Quarterly Financial Report—Quarter ended September 30, 2021

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 2021–22.

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.

As Canadians continue to face the global COVID-19 pandemic together, ISED is committed to fostering conditions for investment, enhancing Canadian innovation, and driving growth in key sectors to equip the department for new global challenges. ISED and its Portfolio partners will continue to work together to prepare the Canadian economy for the future through strategic actions and investments, including support for Canadian businesses as they adapt and grow in a digital economy.

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 2021–22 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 contains ISED’s spending authorities granted by Parliament, which includes the 2021–22 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.

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 2021–22, versus 2020–21, primarily result from a combination of increases in Grants and Contributions authorities attributable to new funding for various Budget initiatives, funding changes based on cash flow requirements of existing programs and decreases related to the winding down of some initiatives.

Variances in Q2 and year-to-date authorities used are mainly due to timing differences of payments and/or variances in cash flow requirements for programs such as Sustainable Development Technology Canada, Genome Canada and the Innovation Superclusters Initiative.

On August 12, 2021, the Federal Economic Development Initiative for Northern Ontario (FedNor) became a separate agency. As there was insufficient time and details to separate the financial data from ISED, the current year’s Q2 figures continue to include FedNor’s financial authorities and expenditures. This information is expected to be separated in the next QFR for the quarter ending on December 31, 2021.

2.1 Authorities available for use for the fiscal year and planned expenditures

ISED’s current total authorities of $4.8 billion that are available for use in 2021–22 are $1.8 billion higher than the same period in 2020–21. This is illustrated in Graph 1, in the Statement of Authorities and in Table 1: Departmental Budgetary Expenditures by Standard Object. It is important to note that part of this variance includes a timing variance for supply approvals in 2020–21 due to the COVID-19 pandemic—$637.5 million of the 2020–21 Main Estimates was only approved by the third quarter of fiscal year 2020-21.

Graph 1: Comparison of Total Net Budgetary Authorities Available for Use as of September 30, 2021 and September 30, 2020

The overall increase in total net budgetary Authorities available for use includes:

• Grants and Contributions (Vote 10 and Statutory): $1,557.3 million arrow up
• Net Operating Expenditures (Vote 1): $142.3 million arrow up
• Capital Expenditures (Vote 5): $43.3 million arrow up
• Other: $7.3 million arrow up
  • Employee Benefit Plan (EBP): $10.4 million arrow up
  • Canadian Intellectual Property Office (CIPO) Revolving Fund: $3.1 million arrow down

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

2.1.1 Highlights of Changes in Authorities Available for Use (2021–22 compared to 2020–21)

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 (2021–22 compared to 2020–21)

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 to date and actual expenditures

Authorities used and actual expenditures for the second quarter of 2021–22 and year-to-date have decreased by $103.5 million and $175.4 million respectively when compared to the same periods last year. (Graph 2: Statement of Authorities; Table 1: Departmental budgetary expenditures by Standard Object). The variances occurred primarily in Grants and Contributions (Vote 10) and are largely attributable to adjustments in the timing of payments and cash flow requirements.

Graph 2: Comparison of Net Second Quarter Authorities and Year-to-date Authorities used and expended as at September 30, 2021 and September 30, 2020

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

• Grants and Contributions (Vote 10 and Statutory):
  • Q2 - $130.4 million arrow down
  • YTD - $196.5 million arrow down
• Net Operating Expenditures (Vote 1):
  • Q2 - $17.8 million arrow up
  • YTD - $17.8 million arrow up
• Other:
  • CIPO Revolving Fund:
    • Q2 - $8.3 million arrow up
    • YTD - $1.8 million arrow up
  • Capital Expenditures (Vote 5)
    • Q2 - $0.2 million arrow down
    • YTD - $0.1 million arrow down
  • Other minor items including EBP:
    • Q2 - $0.9 million arrow up
    • YTD - $1.6 million arrow up

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

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

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 (2021–22 compared to 2020–21)

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

With the easing of COVID-19 restrictions and the vaccination rollout across the country, Canada is experiencing an increase in economic activity, resulting in a decrease in the unemployment rate. Given the increase in program activities, ISED’s program expenditures are expected to continue to rise moving forward. In the meantime, the department is also continuing to evaluate employees’ return to the workplace based, as the COVID-19 situation evolves.

In addition to funding received for initiatives in the Government of Canada's COVID-19 Economic Response Plan, ISED also received significant funding for new and existing grants and contributions. These programs continue to require ISED’s programming and operations to be adjusted to ensure that objectives are met in a prudent and timely manner. For a more detailed breakdown on significant program and initiative funding, as well as related expenditures, please refer to Section 2.1.1 and Section 2.2.1.

Effective August 12, 2021, the Department transferred the control and supervision of the Federal Economic Development Initiative for Northern Ontario (FedNor) to the new Federal Economic Development Agency for Northern Ontario. To minimize financial risk stemming from the creation of the new agency, financial resources are currently being managed as one entity until the financial transfer of authorities and expenditures is completed. For the purpose of this quarter’s report, figures related to FedNor are therefore included in ISED’s financial information.

4. Financial risks and uncertainties

As the COVID-19 pandemic evolves, the risk landscape has continued to shift in Canada with the arrival of variants of concern and with large government investments to help businesses recover. Amid the uncertainty around the ongoing pandemic, and following the recent federal election, ISED's priorities continue be supporting the Government's response to the pandemic and the economic recovery, including key investments in biomanufacturing, life science research and in industries hit hard by the pandemic.

There are risks associated with the rapid delivery of new and enhanced programming to ensure timely implementation of Budget 2021 initiatives and related commitments. As the majority of Grant and Contribution funding is being provided through existing programs with well-functioning internal controls, the department continues seek improvements to enhance those controls particularly in light of the new and increased investments at ISED.

From an internal management perspective, ISED will continue to develop clear mitigation actions towards these financial risks. Increased analysis and monitoring, more frequent discussions through governance committees, the review of ISED’s investment planning framework, the review of internal controls for financial management, and the continued work on fraud prevention and detection are just a few examples of mitigation actions to support the department’s sound stewardship of public funds.

Approved by: