Quarterly Financial Report—Quarter ended June 30, 2020

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 2020–21.

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 increas ed 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. The accompanying Statement of Authorities includes the department's spending authorities granted by Parliament, and those used by the department consistent with the Main Estimates and Supplementary Estimates (as applicable) for the 2020–21 fiscal year. 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 2020–21 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 deemed 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

The variances in authorities available for use in 2020–21, versus 2019–20, primarily result from variances in the Grants and Contributions authorities and are attributable to the increases in funding for the Strategic Innovation Fund, the Innovation Superclusters Initiative, and the Canadian Foundation for Sustainable Development Technology. These amounts were largely offset by the winding down of Post-Secondary Institutions Strategic Investment Fund (PSI-SIF) as well as the reduced supply of Main Estimates. Variances in authorities used are mainly due to timing differences with regard to payments between periods for programs such as the Innovation Superclusters Initiative, Futurepreneur Canada and Canada Foundation for Sustainable Development Technology, as well as higher spending for the Community Futures program.

2.1 Authorities available for use and planned expenditures

ISED's current total authorities available for use of $3.0 billion at the end of the first quarter in 2020–21, is $70.4 million higher than the same period in 2019–20. This is illustrated in Graph 1 below, in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object (Table 1). However, it is important to note that $637.5 million of the Main Estimates was withheld as ISED is only expected to receive full supply for the 2020–21 Main Estimates in December 2020 due to the COVID-19 pandemic and limited sessions in the spring for Parliament to study supply. As a result, please note the reference to the funding decreases due to the reduced supply in the variance explanations.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of June 30, 2020 and June 30, 2019

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

The overall increase includes:

• Grants and Contributions (Vote 10 and Statutory): $103.9 million
• Net Operating Expenditures (Vote 1): $25.7 million
• Capital Expenditures (Vote 5): $1.8 million
• Other: $6.0 million
  • CIPO Revolving Fund: $6.1 million
  • Employee Benefit Plan (EBP): $0.3 million
  • Other: $0.2 million

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

2.1.1 Highlights of Changes by Authority (2020–21 compared to 2019–20)

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

2.1.2 Highlights of Changes in Planned Expenditures (2020–21 compared to 2019–20)

Table 1: Departmental Budgetary Expenditures by Standard Object displays initial planned expenditure plans. 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 first quarter of 2020–21 have increased by $142.5 million 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 occurred primarily in Grants and Contributions (Vote 10) and are largely attributable to timing variances of payments, as well as higher spending requirements.

Graph 2: Comparison of Net First Quarter Authorities used and expended as at June 30, 2020 and June 30, 2019

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

By category, the authorities used and expended compared to the same time last year has changed as follows:

• Grants and Contributions (Vote 10 and Statutory): $133.3 million
• Net Operating Expenditures (Vote 1): $4.5 million
• Capital Expenditures (Vote 5): $0.1 million
• Other: $4.6 million
  • CIPO Revolving Fund: $4.4 million
  • Other minor items including EBP: $0.2 million

Section 2.2.1 provides a detailed breakdown of the changes in authorities used in the First Quarter.

2.2.1 Highlights of Changes in Authorities used for the First Quarter

The following tables highlight, by authority, the larger changes in net expenditures:

2.2.2 Highlights of Changes in Actual Expenditures (2020–21 compared to 2019–2020)

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

The COVID-19 pandemic has had an unprecedented impact on global health and economic well-being. The unforeseen and sudden use of lockdown measures and the shutdown of borders, intended to limit the spread of COVID-19, had immediate consequences on workforce availability, supply chains and trade. Although they reduced the spread of the virus, these measures also led to a slowdown of economic activity across Canada, increasing unemployment.

Through the Government of Canada's COVID-19 Economic Response Plan, ISED has swiftly adjusted its programming to support measures aimed at protecting the health of Canadians and stabilizing the Canadian economy. These measures include investing in retooling industry to support the manufacturing of personal protective equipment, research in medical counter measures to identify, fight and prevent COVID-19, and the expansion of Canada's digital infrastructure to ensure that Canadians can make the most of the digital economy no matter where they live. For a more detailed breakdown on program and initiative funding due to COVID-19, please refer to Section 2.1.1.

With regard to operations, there has been significant shift to telework to encourage social distancing and to limit the spread of the virus. ISED has been very effective in ensuring sufficient access to virtual private networks (VPN) to allow their employees to continue with regular work activities and deliver on their work objectives. In particular, ISED has increased the number of VPN connections from 5,000 to 10,000 to accommodate the department's workforce of more than 5,000 employees. The department has also provided authorized connections to non-public servants when required.

ISED has also undertaken the following initiatives to manage the impact of COVID-19:

• Within the department, sectors have quickly and efficiently assessed and shifted their workforce to address COVID-19 impacts and workloads;
• A call-out was distributed to identify staff available to work on COVID-19 issues;
• A work assessment was conducted to ensure that employees experiencing a reduction in workload were reassigned to other areas;
• A talent bank of executive and non-executive applicants was established to identify resources that could be quickly and efficiently shifted to new priorities and opportunities; and
• A number of executives were reassigned, some to positions outside of the department, to assist the government in managing the pandemic.

4. Financial risks and uncertainties

The risk landscape has shifted across the globe as COVID-19 leads to greater uncertainty. Amid this uncertainty, ISED's priorities shifted to support the Government's response to the pandemic. ISED undertook decisive and swift action, including key investments for research and retooling industry, and increasing the flexibility of funding instruments.

In normal times, each investment and decision brings a potential for exposure to financial risk. During this time of a worldwide pandemic, that exposure tends to increase given the high level of uncertainty in the operating environment. For example, by their very nature, research-based investments may have greater uncertainty related to the timeliness of a return on the investment.

It is important to note that the majority of new Grant and Contribution funding approved for the response to COVD-19 is being provided through existing programs that have well-functioning internal controls and an established history of tracking and reporting on the results achieved. This has significantly mitigated the increased risk associated with the rapid delivery of new programming during a time of crisis.

Changes in the economy, some a normal occurrence and others caused by COVID-19, have also contributed to uncertainty related to revenue projections for both the Competition Bureau and the Canadian Intellectual Property Office. A potential decrease in revenue is being closely monitored and has been reflected in departmental forecasts.

ISED manages these financial risks effectively through a range of approaches and measures, including rigorous governance and review mechanisms.

The printed version was signed by:

Simon Kennedy
Deputy Minister

August 20, 2020
Date

Douglas McConnachie,
Assistant Deputy Minister/Chief Financial Officer

August 20, 2020
Date