Science and Economic Development Canada administers a program called Development, Test, and Evaluation and Technical Services Activities. During the year, Innovation, Science and Economic Development Canada incurred expenses of $2,082,417 ($980,933 in 2015–16) on behalf of DND. These expenses are reflected in the financial statements of DND and are not recorded in these financial statements.

  3. Other transactions with related parties
    Administration of programs on behalf of other government departments
    2017 2016
    (in thousands of dollars)
    Expenses – Other government departments and agencies $ 147,722 $ 118,862
    Revenues – Other government departments and agencies 43,177 15,267

    Expenses and revenues disclosed in (c) exclude common services provided without charge, which are already disclosed in (a).

14. Segmented Information

Presentation by segment is based on Innovation, Science and Economic Development Canada's program activity architecture. The presentation by segment is based on the same policies as described in the Summary of Significant Accounting Policies in note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

Segmented Information
(in thousands of dollars) The Canadian marketplace is efficient and competitive Advancements in science and technology, knowledge, and innovation strengthen the Canadian economy Canadian businesses and communities are competitive Internal Services Intradepartmental transactions 2017 Total 2016 Total
Expenses
Transfer payments
Transfers to non-profit organizations $ 2,268 $ 520,674 $ 45,897 $ - $ - $ 568,839 $ 298,370
Transfers to other levels of Government - 740,309 - - - 740,309 -
Transfer to Industry - 147,377 87,802 - - 235,179 (1,117,240)
Other transfers 5,608 - 33,916 - - 39,524 63,652
Expenses incurred on behalf of Government - (56,046) 1,239 - - (54,807) 1,170,456
Total transfer payments 7,876 1,352,314 168,854 - - 1,529,044 415,238
Operating expenses
Salaries and employee benefits 286,113 17,945 50,042 146,355 - 500,455 505,419
Professional and special services 63,333 2,566 8,108 40,352 (28,480) 85,879 82,828
Accommodation 20,371 1,769 2,909 21,226 - 46,275 51,767
Bad debt expense 2 19,613 2,318 - - 21,933 7,758
Amortization 14,776 - 43 1,833 - 16,652 13,075
Rental 9,383 18 290 6,428 - 16,119 11,769
Furniture and equipment 5,558 119 631 4,742 - 11,050 11,275
Communication 4,537 327 2,492 2,551 - 9,907 10,300
Travel 5,457 609 1,274 1,690 - 9,030 8,662
Utilities, materials and supplies 4,880 44 248 476 - 5,648 5,579
Equipment repair and maintenance 3,767 10 102 1,859 - 5,738 5,916
Postage 430 1 32 912 - 1,375 1,322
Damage and other claims against the crown 16 - - 36 - 52 (160)
Other operating expenses 677 5 (43) (1,041) - (402) (942)
Expenses incurred on behalf of Government (2) (19,613) (2,318) - - (21,933) (7,758)
Intradepartmental transactions (28,480) - - - 28,480 - -
Total operating expenses 390,818 23,413 66,128 227,419 - 707,778 706,810
Total expenses 398,694 1,375,727 234,982 227,419 - 2,236,822 1,122,048
Revenues
Radio spectrum licences 1,130,480 - - - - 1,130,480 1,127,046
Sales of services 254,834 1,074 54,583 31,614 (28,480) 313,625 314,366
Revenue from fines 22,074 - - - - 22,074 16,398
Amortization of discounts - 5,078 3,458 - - 8,536 8,535
Other revenue 302 410 135 47 - 894 812
Revenues earned on behalf of Government (1,179,427) (6,562) (58,165) (1,924) - (1,246,078) (1,233,458)
Intradepartmental transactions - - - (28,480) 28,480    
Total revenues 228,263 - 11 1,257 - 229,531 233,699
Net cost from continuing operations $ 170,431 $ 1,375,727 $ 234,971 $ 226,162 - $ 2,007,291 $ 888,349

Summary of the Assessment of Effectiveness of the System of Internal Control over Financial Reporting and the Action Plan of Innovation, Science and Economic Development Canada

For the fiscal year ending

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting

1. Introduction

This document is attached to Innovation, Science and Economic Development Canada's (ISED) Statement of Management Responsibility Including Internal Control over Financial Reporting for the 2016–17 fiscal year. This annex provides summary information on the measures taken by ISED to maintain an effective system of internal control over financial reporting (ICFR). In particular, it provides summary information on the assessments conducted by ISED as at March 31, 2017, including results and related action plans.

Detailed information on ISED's authority, mandate and program activities can be found in the Departmental Results Report (DRR) and the Departmental Plan (DP).

2. Departmental system of internal control over financial reporting

2.1 Internal Control Management

ISED has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control framework, approved by the Deputy Head, is in place which includes:

The DAC provides advice to the Deputy Head on the adequacy and functioning of the department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to financial statements

The Department relies on other organizations for the processing of certain transactions that are recorded in its financial statements:

Common Arrangements:

Specific Arrangements:

ISED provides ICFR support to others and accordingly, reliance is placed by others on certain aspects of ISED's system of internal control over financial reporting, as follows:

3. ISED assessment results during fiscal year 2016–17

The areas of the departmental system of ICFR which have been reviewed this fiscal year are summarized in this section.

