Quarterly Financial Report—Quarter ended September 30, 2011

Statement outlining results, risks and significant changes in operations, personnel and program

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates.

A summary description of the Industry Canada program activities can be found in Part II of the Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes Industry Canada's spending authorities granted by Parliament and those used by the department, consistent with the Main Estimates and Supplementary Estimates for the 2011–12 fiscal year. This quarterly 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.

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 in the form of statutory spending authority for specific purposes.

When 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.

As part of the departmental performance reporting process, Industry Canada 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. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

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

2.1 Authorities available for use and planned expenditures

In 2011–12, Industry Canada's authorities available for use decreased by approximately $1.15 billion when compared to the same quarter of 2011–11, as illustrated in the Statement of Authorities and Table 1: Departmental budgetary expenditures by Standard Object. The primary reasons for the decrease are related to the winding down of Economic Action Plan (EAP) initiatives in Vote 10 – Grants and contributions and Statutory Grants and contributions. In Budget 2009, the federal government allocated $2.9 billion to Industry Canada to deliver EAP initiatives, the majority of which concluded on March 31, 2011.

2.1.1 Vote 10 – Grants and contributions ($623.9 million decrease) and Statutory Grants and contributions ($508.4 million decrease)

The authority for Vote 10 – Grants and contributions decreased by $623.9 million, marking the end of initiatives such as the Marquee Tourism and Events Program (MTEP) and the Community Adjustment Fund. In addition, one of Industry Canada's EAP programs, the Knowledge Infrastructure Program (KIP), was extended into 2011–12. However, funding requirements to complete the program are significantly less when compared to last fiscal year. Finally, there were changes in funding requirements for several programs, including the Broadband Canada: Connecting Rural Canadians program, the Canada Foundation for Innovation, the Institute for Quantum Computing, and the Automotive Innovation Fund. Similarly, statutory authorities available for use for Grants and contributions decreased by $508.4 million, primarily as a result of the winding down of KIP, resulting in an overall decrease of $1.13 billion in Transfer payments as shown in Table 1: Departmental Budgetary Expenditures by Standard Object.

2.1.2 Vote 1 – Net Operating expenditures ($18.0 million decrease) and Other Statutory authorities ($2.9 million increase)

Reductions in authorities available for use in Vote 1 – Net Operating expenditures are also apparent. Of the $18.0 million reduction, $16.3 million relates to programs which are sunsetting, including the Structured Financing Facility, MTEP, and the Security and Prosperity Partnership of North America – Canadian Secretariat. Furthermore, there was a $3.6 million decrease to remove funding received for collective agreements in accordance with cost containment measures from Budget 2010. This decrease was largely offset by the receipt of the Operating Budget Carry Forward, which is reflected in the second quarter of both fiscal years as an increase to the operating budget. In 2011–12, the Operating Budget Carry Forward was $21.0 million, $1.9 million higher than the amount received in 2010–11.

These variances are also shown in Table 1: Departmental Budgetary Expenditures by Standard Object, but are combined with the Canadian Intellectual Property Office (CIPO) expenditures reported as "Other Statutory authorities" in the Statement of Authorities. During the preparation of the 2011–12 Main Estimates, a new methodology was used to improve the reporting of planned expenditures by standard object. Information by standard object is now compared and adjusted against actual spending trend data to improve the overall accuracy of spending estimates. This change of methodology resulted in variances in the majority of standard object categories, most notably in planned expenditures for:

  • Transportation and communications ($9.2 million decrease)
  • Professional and special services ($9.1 million increase)
  • Repair and maintenance ($4.8 million increase)
  • Utilities, material and supplies ($1.3 million decrease)

Furthermore, this analysis, along with the reduced requirements of sunsetting programs, results in additional variances in operating expenditures, identified most notably in:

  • Transportation and communications ($5.6 million decrease)
  • Utilities, materials and supplies ($2.6 million decrease).

These decreases were offset by a $9.1 million increase in planned revenues which net against funded authorities for the department. The $21.0 million Operating Budget Carry Forward ($1.9 million increase from 2010–11) is included in Other subsidies and payments. This amount will be reallocated to the standard object for personnel.

2.1.3 Vote 5 – Capital expenditures ($8.1 million decrease)

The Vote 5 – Capital expenditures decrease of $8.1 million is largely the result of termination of funding for the Modernizing of Federal Laboratories initiative provided under EAP. This decrease is partially offset by the Capital Budget Carry Forward of $1.1 million received in the second quarter of 2011–12. The Vote 5 variance is also included in the planned expenditures for the Acquisition of machinery and equipment object in Table 1: Departmental Budgetary Expenditures by Standard Object. The Capital budget will be replenished to some extent later in the fiscal year through transfers from Vote 1 – Net Operating expenditures, when capital projects receive full approval.

2.2 Authorities used and actual expenditures

The Statement of Authorities illustrates that authorities available for use in Vote 1 – Net Operating expenditures trends in the second quarter of the 2011–12 fiscal year are comparable to those of the same quarter of the 2010–11 fiscal year, with approximately 25 percent of authorities available for use expended during the quarter.

Authorities used during the second quarter of 2011–12 decreased by $331.6 million, compared to the same quarter last year, primarily in Vote 10 – Grants and contributions and Statutory Grants and contributions. Similarly, authorities used to date in 2011–12 decreased by $169.5 million, compared to the same time period in the last fiscal year, primarily in Vote 10 – Grants and contributions and Statutory Grants and contributions.

2.2.1 Vote 10 – Grants and contributions and Statutory Grants and contributions (Second quarter: $350 million decrease; Year to date: $174.3 million decrease)

In the second quarter of 2011–12, there was a $350 million decrease in transfer payment spending, compared to the same quarter in the last fiscal year, primarily resulting from timing differences for transfer payment expenditures and decreases in funding received for programs, some of which are sunsetting, as follows:

  • Timing differences of payments resulted in a $213 million variance, specifically a $203 million payment to the Canada Foundation for Innovation made in the second quarter of 2010–11, but made in the first quarter of 2011–12, and a $10 million payment to the Canada Youth Business Foundation that was made in the second quarter of 2010–11, but has yet to be paid in the 2011–12 fiscal year;
  • Decreases in expenditures for programs, some of which are sunsetting such as the Knowledge Infrastructure Program and the Marquee Tourism Events Program and others which are not, such as the Institute for Quantum Computing, resulted in a $137 million decrease in expenditures in the second quarter.

In 2011–12, transfer payment authorities used to date decreased by $174.3 million, compared to the same time period in the last fiscal year. This decrease is attributable to the $137 million decrease in funding for the sunsetting programs mentioned above, the $10 million decrease due to the timing difference for the Canada Youth Business Foundation, and a $26 million decrease in funding requirements for the Canada Foundation for Innovation. These variances are also included in the Standard Object for Transfer payments in Table 1: Departmental Budgetary Expenditures by Standard Object.

2.2.2 Vote 1 – Net Operating expenditures and Other Statutory authorities (Second Quarter: $16.3 million increase; Year to date: $2.5 million increase)

In the second quarter of 2011–12, the decrease in authorities used for Grants and contributions, compared to the same quarter in the last fiscal year, is somewhat offset by increases in Vote 1 – Net Operating expenditures and Other Statutory expenditures totalling $16.3 million. These increases are primarily due to the following factors as shown in Table 1: Departmental Budgetary Expenditures by Standard Object:

  • A $13.7 million increase in Personnel expenditures resulting from $17.5 million in Public Service Alliance of Canada (PSAC) severance liquidation payouts, offset by a $3.8 million decrease in overall personnel expenditures in the 2011–12 fiscal year;
  • A $2.4 million decrease in expenditures in Transportation and communications services primarily due to a $1 million decrease in travel and relocation expenditures in 2011–12, and a $1.1 million expenditure for a payment in lieu of property taxes to PWGSC that was miscoded to the Transportation and communications standard object in 2010–11. This expenditure would normally be coded to the Other subsidies and payments standard object;
  • A $1.6 million increase in Other Subsidies and payments largely resulting from the payment for an $800,000 payment in lieu of property taxes made in 2011–12 and from $705,000 advanced to other government departments, mostly for the National Research Council Industrial Research Assistance Program (IRAP), for which expenditures are unknown until the departments administering the programs report the actual expenditures back to Industry Canada;
  • A $3.5 million decrease in the collection of CIPO's respendable revenue due to timing differences between the first and second quarter of the 2010–11 fiscal year, which resulted in a change in net position.

Year to date Vote 1 expenditures were in line with those of the 2010–11 fiscal year, while Other statutory expenditures increased by $2.4 million, due to PSAC severance payouts and the decrease in collection of respendable revenue resulting from timing differences, both at CIPO.

3. Risks and Uncertainties

To restore fiscal balance, the government has implemented a number of measures to improve efficiency while lowering the rate of growth in the size and operations of the public service. Budget 2010 announced that the operating budgets of departments would be frozen at their 2010–11 levels for the fiscal years 2011–12 and 2012–13. Departmental budgets will not be increased to fund the standard 1.5 percent increase in annual wages for the federal public service, or to fund increases set out in collective agreements. Budget 2010 also mandated a series of strategic reviews of various federal departments and agencies to identify cost reductions of 5 percent.

For Industry Canada, the impact of these measures in 2011–12 includes:

  • wage reduction measures, requiring the reallocation of an estimated $8.4 million to cover the cumulative increase related to new collective bargaining agreements;
  • reductions totalling $6.1 million stemming from the strategic review exercise conducted in 2010.

In addition, Industry Canada has a funding model under which a portion of the budget for core operations is generated by royalty payments from firms that had received funds under former contribution programs. This amount can fluctuate significantly according to the financial success of individual companies and the overall health of the economy.

Consequently, the department is working to identify the most appropriate measures to deliver on its mandate within its current funding situation. To do so, Industry Canada is building on its existing stewardship and oversight practices to monitor program funding and expenditures. This includes conducting comprehensive monthly analysis of trends and forecasting in employee headcount, salary expenditures and non-salary expenditures at both the departmental and sector level to ensure affordability and sustainability. These analyses are key elements in the decision-making process to ensure the department works within its allocated resource levels. The department also conducts rigorous oversight of major IT projects to ensure benefits to the department and sound project management.

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

Industry Canada is in the final year of delivering KIP, which was one of the EAP initiatives announced in Budget 2009.  KIP will be completed by the end of fiscal year 2011–12 while most other programs under the EAP initiative ended on March 31, 2011. The impact of the completion of KIP is a decrease in authorities available for use of approximately $1 billion compared to last fiscal year.

The printed version is signed by:

Richard Dicerni
Deputy Minister
Ottawa, Canada

Date
November 24, 2011

Kelly Gillis
Chief Financial Officer
 

Date
November 24, 2011


Industry Canada
Quarterly Financial Report
For the quarter ended September 30, 2011

Statement of Authorities (unaudited)

Fiscal Year 2011–2012
(in thousands of dollars) Total available for use for the year ending March 31, 2012Footnote * Used during the quarter ended September 30, 2011 Year to date used at quarter-end
Vote 1 – Net
Operating expenditures
393,899 104,386 195,060
Vote 5 – Capital expenditures 7,071 1,563 1,858
Vote 10 – Grants and contributions 710,615 79,928 266,271
Budgetary statutory authorities
Employee benefit plans 56,642 14,160 28,321
Grants and contributions 170,960 15,486 80,343
Other 16,907 8,440 6,982
Total Budgetary authorities 1,356,094 223,963 578,835
Non-budgetary authorities 800
Total authorities 1,356,894 223,963 578,835
Fiscal Year 2010–2011 (continued)
(in thousands of dollars) Total available for use for the year ending March 31, 2011Footnote ** Used during the quarter ended September 30, 2010 Year to date used at quarter-end
Vote 1 – Net
Operating expenditures
411,873 97,579 194,970
Vote 5 – Capital expenditures 15,192 428 890
Vote 10 – Grants and contributions 1,334,519 414,322 429,295
Budgetary statutory authorities
Employee benefit plans 53,998 13,499 26,999
Grants and contributions 679,325 30,844 91,604
Other 13,990 (1,067) 4,588
Total Budgetary authorities 2,508,897 555,605 748,346
Non-budgetary authorities 800
Total authorities 2,509,697 555,605 748,346

Industry Canada 
Quarterly Financial Report
For the quarter ended September 30, 2011

Table 1: Departmental budgetary expenditures by Standard Object (unaudited)

Fiscal Year 2011–12
(in thousands of dollars) Planned expenditures for the year ending March 31, 2012Footnote *** Expended during the quarter ended September 30, 2011 Year to date used at quarter-end
Expenditures:
Personnel
473,663 146,709 275,764
Transportation and communications
29,084 4,597 8,301
Information
4,209 521 762
Professional and special services
108,177 20,030 32,065
Rentals
11,751 2,581 5,120
Repair and maintenance
12,517 1,552 4,402
Utilities, materials and supplies
7,522 1,430 2,409
Acquisition of land, buildings and works
3
Acquisition of machinery and equipment
19,398 2,162 3,110
Transfer payments
881,576 95,414 346,615
Other subsidies and payments
20,968 1,543 2,415
Total gross budgetary expenditures 1,568,865 276,539 680,966
Less Revenues netted against expenditures:
Sales of Services
212,771 52,561 102,105
Other Revenue
15 26
Total Revenues netted against expenditures: 212,771 52,576 102,131
Total net budgetary expenditures  1,356,094 223,963 578,835
Fiscal Year 2010–11
(in thousands of dollars) Planned expenditures for the year ending March 31, 2011Footnote **** Expended during the quarter ended September 30, 2010 Year to date used at quarter-end
Expenditures:
Personnel
471,418 133,009 262,547
Transportation and communications
43,871 7,061 11,483
Information
5,330 565 1,052
Professional and special services
99,019 18,484 35,025
Rentals
11,653 2,681 5,416
Repair and maintenance
7,728 1,518 4,609
Utilities, materials and supplies
11,441 1,603 2,836
Acquisition of land, buildings and works
5 16
Acquisition of machinery and equipment
29,238 1,775 3,486
Transfer payments
2,013,844 445,166 520,899
Other subsidies and payments
19,074 (137) 1,237
Total gross budgetary expenditures 2,712,616 611,730 848,606
Less Revenues netted against expenditures:
Sales of Services
203,719 56,100 100,224
Other Revenue
25 36
Total Revenues netted against expenditures: 203,719 56,125 100,260
Total net budgetary expenditures 2,508,897 555,605 748,346
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