Quarterly Financial Report—Quarter ended June 30, 2014

1. Introduction
2. Highlights of fiscal quarter and fiscal year-to-date (YTD) results
3. Significant changes in relation to operations, personnel and programs
4. Risks and uncertainties
5. Budget 2012 Implementation

• Statement of Authorities (unaudited)
• Table 1: Departmental budgetary expenditures by Standard Object (unaudited)

Statement Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs

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 QFR should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2014–15.

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

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 in the form of statutory spending authority for specific purposes. This QFR 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, 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. This QFR has therefore 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 Industry Canada, consistent with the Main Estimates and Supplementary Estimates for the 2014–15 fiscal year.

In fiscal year 2012–13, frozen allotments were established by Treasury Board authority in departmental votes to prohibit the spending of funds already identified as savings measures in Budget 2012. In 2013–14, the changes to departmental authorities were reflected in the 2013–14 Main Estimates tabled in Parliament.

This QFR has not been subject to an external audit. However, it has been reviewed by the Departmental Audit Committee.

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

The variances in authorities available for use and actual expenditures in 2014–15 largely relate to significant funding decreases in the department's Grants and Contributions Vote in addition to Operating reductions announced in Budget 2012 and budgets transferred to other government departments.

2.1 Authorities available for use and planned expenditures

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2014 and June 30, 2013 (in millions $)

* Includes Vote 10 and Statutory Grants and Contribution expenditures.

** Includes Canadian Intellectual Property Office (CIPO) Revolving Fund.

Industry Canada's total authorities available for use in 2014–15 ($1.1 billion) reflects a $111.6 million decrease in comparison with the same quarter ended in 2013–14, as illustrated in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. This decrease is primarily related to:

• Grants and Contributions (Vote 10 and Statutory) — $90.6 million ↓
• Vote 1 — Operating Expenditures — $6.4 million ↓
• Vote 5 — Capital Expenditures — $2.6 million ↓
• CIPO Revolving Fund — $8.8 million ↓

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

2.1.1 Grants and Contributions (Vote 10 and Statutory) — $90.6 million ↓

The authority for Vote 10 — Grants and Contributions decreased by a total of $93.4 million compared to the same quarter end of last fiscal year, mainly due to the following factors:

• The completion of the Bombardier CSeries program in 2013–14, resulting in a decrease of $55.4 million in 2014–15.
• The reduction of contributions funding under the Strategic Aerospace and Defence Initiative ($41.6 million) and Technology Partnerships Canada ($4.5 million) is mainly due to the end of temporary resources approved as part of Budget 2009 for the aerospace industry.
• A decrease resulting from a timing difference for the collection of Technology Partnerships Canada repayable contributions. An amount of $22.1 million was accessed via Supplementary Estimates A last year while this year's amount is planned to be accessed through Supplementary Estimates B.
• Reductions in funding of approximately $8.6 million relate to programs that are winding down such as the Structured Financing Facility program and contributions to the Ivey Centre for Health Innovation and Leadership.
• The Automotive Innovation Fund received an additional $48.6 million through Budget 2012, bringing its total funding for 2014–15 to $64.6 million. This represents an increase of $19.4 million over the previous year.
• New funding has also been received ($18.2 million) for the Industrial Research and Development Program, the Technology Demonstration Program and the Economic Development Initiative.
• The Canada Foundation for Innovation's budget increased by $1.2 million over the previous year to align with the funding profile approved following Budget 2012.

Statutory grants and contributions increased by $2.8 million over the first quarter of 2013–14, mainly due to:

• The Canadian Youth Business Foundation, approved in the 2013 Budget Implementation Act, received $9 million in both 2013–14 and 2014–15. However, in 2013–14, the funding was not approved in time for the first quarter.
• The Genome program increased by $6.6 million in line with its approved funding profile.
• A $12.8 million reduction under the Canada Small Business Financing Act based on a decreased forecasted use of the program by lenders.

2.1.2 Vote 1 — Net Operating Expenditures — $6.4 million ↓

Authorities available for use in Vote 1 — Net Operating Expenditures decreased by a total of $6.4 million compared to the same quarter end of last year, mostly due to the implementation of the last cost containment measures from Budget 2012 ($9.3 million). In addition, $1.5 million was transferred to Shared Services Canada for the management of end user devices for the department while another $1.8 million was transferred to FedDev Ontario for the Canada Business Network (Ontario). These reductions are partially offset by $3.8 million received for collective agreement increases and by lower vote transfers for capital requirements ($2.6 million).

2.1.3 Vote 5 — Capital Expenditures — $2.6 million ↓

Authorities available for use in Vote 5 — Capital Expenditures decreased by a total of $2.6 million compared to the first quarter of last year. The decrease relates mainly to the reduced requirement for the National Accommodation Strategy initiative ($1.9 million) and the Spectrum Application Modernization project ($0.9 million).

2.1.4 CIPO Revolving Fund — $8.8 million ↓

CIPO is planning to draw down $8.8 million less on its 2014–15 authority than in the previous year due primarily to an increase of $5.1 million in its revenue forecasts as well as a decrease of $3.7 million in employee termination liability for those employees who elected for an early cash-out of their accumulated severance pay.