New or significantly amended key controls are summarized in section 3.1.

As part of its rotational ongoing monitoring plan, ISED completed reassessments for specified One-time Grants and Contributions, Operating Expenditures, and Revenue processes. Overall, the key controls in these areas tested positively, with areas for remediation summarized in section 3.2 below.

3.1 New or significantly amended key controls

Work to document changes to payroll controls in light of the centralization of pay administration at PSPC continued in 2016–17. A walkthrough of those controls is planned for the 2017–18 fiscal year.

3.2 On-going monitoring program

ISED completed testing of One-time grants and contributions as well as specified operating processes, namely operating expenditures and the revenue programs. Senior management has received reports on the results of testing and has developed action plans where necessary. For the majority of those tested, the key controls performed as intended.

Grants and Contributions

Testing of the One-time transfer payments process was completed with no issues to report to management.

Operating

Testing of the operating expenditures process was completed with no issues to report to management.

Revenue Programs

The following revenue processes were tested for internal control compliance: Competition Bureau; Communications Research Canada (CRC); Corporations Canada; Office of the Superintendent of Bankruptcy (OSB); Canada Small Business Financing Program (CSBFP); and Spectrum, Information Technologies and Telecommunications (SITT). Overall, key controls in these processes are functioning as intended, with the following exceptions.

4. ISED action plan

4.1 Progress during fiscal year 2016–17

ISED conducted its ongoing monitoring as per its previous fiscal year's plan and reports results of this monitoring directly to management:

Previous fiscal year's plan and reports results
Previous year's rotational ongoing monitoring plan for current year Status
  • One-time Transfer Payments
  • Operating Expenditures
  • Revenues
Completed as planned, reported, and remedial actions started.
4.2 Action plan for the next fiscal year (2017–18) and subsequent years

The department's focus is on ongoing monitoring, the full assessment cycle having been completed in previous years. Action plans from previous years will be followed-up on to ensure that remedial actions have been taken.

Operating effectiveness testing will be conducted only in those areas subject to reassessment unless significant amendments have been made to key controls where design effectiveness testing may be necessary.

The table below shows the department's rotational ongoing monitoring plan over the next three years. An annual risk-assessment is conducted each year to validate the high risk controls and to adjust the on-going monitoring plan as required.

Recent Budget announcements (Budget 2016 and Budget 2017) included the creation of significant new transfer payment programs as well as changes to some existing ones. Of note is the establishment of the Innovation Superclusters Initiative, as well as the amalgamation of existing programs such as the Automotive Innovation Fund (AIF) and the Strategic Aerospace and Defence Initiative (SADI) under the new Strategic Innovation Fund. New programs and changes to existing programs will be documented and evaluated for ICFR beginning in the 2017–18 fiscal year.

Rotational On-going monitoring for Internal Control over Financial Reporting
Internal Control over Financial Reporting On-going Monitoring Rotation
(3 year rotation)
2017–18 2018–19 2019–20
Entity level
Control environment, risk management, information systems and communication, monitoring Yes No No
General computer controls
Enterprise systems (CMIS & IFMS) Yes No No
Canada Small Business Financing Program (CSBFP) Yes No No
Business Processes
Grants and contributions
(risk based rotation)
Transfer Payments for Designated Recipients Footnote 1 No TBD TBD
Data and Digital Programming Footnote 2 No TBD TBD
Connecting Canadians No TBD TBD
FedNor No TBD TBD
Canada Small Business Financing Program Yes TBD TBD
Operating
Operating expenditures No No Yes
Payroll No Yes No
Capital assets No Yes No
Financial close & reporting Yes No No
Master data – vendors/customers Yes No No
Special Purpose Accounts No TBD TBD
Revenue
(risk based rotation)
Competition Bureau No TBD TBD
Corporations Canada No TBD TBD
Communications Research Canada No TBD TBD
Office of the Superintendent of Bankruptcy No TBD TBD
Canada Small Business Financing Program No TBD TBD
Spectrum, Information Technologies and Telecommunications No TBD TBD

TBD – Evaluated during the annual risk assessment

New Processes/Programs to be added based on the yearly risk assessment
Internal Control over Financial Reporting Stage of Testing
2017–18 2018–19 2019–20
Grants & Contributions Post-Secondary Institution Strategic Investment Fund Design effectiveness Operating effectiveness On-going monitoring
Strategic Innovation FundFootnote 1 Design effectiveness Design effectiveness Operating effectiveness
Innovation Super Clusters Initiative Design effectiveness Design effectiveness Operating effectiveness
Revenue Canadian Intellectual Property Office (Revolving Fund) Design effectiveness Operating effectiveness On-going monitoring
Date modified: