Quarterly Financial Report—Quarter Ended June 30, 2015 Revised

Erratum

Date: September 21, 2015

Location: Statement of Authorities (unaudited), fiscal year 2015-16 (in thousands of dollars):

Used during the quarter ended June 30, 2015, Revolving Fund Net expenditures.

Revision: "Revolving Fund Net expenditures $4,180" replaces "Revolving Fund Net expenditures ($4,180)".

Location: Statement of Authorities (unaudited), fiscal year 2014-15 (in thousands of dollars):

Total available for use for the year ending March 31, 2015.

Revision: "Canadian Youth Business Foundation $9,000 was inserted in the Grants and Contributions section. The totals remain the same.

Rationale for the revision: Transcription error occurred during the HTML conversion process.

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

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 2015-16.

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 2015-16 fiscal year.

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 2015-16 are largely related to significant funding increases in the department's Grants and Contributions Vote.

2.1 Authorities available for use and planned expenditures

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2015 and June 30, 2014

* 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 of $1.3 billion in 2015-16 reflects a $190 million increase in comparison with the same quarter ended in 2014-15, as illustrated in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. This increase is primarily related to:

• Grants and Contributions (Vote 10 and Statutory) – $171.2 million ↑
• Vote 1 – Operating Expenditures – $13.5 million ↑
• Vote 5 – Capital Expenditures – $4.1 million ↑

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

2.1.1 Grants and Contributions (Vote 10 and Statutory) – $171.2 million ↑

Authorities available for use in Vote 10 – Grants and Contributions increased by a total of $173.2 million compared to the same quarter of last fiscal year. The primary causes of the increase are explained below:

• $149.6 million of new funding for 2015-16, as per Budget 2014 and 2015:
  • $76 million for the new Connecting Canadians program, to extend high-speed Internet service to households in rural and remote regions of the country;
  • $30 million for the Automotive Innovation Fund to support research and development projects in the automotive sector;
  • $21.9 million for the Technology Demonstration Program, of which $10 million was funded internally;
  • $9.5 million for Youth Internships at Community Access Sites;
  • $7.6 million for the new Automotive Supplier Innovation Program; and,
  • $4.6 million of additional funding following the renewal of three programs (Futurpreneur Canada, Council of Canadian Academies and CANARIE Inc.).
• $27.9 million increase due to timing differences of program funding:
  • $12.2 million of funding for the Institute of Quantum Computing and the Computers for School program, accessed in the Main Estimates compared to funding received in Supplementary Estimates B (Supps B) in the third quarter last year.
  • $10.7 million net increase under the Strategic Aerospace and Defence Initiative (SADI) primarily due to the following:
    1. The access of $18.4 million in repayable contributions in the Main Estimates for the first quarter this year, compared to the third quarter last year;
    2. A $2 million reprofile of funds from the previous year; and
    3. A $10 million transfer to the Technology Demonstration Program, which partially offset the previously noted increases; and
  • $5 million for Mitacs received in the 2015-16 Main Estimates compared to $3 million received in Supps B last year.
• $6.1 million decrease in planned cash flow requirements as a result of changes in following programs:
  • $15 million decrease for Genome Canada; and
  • $8.9 million increase for the Canada Foundation for Innovation.

In addition, statutory grants and contributions decreased overall by $2 million when compared to the same quarter of last year.

2.1.2 Vote 1 – Net Operating Expenditures – $13.5 million ↑

Authorities available for use in Vote 1 – Net Operating Expenditures increased by a total of $13.5 million compared to the same quarter end of last year. This was primarily due to the timing difference in the access of funding from repayable contributions. The Department accessed $11.8 million of the total eligible $33 million in the first quarter of 2015-16 whereas the full amount was accessed in the third quarter of 2014-15 via Supps B.

An additional $3.8 million was also accessed through the 2015-16 Main Estimates (including $2.9 million of program funding for Connecting Canadians and a transfer of $0.9 million from PWGSC for the reimbursement of accommodation requirements) while in 2014-15 the funding was received in Supps B.

New funding of $1.4 million was received for projects related to Internal Trade, the Automotive Supplier Innovation Program, and Youth Internships at Community Access Sites.

The operating vote decreased by $3.5 million as funds were transferred from the operating vote to the capital vote in the Main Estimates to meet the requirements of capital projects.

2.1.3 Vote 5 – Capital Expenditures – $4.1 million ↑

Authorities available for use in Vote 5 – Capital Expenditures increased by a total of $4.1 million compared to the first quarter of last year. This is mainly attributable to the net funding increase of $3.5 million resulting from transfers between the operating and the capital vote to undertake various projects, including the modernization of the spectrum application management system, the upgrade of capital infrastructure on the CRC Campus, and the improvement of business intelligence and analytics capacity in the department.

In addition, new funding of $0.6 million was received for federal infrastructure projects this fiscal year, as part of Budget 2015, for CRC to improve accessibility of its campus main entrance and establish a data analytics centre.

2.1.4 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, and in particular when the deferred funding is accessed.

Major variances in standard objects between the two years are mainly explained by the changes in Grants and Contributions programs as mentioned in section 2.1.1.

Notable variances were also observed for Personnel expenditures. These are forecasted to be $10.6 million higher than 2014-15 due to additional funding for Connecting Canadians, collective agreements, and planned staffing at CIPO to strengthen its operational capacity and implement its IT/IP modernization strategies. The $6.1 million increase in Other subsidies and payments pertains to the timing of funding received in Supplementary Estimates for the reinvestment of receipts from repayable contributions to support operating requirements.

2.2 Authorities used and actual expenditures

Graph 2: Comparison of expenditures as of June 30, 2015 and June 30, 2014

* Includes Vote 10 and Statutory Grants and Contribution expenditures.

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

Expenditures in the first quarter of 2015-16 decreased by $4.7 million compared with the same quarter last year primarily due to changes in spending for Grants and Contributions programs, CIPO's revolving fund and Operating expenditures as follows:

• Grants and Contributions (Vote 10 and Statutory) – $27.2 million ↑
• Vote 1 – Net Operating Expenditures – $11.3 million ↓
• Vote 5 – Capital Expenditures – $0.6 million ↓
• CIPO Revolving Fund – $20.5 million ↓

2.2.1 Grants and Contributions (Vote 10 and Statutory) $27.2 million ↑

In the first quarter of 2015-16, there was a $27.2 million net increase in Grants and Contributions expenditures compared with the same quarter in 2014-15. Of note, to reduce the risk of overpayment, the department introduced payments to several programs in two installments rather than one-time payments per fiscal year. Timing variances are due to the ratio of payment based on risk and funding requirements.

Significant variances that occurred are as follows:

• A $43.9 million increase in spending due to timing variances of program funding explained above, specifically:
  • $52.6 million increase, primarily due to payments to the Canada Foundation for Innovation and SADI.
  • $8.7M decrease related to the Statutory Genome program.
• A $6 million increase attributable to the new Technology Demonstration Program, which started in 2015 with payments in the fourth quarter of 2014-15.
• A $4.7 million increase in spending for the transfer payment programs under FedNor due to the implementation of a new project risk model, which accelerated funding to projects based on their risk assessment, provision for advances, and detailed spending plans/forecasts.
• A $26.4 million decrease attributable to the CANARIE program having been completed in 2014-15. No payments have been made as of yet on the new CANARIE project, renewed as part of Budget 2015.
• A $2.5 million decrease in spending as a result of changes in cash flow requirements for existing contribution agreements.

2.2.2 Vote 1 – Net Operating Expenditures – $11.3 million ↓

In the first quarter of 2015-16, there was an $11.3 million net decrease in authorities used for Vote 1 – Net Operating Expenditures. As shown in the Table 1: Departmental budgetary expenditures by Standard Object, this variance is primarily due to the following:

• A $12 million decrease in expenditures in the "other subsidies and payments" standard object due to a one-time charge against the department's operating vote in 2014-15 for a transition payment to existing employees as a result of the Government's change to a "pay in arrears" industry standard pay system.

2.2.3 Vote 5 – Capital Expenditures – $0.6 million ↓

The reduction in spending is explained by delayed spending in the Spectrum Modernization project ($1.4 million) and the National Accommodation Strategy ($0.2 million), partially offset by increased spending for CRC initiatives ($0.9 million).

2.2.4 Canadian Intellectual Property Office (CIPO) Revolving Fund – $20.5 million ↓

In the first quarter of 2015-16, there was a net decrease of $20.5 million in authorities resulting from a $16.2 million increase in revenues and a $4.3 million decrease in expenditures. This variance is primarily due to the following factors:

• A $11.7 million increase in revenues due to the fact that they were understated in the first quarter of 2014-15;
• Higher revenues collected ($4 million) compared to the same quarter last year;
• A $2.8 million decrease in expenditures due to the "pay in arrears" transition payment incurred in May 2014; and,
• A $2.2 million decrease in expenditures related to the transfer of IT employees to CIO.

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.

Industry Canada continues to monitor the implementation of the operating budget freeze announced in the October 2013 Speech from the Throne, through a monthly financial forecasting exercise. The Department is addressing the requirements for reductions to internal spending largely through attrition. It is expected this approach will fully mitigate the related risks. Any changes in this regard will be addressed in future editions of the Department's QFR.

The printed version is signed by:

Industry Canada
For the quarter ended June 30, 2015

Statement of Authorities (unaudited)

Industry Canada
For the quarter ended June 30, 2015

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