2.1.5 Table 1: Departmental Budgetary Expenditures by Standard Object

Table 1: Departmental Budgetary Expenditures by Standard Object displays initial expenditure plans. These plans are subject to change during the fiscal year, particularly when deferred funding is to be accessed and included later in the fall.

Major variances in standard objects between the two years are mainly attributable to the changes in Grants and Contributions programs as described in section 2.1.1.

2.2 Authorities used and actual expenditures

Graph 2: Comparison of expenditures as of June 30, 2014 and June 30, 2013 (in millions $)

* Includes Vote 10 and Statutory Grants and Contribution expenditures.

** Includes Canadian Intellectual Property Office (CIPO) Revolving Fund.

Expenditures in the first quarter of 2014–15 increased by $7.4 million, compared with the same quarter last year primarily in the CIPO revolving fund.

First quarter significant change summary:

• Grants and Contributions (Vote 10 and Statutory) — $5.0 million ↓
• Vote 1 — Net Operating Expenditures — $5.7 million ↓
• Vote 5 — Capital Expenditures — $0.7 million ↓
• CIPO Revolving Fund — $19.5 million ↑

2.2.1 Grants and Contributions (Vote 10 and Statutory) $5.0 million ↓

In the first quarter of 2014–15, there was a $5 million net decrease in Grants and Contributions expenditures, compared with the same quarter in 2013–14. Details of the significant variances that occurred are as follows:

• $32.1 million decrease attributable to the Bombardier CSeries program having been completed in 2013–14.
• $18.5 million increase in various programs, including payments to Genome Canada and the Canada Foundation for Innovation. These represent timing differences for programs year-over-year. To reduce the risk of overpayment, the department introduced payments to several programs in two installments rather than one time payments per fiscal year. In several cases, single payments normally made later in the fiscal year have now had a portion paid in the first quarter of this fiscal year.
• Minor timing differences and cash flow requirements of existing contribution agreements amount to another $5.6 million in increased spending.
• $2.6 million increase in activity for the transfer payment programs under FedNor, a return to normal average levels after reduced activity in the 2013–14 fiscal year. This was due to some delays in the anticipated launch of two FedNor initiatives: the Targeted Manufacturing Initiative for Northern Ontario and Fednor's deployment of broadband support.

2.2.2 Vote 1 — Net Operating Expenditures — $5.7 million ↓

In the first quarter of 2014–15, there was a $5.7 million net decrease in authorities used for Vote 1 — Net Operating Expenditures. As shown in Table 1: Departmental Budgetary Expenditures by Standard Object, this variance is primarily due to the following factors:

• A $16 million decrease in severance payouts, as most were made in 2013–14.
• A $12 million increase in expenditures in the "other subsidies and payments" standard object due to a one-time charge against the department's operating vote for a transition payment to existing employees which will allow the Government to change its pay system to a "pay in arrears" industry standard.
• A $1.7 million decrease in net expenditures related to increased reported respendable revenues generated primarily by the Competition Bureau.

2.2.3 Vote 5 — Capital Expenditures — $0.7 million ↓

The reduction in spending under the capital vote is consistent with the reduced requirements explained in section 2.1.3.

2.2.4 Canadian Intellectual Property Office (CIPO) Revolving Fund — $19.5 million ↑

A system issue in the first quarter of this fiscal year has understated the cash receipts against CIPO's spending authority. The issue has understated CIPO's recorded revenue for this quarter by approximately $11.7 million and has resulted in an overstatement in net revolving fund expenditures for the first quarter of 2014–15. Increases in spending for the quarter are attributable to a transition payment to existing employees for pay in arrears ($2.8 million) and a transfer of employees to be recovered in future periods ($2.2 million).

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

There have been no significant changes in relation to operations, personnel and programs over the last quarter.

4. Risks and uncertainties

The Department continues to refine and strengthen its existing stewardship and oversight practices to monitor program funding and expenditures.

Ongoing controls and accurate monitoring are particularly important to Industry Canada because of the Department's funding model, whereby a portion of the operating budget comes from royalty repayments from legacy contribution programs. Because these royalties fluctuate with the sales of aging product lines of individual companies and the overall health of the economy, the Department must be prepared to mitigate the impact of unpredictable changes to its funding level.

The Department has completed an assessment of the impact of the operating budget freeze announced in the October 2013 Speech from the Throne, and will address the requirements largely through attrition. It is expected this approach will fully mitigate the related risks. Any change in this regard will be addressed in future editions of the Department's Quarterly Financial Report.

5. Budget 2012 Implementation

This section provides an overview of the savings measures announced in Budget 2012 that have been implemented by Industry Canada in order to refocus government and programs, make it easier for Canadians and business to deal with their government, and modernize and reduce the back office.

Industry Canada has implemented all reduction measures stemming from Budget 2012, and no further measures will be undertaken in 2014–15. Details regarding Industry Canada's Budget 2012 reductions are available online.

Industry Canada's prudent financial management, focus on long-term financial affordability, and commitment to ensuring the continued delivery of the Department's mandate and core activities have been key to meeting the required targets.

There are no financial risks or uncertainties related to these savings.

The printed version is signed by:

Industry Canada
For the quarter ended June 30, 2014

Statement of Authorities (unaudited)

Industry Canada
For the quarter ended June 30, 2014

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