Quarterly Financial Report—Quarter ended December 31, 2019

From: Innovation, Science and Economic Development Canada

1. Introduction

This Quarterly Financial Report (QFR) has been prepared by management as required by section 65.1 of the Financial Administration Act, in the form and manner prescribed by the Treasury Board. This document should be read in conjunction with the Main Estimates and Supplementary Estimates for fiscal year 2019–20.

1.1 Our organization

Innovation, Science and Economic Development Canada (ISED) works with Canadians in all areas of the economy and in all parts of the country to improve conditions for investment, enhance Canada's innovation performance, increase Canada's share of global trade and build a fair, efficient and competitive marketplace.

ISED helps Canadian businesses grow, innovate and expand so they can create good-quality jobs and wealth for Canadians. It also supports science research and the integration of scientific considerations into investment and policy choices. The Department helps small businesses grow through trade and innovation and promotes increased tourism in Canada. The Department also works to position Canada as a global centre for innovation where investments support clean and inclusive growth, the middle class prospers through more job opportunities and companies become global leaders.

ISED's efforts focus on improving conditions for investment, supporting science, helping small and medium-sized businesses grow, building capacity for clean and sustainable technologies and processes, increasing Canada's share of global trade, promoting tourism, and building an efficient and competitive marketplace.

A summary description of Innovation, Science and Economic Development Canada's core responsibilities can be found in Part II of the Estimates.

1.2 Basis of presentation

The authority of Parliament is required before moneys can be spent by the government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation for specific purposes. This report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

As part of the departmental performance reporting process, ISED prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian Generally Accepted Accounting Principles for the public sector. The spending authorities are voted by Parliament on an expenditure basis. Therefore, management has prepared this report using an expenditure basis of accounting.

The accompanying Statement of Authorities includes ISED's spending authorities granted by Parliament, which includes the 2019–20 Main and Supplementary Estimates as well as any adjustments, warrants and transfers.

This report has not been subject to an external audit or review. However, it has been reviewed by ISED's Departmental Audit Committee (DAC) in accordance with Treasury Board guidance. No material misstatements or omissions have been identified.

In the event that Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is considered an appropriation for the fiscal year in which it is issued.

1.3. General Descriptions

The following descriptions are referred to throughout the report:

• Authority: Approvals from Parliament to spend up to a specific amount.
• Operating (Vote 1): Amount approved for the fiscal year for the Department to spend on salary and operating expenditures.
• Capital (Vote 5): Amount approved for the fiscal year for the Department to spend on capital purchases or for the construction of assets.
• Grants and Contributions (Vote 10 and Statutory):
  • Vote 10: Amount approved for the fiscal year for the Department to provide Grants and Contribution (G&C) funding to prospective recipients.
  • Statutory: Amount approved through an existing Act of Parliament where additional annual approvals are not required by the Department to access G&C funding for recipients.
• Operating and Capital Carry Forward: Eligible funds lapsed in the previous fiscal year brought forward to the following year.
• Employee Benefit Plan (EBP): The department's contribution to public service employee benefit plans.
• Vote Netted Revenue (VNR): Authority to apply revenues earned by the organization to cover costs incurred for specific activities by that organization.
• Standard Object (SO): Classification or coding of transactions to permit the reporting of information about the nature of transactions in the Estimates and Public Accounts (i.e. personnel, professional and special services, and transfer payments).

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

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

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

2.1 Authorities available for use and planned expenditures

ISED's total authorities available for use of $3.0 billion at the end of the third quarter in 2019–20, amounts to a $149.4 million decrease over the same period in 2018–19. This is illustrated in Graph 1 below, in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of December 31, 2019 and December 31, 2018

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

*Includes planned Vote 10 and Statutory Grants and Contributions expenditures
**Includes Canadian Intellectual Property Office (CIPO) Revolving Fund
***Amounts adjusted from prior year publication to include frozen funding

The overall change in authorities includes:

• Grants and Contributions (Vote 10 and Statutory): $221.8 million
• Net Operating Expenditures (Vote 1): $52.0 million
• Capital Expenditures (Vote 5): $1.9 million
• Other: $18.6 million
  • CIPO Revolving Fund: $15.9 million
  • Employee Benefit Plan (EBP): $2.8 million
  • Other: $0.1 million

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

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

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

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

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

2.2 Authorities used and actual expenditures

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

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

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

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

• Grants and Contributions (Vote 10 and Statutory):
  • Quarterly — $16.9 million
  • Year-to-date — $160.2 million
• Net Operating Expenditures (Vote 1):
  • Quarterly — $14.0 million
  • Year-to-date — $34.8 million
• Capital Expenditures (Vote 5):
  • Quarterly — $1.2 million
  • Year-to-date — $1.1 million
• Other:
  • CIPO Revolving Fund:
    • Quarterly — $4.1 million
    • Year-to-date — $0.3 million
  • EBP:
    • Quarterly — $0.6 million
    • Year-to-date — $1.9 million

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

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

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

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

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

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

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

4. Financial risks and uncertainties

ISED recognizes that its success in fulfilling its extensive mandate includes effective and integrated risk management (IRM). IRM enables the Department to identify and respond to uncertainty by using risk-based information to support decision-making and resource allocation, which support the achievement of departmental results.

The identification of risks is key to effective IRM. Among the 2019–20 enterprise risks, two finance-related risks were identified:

• Return on Investment: There might be insufficient time to fully realize the return on investment on ISED's grants and contributions portfolio, especially as it relates to new programming approaches. The return on those investments is less certain in an innovation economy where experimentation naturally translates into less certainty. Additionally, scientific endeavors tend to operate on longer timelines that might fail to demonstrate a return within the fixed periods generally defined within ISED contribution agreements.
• Organizational Agility: ISED might lack the agility to continually adapt its business model and mobilize people and resources to address shifting priorities. In an environment where limited resources support an expanding array of programs and priorities, the ability of the Department to effectively review and modify these programs and priorities is the key to maintaining operations.

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

Approved by:

Simon Kennedy
Deputy Minister

February 26, 2020
Date

Douglas McConnachie
Assistant Deputy Minister/Chief Financial Officer

February 21, 2020
Date